Refined fuel markets have been on a tear since mid-October. Gasoline (RBOB) and distillates (HO) spiked on tight supplies, outages, and a diesel-driven squeeze, pushing the 3:2:1 crack spread to its 2025 high.
Margins have eased since, but they remain elevated — a clear sign that refining conditions are not normal.
This paper breaks down what drove the surge, why product prices have been so volatile despite subdued crude, and how these forces are shaping near-term refining margins and the broader energy market.
FIRST, WHAT CAUSED THE CRACK SPREAD TO WIDEN SHARPLY?
The 3:2:1 crack spread hit a 2025 high on 11/Nov, briefly rising above USD 30/barrel between 06/Nov–11/Nov. These levels were last seen in April 2024.
Gasoline and distillate prices were already facing upward pressure due to fears of supply disruptions from Ukrainian attacks on Russian crude and refining facilities.
The situation escalated on 16/Oct, when the U.S. announced sanctions on Rosneft and Lukoil. Together, these companies account for 37% of Russia’s diesel exports and 9% of global supply.
On the same day, the EU introduced new rules banning imports of fuels made from Russian crude. These rules will take effect on 21/Jan, closing a major loophole used by refiners in India and Turkey to export into the bloc. Both countries met roughly 13% of Europe’s diesel imports this year.
These developments created a real fear of a diesel shortage. The concern was amplified by the structural decline in Western refining capacity.
As Europe moves away from Russian crude and refined products, the market questions whether global refining capacity can keep up with demand.
INVENTORY SURPRISE AND PEACE TALKS SHIFTED THE MOOD
The crack spread widened largely on fears of a diesel shortage, which led to distillate prices climbing much faster than gasoline prices.
Global diesel supply was already weak, and Europe’s push to cut both direct and indirect dependence on Russian energy raised concerns about heavier imports and more spot buying. This implied tougher competition for diesel cargoes in a tight market.
The tone shifted on 19/Nov, when the EIA reported that gasoline and distillate inventories unexpectedly increased for the week ending 14/Nov, while crude stocks fell more than expected. This eased the fear of an acute diesel shortage.
Source: Investing.com
The larger-than-expected build in gasoline and distillate inventories for the week ending 21/Nov added further downward pressure on prices.
Source: Investing.com
Sentiment also softened on 20/Nov after the U.S. said it was helping facilitate a potential Russia–Ukraine peace deal. Product prices fell as diplomacy raised expectations that some wartime restrictions on Russian exports could eventually be eased.
THE CRACK SPREAD MAY HAVE COOLED, BUT THE PRESSURE BENEATH REMAINS
Despite the recent pullback in the crack spread, the fundamental picture has not changed. Europe remains structurally short of middle distillates, and seasonal maintenance, unplanned outages, and winter heating demand continue to tighten local supply.
A full Russia–Ukraine peace deal still looks unlikely, as Moscow’s demands remain unacceptable to Kyiv. This increases the chance of a frozen conflict and keeps Russian refineries at risk, both of which support refined product prices. With key issues unresolved and fighting ongoing, headlines from either side can continue to move markets sharply.
With Europe’s refining capacity shrinking and import dependence rising, the structural tightness in gasoline and distillates persists. These factors suggest that while the crack spread may remain volatile, its underlying support is intact.
HISTORICAL TRADE SETUP
Supply disruptions have hit an already tight diesel market at a time when crude prices remain subdued, creating strong support for higher refining margins. Europe’s rapid shift away from Russian crude and refined products has only added pressure.
With local refineries unable to meet demand, competition for diesel imports is rising, pushing distillate futures higher.
This backdrop created a profitable setup for a long HO–CL crack trade following the 16/Oct announcements of new EU import rules and U.S. sanctions on Rosneft and Lukoil.
Since the widening in the 3:2:1 crack spread has been driven primarily by stronger diesel prices, we use the simpler HO–CL spread in the following examples as it offers more direct exposure to the underlying driver.
Using CME contract sizes (42,000 gallons for NY Harbor ULSD and 1,000 barrels for WTI), a trader who went long HOZ2025 and short CLF2026 on 17/Oct, and closed on 19/Nov, would have made a gross mark-to-market gain of USD 15,317 per spread.
Long CME NY Harbor ULSD futures (HO)
Entry = USD 2.1348/gallon
Exit = USD 2.5521/gallon
PnL: 42,000 x (2.5521 – 2.1348) = USD 17,527
Short CME WTI futures (CL)
Entry = USD 57.03/barrel
Exit = USD 59.25/barrel
PnL: 1,000 x (57.03 – 59.25) = - USD 2,220
Spread PnL: (17,537 – 2,220) = USD 15,317
The HO-CL spread often unwinds sharply after a supply-driven rally, as higher margins boost refinery runs and demand cools. This was exactly what happened in February 2024.
After a tight diesel market flipped to oversupply, with rising stocks, stronger Asian exports, and softer demand, prices reversed in mid-February.
If a trader bought the HO-CL crack on 05/Feb/2024 and held it to 28/Feb/2024, they would have faced a gross mark-to-market loss of USD 6,004 per spread.
Long CME NY Harbor ULSD April 2024 futures (HOJ2024)
Entry = USD 2.6237/gallon
Exit = USD 2.6198/gallon
PnL: 42,000 x (2.6198 – 2.6237) = -USD 164
Short CME WTI April 2024 futures (CLJ2024)
Entry = USD 72.70/barrel
Exit = USD 78.54/barrel
PnL: 1,000 x (72.70 – 78.54) = - USD 5,840
Spread PnL: ((-164) + (- 5,840)) = - USD 6,004
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MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs at tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Ple
Margins have eased since, but they remain elevated — a clear sign that refining conditions are not normal.
