The $100 Crack Spread, Explained for Owner-Operators

The crack spread sits near $100 a barrel. That is what turning crude into product costs, and why cheaper oil may not reach you.

Everybody watches the price of crude. Almost nobody watches the number that actually decides what you pay at the pump.

It is called the crack spread, and right now it sits near $100 a barrel.

What that number is

Crude oil is not something you can put in a tank. It has to be run through a refinery and turned into a finished product. The crack spread is what that step costs.

Andrew King, who directs the OOIDA Foundation, put it in one sentence: the issue is not just what a barrel of crude costs, it is what it costs to turn that crude into finished products.

Which leads to the part that matters to you: crude can start falling and the pump can stay where it is. If refining is the expensive step, a cheaper barrel does not reach your tank until that step gets cheaper too.

Where the number came from

On Wednesday, September 9, the national average sat at $5.942 a gallon, the highest AAA has ever recorded.

One note on that figure before you write it down: it is AAA's daily national average. It is not the same series as the weekly federal survey, and it is not the same series as the $5.85 record we reported on September 5. Three different measurements of the same fuel, all correct, none interchangeable. When you compare two fuel numbers, check they are measuring the same thing first.

Research out of Brown University found American consumers have spent 62% more on this fuel since the conflict with Iran began in February.

Why relief is not around the corner

Four things are stacked on top of each other, and none of them clear quickly.

Crude production is still below where it was. The federal Energy Information Administration's September outlook has output staying under pre-conflict averages, with constraints on traffic through the Strait of Hormuz running through the end of 2026. Brent is forecast to climb through year-end.

Refineries are already flat out. King's number: American refineries are running at nearly 98% utilization, and inventories still are not building the way they normally do this time of year. There is no spare capacity to bring online, because it is already online.

Exports are at record levels. Global refining capacity is tight, with disruptions involving China, Russia, Ukraine and Hormuz, so American product is going overseas.

And fall maintenance is coming. Refineries routinely take some operations offline in autumn. King expects that to put more pressure on inventories, not less.

Federal forecasters expect distillate inventories to hit their lowest level since 2003 next month.

What a dollar costs you

Here is the arithmetic nobody does out loud. Lewie Pugh, OOIDA's executive vice president, said it plainly: every dollar diesel goes up is more than $400 extra to fill the truck.

Not per month. Per fill.

And Pugh named the second half of the problem, which is worse than the first: on contract freight you cannot adjust your rate. It takes time for rates to catch up to fuel. In his words, truckers feel it first.

That is the whole squeeze. The cost moves today and the revenue moves in a quarter, and the gap comes out of your pocket in between. It landed on an industry that Pugh describes as coming out of the longest freight recession on record, right as things had started to turn.

One honest caveat

The same federal agency forecasting tight supply also forecasts a national average of $5.55 a gallon for the fourth quarter, which is below today.

Those two things are not a contradiction. King is talking about the near term and saying he would not expect a meaningful reversal; the EIA number is a three-month average, and a forecast rather than a measurement. Read it as: some easing is expected later, and nobody is promising it for this month.

What to do with this

Quote off today's number, not last quarter's. If your cost per mile still has a five-dollar diesel in it, every load you price this week is priced wrong.

Look at your fuel surcharge language before your next contract renewal, not after. The lag Pugh describes is written into those clauses, and the length of the lag is negotiable.

And go after the gallons you can actually control. Idling, tire pressure and alignment are not exciting, but they are the only line in this whole story you get a vote on.

Alignment and suspension work is what keeps those gallons from leaking out on the road. We do heavy truck inspection and repair in Houston, Dallas and Monterrey: thetrucksavers.com.

Reference: Fuel cost relief unlikely for some time — Land Line Media