Record crack spreads show that refined products, not crude, are where the tightest supply squeeze sits, with diesel leading. That keeps upward pressure on fuel costs for consumers and businesses, feeding the inflation concerns that are holding up Treasury yields and Fed hike expectations. For oil markets, strong refinery margins encourage maximum crude runs, which supports demand for crude itself, particularly US grades. Refiner shares already at highs leave the sector exposed to any de-escalation in the Iran conflict or a reopening of Hormuz, either of which could compress margins quickly.-War has been terrible for fuel buyers and very good for the people who make fuel, and US refiners’ third-quarter numbers are about to show exactly how good.Summary:Valero Energy, Marathon Petroleum and Phillips 66 are expected to report third-quarter profits well above their near-record second-quarter results, according to reports citing Wall Street analystsThe Middle East conflict and the Russia-Ukraine war have sparked a global fuel buying spreeTight global supply has pushed crack spreads, especially for diesel, to record levelsOne fuel analyst called the profit surge a reversal in the industry’s fortunesShares in the major US refiners have climbed to new highsIt will surprise few that the biggest US refiners are heading for a bumper quarter. Wall Street analysts expect independent fuel producers Valero Energy, Marathon Petroleum and Phillips 66 to report third-quarter profits well above the near-record levels they posted in the three months to June, as the Middle East conflict and the war in Ukraine trigger a global scramble for fuel, according to reports.The driver is the crack spread, the gap between the cost of crude oil and the price refiners receive for the fuels they make from it. Even with crude prices elevated, prices for refined products, especially diesel, have risen faster as global supply has tightened, pushing that spread to record levels. The wider the spread, the more a refiner earns on each gallon it produces. One fuel analyst described the profit surge as a reversal in the industry’s fortunes, and shares in the leading refiners have already climbed to fresh highs.The backdrop explains the scale of the windfall. Tanker attacks in the Strait of Hormuz, which carried around a fifth of the world’s oil and fuel before the war, have reached their highest level since the conflict began. Governments are grappling with record fuel prices, and the International Energy Agency this week agreed to accelerate releases from emergency stocks and to prioritise diesel supplies. Russian fuel exports remain disrupted by the war in Ukraine. For US refiners, with access to domestic crude and export markets hungry for product, it is close to an ideal combination. Never waste a good crisis, as the saying goes.There are risks to the outlook. Hurricane Isaias has already forced the shutdown of most US Gulf of Mexico oil output and could disrupt Gulf Coast refining if it hits processing hubs. Any diplomatic breakthrough with Iran that reopens Hormuz could narrow margins quickly, while the IEA’s stock releases are aimed squarely at easing the diesel shortage that is fuelling refiners’ profits.Investors will look to third-quarter results to see how much of the margin windfall has reached the bottom line, and whether management teams expect it to last into the winter heating season. This article was written by Eamonn Sheridan at investinglive.com.