As consumers scrambled to keep their tanks full, gas prices in some states surpassed a staggering $7 a gallon last month — the highest in U.S. history.
On the West Coast, gas prices soared to an average $6.78 a gallon in California, Oregon, and Washington, while other states averaged $5.02 a gallon for regular unleaded gasoline. In parts of the U.S. and Canada, diesel prices reached nearly $10 a gallon.
At the same time, the price of crude oil was trending downward from a peak in March as countries including the United States released strategic reserves. So why did gas prices continue to shoot up? It can be explained by something called the “crack spread.”
What Is the ‘Crack Spread’?
This term is used by oil refiners to explain the costs of removing impurities and processing oil into gasoline. Crack describes the process of breaking crude oil down into key components, while spread refers to the price difference between crude oil bought by refiners and the final products they sell to consumers.
Crack spreads have been significantly higher for diesel and other crude products in recent months — reaching over $50 a barrel, compared with two years ago when they averaged about $10.50 a barrel, according to Bloomberg.
Oil refiners were swamped with demand, and the result was a “bottleneck effect” where refiners could reap record profits.
Much of the increase in demand came from the European Union, which turned away from Russia as an energy source after the Russian invasion of Ukraine. In March, President Joe Biden announced plans to release about 180 million barrels of oil from the nation’s Strategic Petroleum Reserve, but gas prices only continued to climb.