Oil refiners around the world have seen profits surge after the reopening of the Strait of Hormuz, while the wider market absorbs the latest round of state violence, ceasefire theater and price shocks that ordinary people don’t get to vote on. The benchmark U.S. 3-2-1 crack spread climbed above $60 a barrel, the highest level on record, as Gulf crude that had been stranded during the blockade rushed back into circulation and sent refining margins sharply higher in Asia and Europe too.
The State Monopoly Moves the Market
The shift followed the U.S. and Iran signing an interim ceasefire agreement on June 17. Only last month, crude markets were dealing with an extreme supply shortage caused by the closure of the Strait of Hormuz. Now the market is being flooded by hundreds of millions of barrels that had been trapped in the Gulf during the blockade. Total Middle East crude exports, including volumes shipped through ports in Saudi Arabia and the United Arab Emirates that bypass Hormuz, rose to 12.35 million barrels per day in June from less than 8 million bpd in May, according to Kpler data. July exports are expected to reach 12.5 million bpd, Kpler estimates. Regional exports are still well below their pre-war average of around 18 million bpd, but the sudden release of crude has created a temporary glut. The people living under these state decisions get volatility; the traders get a spreadsheet.
Brent crude futures have retreated to around $70 a barrel, roughly where they traded before the Iran conflict erupted on February 28 and $50 below the wartime peak. Gulf producers, particularly Saudi Arabia and the UAE, are competing for market share, pushing aggressive pricing and discounts on cargoes. Producers are releasing crude stored on tankers and in onshore facilities and bringing back oilfields that were shut during the conflict, sending a growing wave of supply into a global market already worried about demand growth. The machinery of state and corporate power doesn’t stop at borders. It just changes the price tag.
Refiners Win, Consumers Don’t
Refiners are also enjoying a windfall on the products side. Fuel prices remain remarkably strong, reflecting exceptionally tight inventories after months of disruption. In the U.S., gasoline refining margins have surged by more than 60% since early June to over $56 a barrel, approaching the record highs seen during the energy crisis of June 2022 following Russia's invasion of Ukraine. The strength comes as the U.S. enters the peak summer driving season with gasoline inventories for this time of year at their lowest level in more than a decade. Stocks were heavily depleted during the Iran war as U.S. refiners boosted exports to help compensate for shortages elsewhere in the world.
Diesel markets show the same pattern. Benchmark European diesel refining margins climbed above $50 a barrel as global inventories fell sharply in recent months, leaving consumers with very little buffer against supply disruptions. The outlook tightened further after a steep decline in Russian diesel exports caused by repeated Ukrainian drone attacks on Russian refineries. Different flags, same wreckage. The market just keeps tallying the damage.
The spread between U.S. benchmark West Texas Intermediate crude prices and the 3-2-1 crack spread is now at its narrowest level in around a decade, excluding a brief period during the COVID-19 pandemic when WTI collapsed into negative territory. Historically, that relationship is hard to sustain. Strong fuel demand usually means stronger crude demand as refiners compete for feedstock, pushing oil prices higher. For now, the outlook for fuel markets remains supportive, and demand for gasoline, diesel and jet fuel is likely to stay robust for several months. The most likely outcome is that crude prices will rise as the mini-glut fades and stored barrels are absorbed over the next few months, gradually eroding refiners' exceptional margins and bringing profitability back toward more normal levels.
Gold, Fear and the Next Round
Gold prices fell more than 1% after U.S. President Donald Trump said an interim peace deal with Iran was "over," sending oil prices higher and stoking fears of inflation and higher U.S. interest rates. Spot gold fell 1.02% to $4,063.67 per ounce by 0850 GMT, after dropping to its lowest since July 2 earlier in the session. U.S. gold futures for August delivery shed 1.97% to $4,074.80/oz.
Trump said the memorandum of understanding signed with Iran to end their four-month conflict in June was "over," adding he didn't want to engage with Tehran. Oil prices gained more than 5% after his comments. Earlier, Iran's Revolutionary Guards said they targeted U.S. military bases in Bahrain and Kuwait following U.S. strikes on Iran and the revocation of a license to allow the country to sell oil. The language of peace keeps collapsing into the language of force. The market notices immediately.
While gold is traditionally considered a safe haven, higher energy prices due to the war have raised concerns of inflation and higher interest rates, which would weigh on the non-yielding metal. Fed minutes, due at 1800 GMT, were being closely watched for clues on the future trajectory of interest rates. UBS analyst Giovanni Staunovo said, "Gold is likely to stay in a consolidation mode in the short term. We need to have further weakening of U.S. jobs data and lower U.S. inflation figures allowing Fed officials to sound less hawkish in respect to policy decisions, to see gold prices moving higher." Markets currently expected a 66% chance for a U.S. rate hike in September, compared with 62% on Tuesday, according to the CME FedWatch tool.
China's central bank on Tuesday reported its biggest monthly increase in gold reserves in more than two and a half years in June. Among other metals, spot silver fell 2.37% to $58.59 per ounce, platinum slipped nearly 3% to $1,591.88, and palladium dropped 3.9% to $1,227.18. The state system keeps moving the pieces. Traders call it volatility. Everyone else calls it the bill.