The term sounds like a funny bit of jargon. But it's the reason a tank of diesel is hitting Canadian truckers. It's the reason airfares are creeping up, and the reason Alberta's biggest energy companies are cashing in like never before on the fuel they refine. Photo by David Bloom /Postmedia

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It’s all about the crack spread.

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If you work in oil and gas, you know exactly how much that term matters. To the rest of us, it sounds like a funny bit of jargon. But it’s the reason a tank of diesel hits truckers’ pocketbooks across Canada right now. It’s the reason airfares are creeping up, and the reason Alberta’s biggest energy companies are cashing in like never before on the fuel they refine.

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Let’s break it down. Start with the word “crack.” Crude oil, the thick black stuff pumped from the ground, is heavy and gooey. You can’t pour it into your car. To make fuel, refineries break it apart, heating it under huge pressure until the big, heavy molecules split into lighter ones: the gasoline, diesel and jet fuel we use. Workers call that step “cracking.”

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The “crack spread” is the gap between two prices — what a refinery pays for a barrel of crude and what it gets for the finished fuel. Wide gap, big profits. Thin gap, and refiners ease off. Traders treat it as a thermometer for how tight the fuel market is.

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Here’s why it matters, even if you never think about oil. Oil is tucked into almost everything you touch, the plastic water bottle on your desk, the polyester in your shirt and the makeup in your bag. But its biggest job is fuel, and that’s where a wide crack spread hits you fastest.

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When fuel runs short, the gap widens, and the cost ripples out to the pump, your next flight and possibly even the grocery store.

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Right now, that gap is at record highs.

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But not every fuel is rising at the same speed. Diesel and jet fuel are shooting up. Gasoline is climbing, too, but not as fast.

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The benchmark that refiners across North America watch is the “3-2-1 crack spread.” The name is a recipe: three barrels of crude refined into two barrels of gasoline and one of diesel or jet fuel, close to what a real refinery makes.

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On July 16, the 3-2-1 crack spread closed at a fresh high of just over $69 a barrel, three record days running. In January it sat around $25 a barrel. But that one number hides the real story. Split it fuel-by-fuel, and the imbalance jumps out.

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The firm that tracks all of this is Kalibrate Canada, which surveys pump prices in 77 Canadian cities every day. It splits the price at your local station into four pieces: the crude, the refining margin (that’s the crack spread), the retailer’s markup and taxes. Its Alberta numbers show exactly where your money is going.

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A year ago, refineries took about 35 cents out of every litre of gasoline sold in Alberta. Today, they take more than double that. On diesel, refineries now take more than what the oil itself costs. Taxes came down over the year, and so did all the gas stations’ cuts. An outsized share of what you pay goes into the refining step.

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Suzanne Gray, a senior research analyst at Kalibrate, says the reason is simple. There isn’t enough fuel sitting in storage.

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“Unusually low refined product inventories are the main reason that refined product crack spreads are expanding,” Gray said.

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She points to something else worth watching. Summer normally pushes gasoline margins up faster than diesel, because people drive more. That isn’t happening this year, and she suspects drivers are the reason.

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“High pump prices may be leading some Canadians to choose to drive less; therefore, the pressure on the gasoline margin may not be as great this summer,” Gray said.

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As you can see in the interactive graphic above, refineries are taking an increasingly bigger slice of the pump price pie.

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Why do fuel prices keep going up? Oil is part of it. North American crude jumped above US$90 a barrel with renewed conflict in the Middle East. The other reason is the refineries — not enough of them are running.

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There’s only so much refining capacity in the world, says Patrick De Haan, head of petroleum analysis at GasBuddy. When refineries stop running, fuel gets scarce and prices jump, even with plenty of oil around. He uses a deliberately extreme example.

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“You could have $5 a barrel of oil. And if there’s only one refinery in the world in existence, you could pay three or four dollars a litre for fuel,” De Haan said. “Gasoline and diesel are their own commodities. Oil is a main component, but the finished product can have a different value.”

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The problem today is that a big chunk of the world’s refining has been knocked out at once. De Haan points to Hurricanes Harvey and Irma in 2017, when a large share of U.S. capacity went offline and pump prices shot up.

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This time, it isn’t a storm. It’s two wars.

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Smoke rises from an oil refinery facility following a reported Ukrainian attack in the town of Noginsk outside Moscow on July 18, 2026. Drone attacks from Ukraine have dealt massive damage to Russia’s refineries. Photo by STRINGER /AFP via Getty Images

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Ukrainian drones have knocked out enough of Russia’s refineries that the country can no longer fuel itself. More than 90 percent of its regions have faced rationing or shortages since June, according to a tally by Agence France-Presse, based on media reports and official statements.

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On July 8, Moscow banned diesel exports outright, pulling one of the world’s biggest diesel exporters off the market.

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Then there’s the war between the U.S. and Iran, which has choked the Strait of Hormuz, the narrow channel that carries a huge share of the world’s energy. That’s the main reason crude is expensive.

