Crude oil and petroleum product prices experienced a substantial increase during the first quarter of 2026. This sharp rise was particularly pronounced following military actions in the Middle East on February 28 and the subsequent de facto closure of the Strait of Hormuz. This quarterly review examines the price developments in the petroleum markets during the first quarter of 2026, encompassing crude oil prices, petroleum product prices, and refinery inputs.
Crude oil prices began the year with the front-month futures price of Brent crude oil at $61 per barrel. By the end of the quarter, this price had climbed to $118 per barrel. The magnitude of this price increase over the quarter, when adjusted for inflation, represents the largest surge recorded in data available since 1988. Throughout January and February, Brent prices saw a steady ascent, moving from $61 per barrel to $72 per barrel. This gradual increase reflected growing concerns and an escalating risk of conflict in the Middle East.
The situation intensified significantly after military actions commenced in the region. This led to a more dramatic price escalation as most shipping traffic ceased traversing the Strait of Hormuz. The cessation of traffic was a direct consequence of the heightened risk of physical damage to vessels from potential Iranian attacks. In response to these disrupted navigation routes, several Middle Eastern nations, including Iraq, Saudi Arabia, and the United Arab Emirates, made the decision to shut in their oil production.
Further contributing to the upward pressure on crude oil prices were direct attacks on energy infrastructure and the persistent threat of additional assaults. The price of Brent crude oil crossed the $100 per barrel threshold on March 12. It continued on a general upward trajectory throughout the remainder of the month. As crude oil prices climbed in March, a notable widening occurred in the spread between Brent and West Texas Intermediate (WTI) crude oil futures contracts for May delivery.
The Brent price saw a more pronounced increase compared to WTI. This divergence was attributed to several factors, including higher shipping costs and reduced oil flows between regions proximate to the Strait of Hormuz. Concurrently, robust U.S. inventories and strategic plans to release crude oil from the Strategic Petroleum Reserve helped to moderate the price increases for WTI. The Brent-WTI spread, which started the quarter around $4 per barrel, expanded significantly in March, reaching a peak of $25 per barrel on March 31. The monthly average for March stood at $11 per barrel, marking the highest level observed in over five years.
Petroleum product prices, including gasoline, distillate, and jet fuel, also surged rapidly in the first quarter. This acceleration was a direct result of the supply disruptions affecting Middle East exports of both crude oil and refined petroleum products. The elevated prices of crude oil served as a primary driver for the increase in petroleum product prices, given that crude oil constitutes the largest input cost in their production. By March 30, the U.S. average retail gasoline price reached $3.99 per gallon, and the U.S. average diesel price stood at $5.40 per gallon. These figures represented the highest real-term prices recorded in over two years.
While gasoline prices saw substantial increases, jet fuel and distillate prices experienced even more significant gains. On the supply side, disruptions affecting Middle East exports of distillate and jet fuel had a more pronounced impact on the market for these specific fuels compared to gasoline. Furthermore, strong distillate demand observed since the beginning of the quarter contributed to market tightness and amplified price increases. Several key factors contributed to this higher distillate demand or market tightness.
These factors included increased U.S. exports to Europe, a consequence of sanctions imposed on Russia. Additionally, extremely cold weather conditions in the Northeastern United States led to heightened demand for space heating. Trucking demand in February was also stronger than typically observed. Moreover, the supply of renewable diesel supplementing distillate supplies was less robust than in previous years. Higher distillate prices generally exert upward pressure on jet fuel prices, and vice versa. This relationship exists because both products are derived from similar distillation fractions during the refining process. Consequently, refiners possess the flexibility to adjust their production yields between jet fuel and distillate when it is economically advantageous to do so.
Although there are inherent technical limitations to the extent refiners can shift production yields between jet fuel and distillate, such adjustments can help maintain a relatively close alignment between the prices of these two products. In the first quarter of 2026, U.S. refinery inputs exceeded the five-year range (2021–2025), averaging levels comparable to those seen in 2018–2020, according to estimates from the Weekly Petroleum Status Report. Refinery utilization rates were also estimated to have surpassed the five-year range during the first quarter of 2026.
The elevated prices for distillates directly contributed to higher refinery inputs by increasing refinery margins for distillate production. Distillate crack spreads, which serve as a metric for refinery margins on distillates, averaged $1.42 per gallon in March at New York Harbor. This figure represents the highest monthly level recorded since 2022 and is substantially above the five-year average (2021–2025) of 68 cents per gallon. A relatively extensive turnaround season that occurred in the autumn of 2025 played a role in reducing the necessity for scheduled maintenance activities during the first quarter of 2026.
