Diesel cracks hit record highs as USGC 3-2-1 spread averages $65 a barrel, 2.5x last year
Diesel margins are the story this week, and they cut both ways depending on where you sit. USGC refiners ran a 3-2-1 crack spread averaging $65 a barrel in August, more than two and a half times a year ago, per RBN Energy. If you buy diesel to move freight or fill a c-store canopy, that margin is coming out of your pocket.
The cause is supply, not demand. Russia banned diesel exports while Ukrainian drones keep hitting its refineries, and the renewed US-Iran strikes around the Strait of Hormuz have erased any near-term hope of more product flowing out of the Middle East. ING's Warren Patterson and Ewa Manthey called middle distillate cracks a record early this week.
Hormuz traffic
Tanker traffic through the strait is running well under normal. Kpler counted four crossings Tuesday against a ten-day average of 13. Windward reported four tankers entering, two of them in dark mode, and three exiting, one dark. Crude moved on it: WTI is at $91.05, up 0.92%, and Brent at $95.68, up 1.19%, with both benchmarks up roughly $5 since the fighting resumed. Every cent of that lands on your next rack price.
The RFS exemptions
EPA handed 29 small refineries relief from renewable-fuel blending, covering about 1.76 billion ethanol-equivalent gallons of RFS credits. Eighteen got full exemptions, 11 partial, three were denied and two ruled ineligible. Delek cheered it. Iowa's biofuel and farm groups did not, since the state produces 4.6 billion gallons of ethanol and every exempted gallon is demand that doesn't get blended. For blenders holding RINs, a pile of freed-up obligations could soften credit prices.
Refining capacity
Trump pressed oil executives to build new refineries to bring pump prices down. They aren't biting. Refiners are pulling record profits off exactly the tight supply that fat crack spread reflects, and a new plant costing billions would only compete that margin away. Energy Secretary Chris Wright said the same thing from a different angle in Caracas: the "biggest kink right now in gasoline and diesel prices is refining capacity." He also floated Venezuelan crude more than doubling under new deals with US and foreign companies, which would add barrels but does nothing for the distillate crunch downstream.
What to watch
Whether Hormuz traffic recovers off four tankers a day, and whether the diesel crack holds or eases if Russian export flows come back online. Watch RIN prices for a move on the exemption news. And watch whether any refiner actually announces new capacity, or whether the record margins just keep rolling.