Oil refiners surge as China fuel ban, Iran war squeeze supply
Diesel and jet fuel margins hit three-year highs as IEA approves record 400M barrel emergency stock release
US oil refiners posted sharp gains on Thursday as China's decision to suspend fuel exports and escalating conflict in the Middle East drove refining margins to multi-year highs. Valero Energy and Marathon Petroleum led the sector rally, jumping 6.5% and 5.3% respectively, as widening product spreads created lucrative opportunities for independent refiners.
The surge comes after China's National Development and Reform Commission issued directives around March 4 ordering major Chinese refineries to halt gasoline, diesel, and kerosene exports, according to sources familiar with the matter. The move, aimed at preserving domestic energy security, removes a significant supplier from Asian fuel markets as global supplies tighten dramatically.
Simultaneously, the conflict that erupted between the US, Israel, and Iran on February 28 has severely disrupted oil flows through the Strait of Hormuz, the critical waterway through which about 20 million barrels per day of crude and products passed in 2025. Export volumes through the strait have fallen to less than 10% of pre-conflict levels, forcing operators across the Persian Gulf to curtail production.
The dual supply shocks have sent crack spreads—the difference between crude oil and refined product prices—soaring. Diesel refining margins have surged to approximately $49 per barrel, while kerosene margins have spiked above $55 per barrel, marking three-year highs. Brent crude, which traded around $70 before the conflict, has now jumped to between $110 and $120 per barrel.
Chinese domestic fuel prices are already climbing, with wholesale diesel jumping 13.5% and 92-octane gasoline rising 11% in a single week between late February and early March as distributors build reserves. China, which imports 57% of its crude directly from the Middle East, is prioritizing its internal market balance rather than maintaining export volumes.
In response to the crisis, the International Energy Agency's 32 member countries unanimously approved a record 400 million barrel emergency oil stock release on March 11. The coordinated action, the sixth in IEA history, will see emergency reserves made available over timeframes appropriate to each country's circumstances.
While the emergency release may temper crude price volatility, analysts note that US refiners remain well-positioned to benefit from the structural supply-demand imbalance in refined products. The removal of Chinese fuel exports from Asian markets creates opportunities for American refiners with spare capacity to capture higher margins, particularly in diesel and jet fuel markets where global inventories are tightening.
Some exceptions to China's export ban include kerosene for international flights, bonded marine fuel, and supplies to Hong Kong and Macau. Most March shipments arranged prior to the directive are proceeding, but international buyers face significant shortages beginning in April as new export allocations vanish.