This article discusses the surge in oil company profits due to recent energy shocks, particularly from Iran, while addressing concerns of profiteering and price gouging. The author, who has industry experience, distinguishes between "windfall profits" and "price gouging," emphasizing that current high prices are largely due to a shortage in refining capacity rather than crude oil scarcity. Refining margins have surged, with the Gulf Coast 3-2-1 crack spread trading far above historical norms and U.S. diesel crack spreads reaching record highs of over $100 per barrel. The article argues that while these conditions lead to high profits for refiners, they are not necessarily indicative of market manipulation but rather reflect global supply constraints.
Written by the local model on 2026-09-13,
using this article's own text rather than the other coverage of the
same event (that is the story summary below).
Today’s surge in oil company profits amid the Iran-driven energy shock has understandably generated accusations of profiteering and price gouging.
asserted
surge → drive → profiteering
I spent the first half of my career in the oil industry, so I recognize my own industry sympathies.
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I → spend → sympathies
But I have a gut-level discomfort with the juxtaposition of record corporate profits with American consumers struggling to pay at the pump for reasons entirely beyond their control.
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I → have → control
Still, there is an important distinction between “windfall profits” and “price gouging” — and understanding it starts with recognizing that today’s problem is increasingly one of refining capacity and product availability rather than simply a shortage of crude oil.
Global refinery runs have fallen sharply, driven by war-related disruptions in Russia and the Middle East, and, earlier this year, China curtailing refinery operations and fuel exports to protect its domestic market from high oil prices.
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China → be → prices
Goehring & Rozencwajg Associates estimates that refinery runs fell by roughly 5 million barrels per day earlier this year, accounting for much of the apparent decline in global oil demand.
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runs → estimate → demand
If demand for gasoline, diesel, jet fuel, and other refined products holds up while refinery throughput falls, inventories tighten and refining margins soar.
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margins → hold → gasoline
That is exactly what has happened.
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what → happen → ?
The Gulf Coast 3-2-1 crack spread — the margin implied by turning crude oil into gasoline and diesel — has recently traded far above its historical norm, while the U.S. diesel crack spread surpassed $100/barrel for the first time ever, recently reaching $108.
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spread → imply → 108
Meanwhile, U.S. refiners are hardly sitting idle to exploit the shortage.
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refiners → sit → shortage
Refinery utilization recently reached 98%, the highest since 2018.
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utilization → reach → 2018
This matters when assessing accusations of price gouging.
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This → matter → gouging
Oil and refined products trade in competitive global markets.
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Oil → trade → markets
When geopolitical disruptions remove supply, prices rise — even though the cost of extracting an existing barrel of oil may change very little.
uncertain
cost → remove → oil
Refiners likewise benefit when disruptions elsewhere make gasoline and diesel scarce.
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gasoline → benefit → ?
That produces enormous profits for companies fortunate enough to have uninterrupted production and refining capacity, but extraordinary profits are not themselves evidence of market manipulation.
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profits → produce → manipulation
Gasoline prices largely follow a market-based formula: crude oil cost plus refining margin, transportation and distribution costs, taxes, and retail margin.
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prices → follow → formula
Those components can soar when supply is constrained, but they also move in the opposite direction.
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they → soar → direction
During periods of oversupply or weak demand, crude prices and refining margins can collapse, producing thin profits or outright losses.
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prices → collapse → profits
So, today’s record profitability is better described as a geopolitical windfall than systematic consumer exploitation.
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profitability → describe → exploitation
But acknowledging that distinction and adhering to free market principles does not mean policymakers must ignore the burden on consumers.
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policymakers → acknowledge → consumers
Price controls would be particularly counterproductive because they suppress the very price signals that encourage additional supply and conservation.
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that → suppress → supply
A broad windfall-profits tax could similarly discourage investment precisely when America needs more production, refining, pipelines, storage, and other energy infrastructure.
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America → discourage → production
And it’s unreasonable to expect competitive companies to convene on their own to collectively cap profits in the spirit of altruism.
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companies → ’ → altruism
So, a better compromise might be a modest, temporary levy applying only to profits exceeding an exceptionally high historical profitability threshold, coupled with the ability to offset that levy through incremental domestic energy investment.
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compromise → apply → investment
Companies could reduce or eliminate the levy entirely by reinvesting extraordinary profits in new production, refinery upgrades, pipelines, storage, or other infrastructure, and importantly.
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Companies → reduce → production
Those choosing instead to distribute the extraordinary profits to shareholders would pay the temporary levy.
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Those → choose → levy
Any proceeds should be returned directly to American households through a temporary energy dividend or tax credit rather than disappearing into the bloated federal budget.
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proceeds → return → budget
The objective should not be to decide how much profit an oil company “deserves.”
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company → decide → profit
Nor should we punish an industry merely because global market forces temporarily moved dramatically in its favor.
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forces → punish → favor
Instead, the goal should be to preserve market pricing and profit incentives while recognizing the extraordinary circumstances of a geopolitical supply shock.
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goal → preserve → shock
That is the distinction policymakers should keep in mind: windfall profits produced by scarcity are not the same thing as price gouging.
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profits → keep → gouging
But neither does a commitment to free markets require pretending that extraordinary circumstances never justify a narrowly tailored response.
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circumstances → require → response
