Gasoline and diesel prices have been rising again as the war in Iran drags on, with average U.S. gas prices sitting at $3.98 per gallon in the U.S. on Friday, up 10 cents in the past week.

The war is making crude oil more expensive, but the biggest cost-driver for gasoline appears to be a middleman in the process of getting that fuel to the station: refiners.

Companies like Valero, Phillips 66 and Marathon Petroleum are benefiting from record margins for turning crude oil into fuel. Their stocks are up 87%, 58% and 89% this year, respectively. The margins they're making probably won't return to normal levels for a while, experts say.

Refining margins are known as "crack spreads," a term that refers to the cost of "cracking" crude oil molecules into smaller and more valuable fuel molecules. A benchmark for the profitability of the refining industry is known as the 3-2-1 crack spread, which measures the margin for turning three barrels of oil into two barrels of gasoline and one of diesel.

On Thursday, the 3-2-1 spread hit $69.45, a record high, according to Denton Cinquegrana, chief oil analyst at OPIS, which is owned by the same parent company as Barron's. The average 3-2-1 spread from 2018 to 2025 was $23.19.

The majority of the cost of a gallon of gas is the cost of crude oil, with refining, taxes, distribution and marketing -- the piece that gas stations get -- making up the rest.

When gas prices spike, it can look like the stations are the biggest beneficiaries, because they're the ones consumers pay directly. But during the war, refiners have been getting a much larger piece of each dollar spent on gasoline and diesel than they did beforehand, and stations have been earning a smaller portion than usual.

As of March 2026, refining is making up 21% of the cost of each gallon of gas, versus an average of 15% between 2016 and 2025, according to the Energy Information Administration. By comparison, the gas stations are "not seeing good margins," because their prices haven't increased as fast as the cost of the fuel they're buying, Cinquegrana says.

There's no easy fix for the refining issue. It takes years to build a new refinery and not much new capacity is coming on anywhere in the world. Refineries in the Middle East and Asia have been running at reduced capacity because of a lack of oil to process due to the war in Iran, and Russian refineries have been knocked offline in Ukrainian attacks.

Russia even stopped exporting diesel to make sure there was enough around for its own citizens. Russia is also importing gasoline to make sure there's enough for domestic use, a very rare occurrence for one of the world's largest exporters. That leaves less gasoline and diesel available for people in other countries.

Refining margins are likely to stay elevated until the Russian and Iranian wars end or at least cool down. The stocks may start to drop beforehand though, particularly if drivers start to cut back on how much fuel they're using.

Write to Avi Salzman at avi.salzman@barrons.com

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July 17, 2026 17:56 ET (21:56 GMT)

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