This paper breaks down what drove the surge, why product prices have been so volatile despite subdued crude, and how these forces are shaping near-term refining margins and the broader energy market.
FIRST, WHAT CAUSED THE CRACK SPREAD TO WIDEN SHARPLY?
The 3:2:1 crack spread hit a 2025 high on 11/Nov, briefly rising above USD 30/barrel between 06/Nov–11/Nov. These levels were last seen in April 2024.
Gasoline and distillate prices were already facing upward pressure due to fears of supply disruptions from Ukrainian attacks on Russian crude and refining facilities.
The situation escalated on 16/Oct, when the U.S. announced sanctions on Rosneft and Lukoil. Together, these companies account for 37% of Russia’s diesel exports and 9% of global supply.
On the same day, the EU introduced new rules banning imports of fuels made from Russian crude. These rules will take effect on 21/Jan, closing a major loophole used by refiners in India and Turkey to export into the bloc. Both countries met roughly 13% of Europe’s diesel imports this year.
These developments created a real fear of a diesel shortage. The concern was amplified by the structural decline in Western refining capacity.
As Europe moves away from Russian crude and refined products, the market questions whether global refining capacity can keep up with demand.
INVENTORY SURPRISE AND PEACE TALKS SHIFTED THE MOOD
The crack spread widened largely on fears of a diesel shortage, which led to distillate prices climbing much faster than gasoline prices.
Global diesel supply was already weak, and Europe’s push to cut both direct and indirect dependence on Russian energy raised concerns about heavier imports and more spot buying. This implied tougher competition for diesel cargoes in a tight market.
The tone shifted on 19/Nov, when the EIA reported that gasoline and distillate inventories unexpectedly increased for the week ending 14/Nov, while crude stocks fell more than expected. This eased the fear of an acute diesel shortage.
Source: Investing.com
The larger-than-expected build in gasoline and distillate inventories for the week ending 21/Nov added further downward pressure on prices.
Source: Investing.com
Sentiment also softened on 20/Nov after the U.S. said it was helping facilitate a potential Russia–Ukraine peace deal. Product prices fell as diplomacy raised expectations that some wartime restrictions on Russian exports could eventually be eased.
THE CRACK SPREAD MAY HAVE COOLED, BUT THE PRESSURE BENEATH REMAINS
Despite the recent pullback in the crack spread, the fundamental picture has not changed. Europe remains structurally short of middle distillates, and seasonal maintenance, unplanned outages, and winter heating demand continue to tighten local supply.
A full Russia–Ukraine peace deal still looks unlikely, as Moscow’s demands remain unacceptable to Kyiv. This increases the chance of a frozen conflict and keeps Russian refineries at risk, both of which support refined product prices. With key issues unresolved and fighting ongoing, headlines from either side can continue to move markets sharply.
With Europe’s refining capacity shrinking and import dependence rising, the structural tightness in gasoline and distillates persists. These factors suggest that while the crack spread may remain volatile, its underlying support is intact.
HISTORICAL TRADE SETUP
Supply disruptions have hit an already tight diesel market at a time when crude prices remain subdued, creating strong support for higher refining margins. Europe’s rapid shift away from Russian crude and refined products has only added pressure.
With local refineries unable to meet demand, competition for diesel imports is rising, pushing distillate futures higher.
This backdrop created a profitable setup for a long HO–CL crack trade following the 16/Oct announcements of new EU import rules and U.S. sanctions on Rosneft and Lukoil.
Since the widening in the 3:2:1 crack spread has been driven primarily by stronger diesel prices, we use the simpler HO–CL spread in the following examples as it offers more direct exposure to the underlying driver.
Using CME contract sizes (42,000 gallons for NY Harbor ULSD and 1,000 barrels for WTI), a trader who went long HOZ2025 and short CLF2026 on 17/Oct, and closed on 19/Nov, would have made a gross mark-to-market gain of USD 15,317 per spread.
Long CME NY Harbor ULSD futures (HO)
Entry = USD 2.1348/gallon
Exit = USD 2.5521/gallon
PnL: 42,000 x (2.5521 – 2.1348) = USD 17,527
Short CME WTI futures (CL)
Entry = USD 57.03/barrel
Exit = USD 59.25/barrel
PnL: 1,000 x (57.03 – 59.25) = - USD 2,220
Spread PnL: (17,537 – 2,220) = USD 15,317
The HO-CL spread often unwinds sharply after a supply-driven rally, as higher margins boost refinery runs and demand cools. This was exactly what happened in February 2024.
After a tight diesel market flipped to oversupply, with rising stocks, stronger Asian exports, and softer demand, prices reversed in mid-February.
If a trader bought the HO-CL crack on 05/Feb/2024 and held it to 28/Feb/2024, they would have faced a gross mark-to-market loss of USD 6,004 per spread.
Long CME NY Harbor ULSD April 2024 futures (HOJ2024)
Entry = USD 2.6237/gallon
Exit = USD 2.6198/gallon
PnL: 42,000 x (2.6198 – 2.6237) = -USD 164
Short CME WTI April 2024 futures (CLJ2024)
Entry = USD 72.70/barrel
Exit = USD 78.54/barrel
PnL: 1,000 x (72.70 – 78.54) = - USD 5,840
Spread PnL: ((-164) + (- 5,840)) = - USD 6,004
This content is sponsored.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs at tradingview.com/cme.
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Ple
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Full Disclaimer - linktr.ee/mintfinance
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.