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“Some of the largest refineries in the Middle East are also stuck behind in the slowdown of the strait,” said De Haan. This means brand-new refineries in Kuwait can’t export their products.

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Here’s the twist most people miss.

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“When refineries go offline, it actually makes oil more plentiful, because there are fewer refineries buying oil to refine,” De Haan said. “So, oil prices go lower. But gasoline and diesel prices go higher.”

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In other words, cheaper oil does not guarantee cheaper fuel.

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There’s a demand side, too. Diesel and jet fuel run industry, the trucks, tractors and planes that can’t easily cut back, while gasoline mostly moves everyday drivers. That difference matters, says G. Kent Fellows, an economist at the University of Calgary.

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“Diesel and jet fuel are used more by industry, whereas gasoline is used more by consumers,” Fellows said.

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“When prices adjust to keep supply in line with demand, diesel and jet fuel prices might be expected to move more than gasoline.”

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In this interactive chart, you can see refiner margins are now taking a bigger slice of diesel prices than oil.

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Jet fuel sells at a world price. According to the International Air Transport Association, jet fuel averaged US$90 a barrel globally last year is on track to average US$152 this year, a jump of almost 70 percent.

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The premium that refiners earn from jet fuel over crude — the crack spread again — is expected to average US$57 a barrel, which IATA calls a historic high.

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Most Albertans feel this closer to home, though. At the pump.

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Prices are already climbing fast. Nationally, regular gas averages above $1.80 a litre, up about 15 cents in a month, according to Kalibrate. Diesel is up by close to 20 per cent.

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Alberta sits on both sides of this. Diesel at $1.88 a litre raises the cost to farm, truck and ship, so grocery bills could climb across the Prairies just as Alberta and Saskatchewan farmers head into harvest.

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Vehicles sit outside the main fence in front of Imperial Oil Strathcona Refinery that borders the Edmonton city limits and Strathcona County. Imperial has posted a record first-quarter profit thanks to stronger refining margins. Photo by File Photo /Postmedia

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But it’s also a windfall for some of the province’s biggest employers. Suncor Energy Inc., Imperial Oil Ltd., and Cenovus Energy Inc., all based in Calgary, own the refineries pocketing these hefty margins.

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Imperial has already posted a record first-quarter profit on the back of stronger refining margins. Suncor, in a stroke of opportune timing, began producing jet fuel at its Montreal refinery in November.

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Kyle Bertamini, a principal analyst on the research team at Enverus, an energy data and analytics firm, says wider crack spreads lift profits at both Suncor and Cenovus, though the mix differs by company. Cenovus’s refineries lean more American, Suncor’s more Canadian.

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Not everyone thinks the pump pain is as dramatic as the record spreads make it sound. Fellows, an associate professor of economics at the University of Calgary’s School of Public Policy, offers a cooler read.

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When margins widen, the refineries still running are the ones that win. But for drivers, he argues, the recent jump owes more to crude climbing again than to a runaway fuel market.

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“Diesel drivers are paying more than they were a month ago, but the national average price is actually pretty close to where it was at the end of May,” Fellows said.

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That’s the calmer view. Where prices go from here, De Haan is blunter.

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“There is more upside risk to gas prices than downside risk,” De Haan said. “We’ve gone from one geopolitical tension to several, and I haven’t even mentioned hurricane season yet.”

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He isn’t joking about hurricanes. The season peaks from mid-August into September, and the world’s largest refining hub sits on the U.S. Gulf Coast, between Houston and New Orleans.

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“Hurricanes can be fairly large events, and they can be very strong, and they can do tremendous damage to refineries,” De Haan said. “It’s a particularly sensitive area for these types of weather events.”

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Storm damage in the aftermath of Hurricane Irma in the British overseas territory of Anguilla. Hurricanes can do tremendous damage to refineries Photo by Garson Kelsick /File Photo

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De Haan has tracked fuel prices for 20 years. Stack a major storm on top of two wars, he says, and this is unlike anything he has seen.

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“This is the most amount of geopolitics ever in my career, and it’s not just one issue now,” he said.

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De Haan isn’t alone. Bertamini from Enervus says, “the squeeze runs well past this year, with refineries already flat out and inventories still draining.” His firm’s forecast for Brent, the global oil benchmark, tells the story.

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“We’re expecting Brent to average $100 for the rest of this year and well into 2027,” Bertamini said. “That call is driven by declining inventories, not just in North America, but globally.”

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And there is no quick way to refine the shortage away.

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“Refineries are running essentially at max rates, so their ability to make more is basically zero,” Bertamini said. “As U.S. inventories keep drawing down to serve the rest of the world, that means even higher crack spreads and higher prices than we’re seeing today.”

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So, the next time you wince at the pump, fume at the price of a plane ticket or stare down your grocery bill, remember this: Oil is only part of the story.

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The other major force is the crack spread. And it has never been higher.

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