The benchmark diesel price used for most fuel surcharges has fallen for the 12th time in 13 weeks, dropping 9 cents per gallon to $4.578/g effective Monday, according to the Department of Energy/Energy Information Administration. Yet the most striking feature of the current oil market is the extreme divergence between crude and refined products, as measured by crack spreads.
Crack Spreads at Historic Extremes
The 3:2:1 crack spread — which takes the price of three barrels of Brent or WTI crude and subtracts the combined price of two barrels of RBOB gasoline and one barrel of ultra low sulfur diesel — has surged to 70-75% of the value of a barrel of crude in recent days, according to the FreightWaves report. For context, the spread was approximately 45% at the start of June and about 27% when 2026 began.
Crude on the CME commodity exchange settled at $77.08/barrel on June 23, falling to $71.99/b on Monday — a decline of roughly 7%. Meanwhile, ultra low sulfur diesel on the CME settled at $3.1762/gallon on June 23, rising to $3.2984/g on Monday. The inverse movement of these two prices has driven crack spreads to levels that analysts describe as bizarre.
Supply Drivers: Strait of Hormuz and Product Markets
The primary catalyst for the crude price decline has been the partial reopening of the Strait of Hormuz, which has unleashed large quantities of crude onto the global market, the report noted. However, that sudden influx of crude does not immediately translate into refined products like diesel and gasoline. Inventories of these products have been run down globally to prevent prices from soaring higher than anticipated when the war between Iran and the U.S./Israel alliance began.
Demand-Side Intelligence: China's Role
Amrita Sen, director of market intelligence at Energy Aspects, said in a CNBC interview that there has been too much focus on the crude number as a sign that the market is headed into a period of prolonged weakness. Sen pointed out that one reason crude prices did not soar as much as expected after the war began was China's role in slowing imports and capping the market by drawing down inventories.
"It's not demand that's off, it's (Chinese) crude imports that are down," Sen said. "Our data shows that China has been able to run down that inventory for a good four months now, and now they're starting to see some tightness."
Dan Pickering of Pickering Energy Partners highlighted four reasons for the downward trend in crude prices, which saw global benchmark Brent drop from about $93/barrel a month ago to about $72/b on Monday on the CME. According to the FreightWaves report, Pickering cited: "The US appears unwilling to return to sustained kinetic actions against Iran; more sup..." (the source text was truncated).
Retail Diesel Price Disparity
On the street, retail diesel prices show significant variation across data sources, reflecting volatile conditions:
| Indicator | Price (per gallon) | Notes |
|---|---|---|
| DOE/EIA weekly average | $4.578 | Down 9 cents, 12th decline in 13 weeks |
| AAA average (Tuesday) | $4.765 | Up less than 1 cent from prior day, first increase in nearly a month |
| DTS.USA (SONAR) | $4.81 | As of Tuesday |
Outlook: An Unsustainable Divergence
The unprecedented crack spread levels have led to a general consensus that something must give, according to the report. Either crude prices must fall further to normalize the spread, or product prices need to decline. Sen argued that observers looking at lower headline crude prices are missing the underlying tightness in product markets. With China now starting to see inventory tightness after four months of draws, and the Strait of Hormuz reopening adding crude supply, the next weeks will be critical for the trajectory of both crude and diesel prices. Any further decline in crude would widen crack spreads further unless product prices follow suit, putting refiners and fuel buyers in a complex position.
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