Oil refiners worldwide are reaping record profits as hundreds of millions of barrels flood the market after the reopening of the Strait of Hormuz, but the windfall won't last — and the fragile ceasefire that made it possible appears to be unraveling. The benchmark U.S. 3-2-1 crack spread, a key measure of refining profitability, recently climbed above $60 a barrel, the highest level on record. Refining margins in Asia and Europe have also risen sharply.
The surge came after the U.S. and Iran signed an interim ceasefire agreement on June 17, ending a four-month conflict that choked off one of the world's most critical energy arteries. But President Donald Trump said the memorandum of understanding was "over," adding he didn't want to engage with Tehran. Iran's Revolutionary Guards responded by targeting U.S. military bases in Bahrain and Kuwait following American strikes on Iran and the revocation of a license allowing the country to sell oil. The whiplash has sent oil prices up more than 5% and gold tumbling as markets brace for renewed disruption.
The Windfall and the Glut
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 remain well below their pre-war average of around 18 million bpd, but the sudden release of large volumes has created a temporary glut.
Global benchmark 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, leading to 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 facing questions about demand growth.
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 — now in its fourth year. 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 a similar 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 has tightened further following a steep decline in Russian diesel exports caused by repeated Ukrainian drone attacks on Russian refineries.
Markets on Edge
The spread between U.S. benchmark West Texas Intermediate crude prices and the 3-2-1 crack spread is currently at its narrowest level in around a decade, excluding a brief period during the COVID-19 pandemic when WTI collapsed into negative territory. Historically, such a relationship is difficult to sustain. Strong fuel demand usually translates into 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 remain robust for several months. The most likely outcome is that crude prices will rise as the mini-glut fades and stored barrels are absorbed by the market in the next few months, gradually eroding refiners' exceptional margins and bringing profitability back toward more normal levels.
Gold prices fell more than 1% after Trump's remarks, with spot gold dropping 1.02% to $4,063.67 per ounce by 0850 GMT, after hitting its lowest since July 2 earlier in the session. U.S. gold futures for August delivery shed 1.97% to $4,074.80/oz. 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.
Why This Matters:
The collapse of the U.S.-Iran ceasefire after barely three weeks exposes the fragility of any diplomatic resolution in the Gulf — and the human cost of that failure extends far beyond oil traders and refinery margins. Energy markets are a barometer of geopolitical stability, and the whipsaw from blockade to glut to renewed military strikes reflects a broader pattern: short-term deals that paper over fundamental conflicts without addressing them. Civilians across the region — in Iran, in the Gulf states hosting U.S. bases, and in countries dependent on stable energy supplies — are left vulnerable to the next escalation. The temporary windfall for refiners is a market anomaly born of crisis, not a sign of recovery. If the conflict reignites, the humanitarian toll will be measured not just in military casualties but in the economic shocks that ripple through global fuel prices, inflation, and the cost of basic goods for millions of people far from the Strait of Hormuz.