Oil and gas stocks have surged since the start of the Iran conflict, largely due to the Persian Gulf’s vital role in global oil supply. Approximately 20 million barrels per day pass through the Strait of Hormuz, or roughly 20% of the total global supply.
But the real story for investors goes beyond skyrocketing crude prices: Refiners are now benefiting from an unusual gap between crude and refined product prices, such as diesel, gasoline, and jet fuel. Known as crack spreads, these gaps have propelled downstream oil stocks, especially in the United States.
That dynamic makes two small-cap refiners worth a closer look, because their recent gains are closely tied to today’s unusually favorable spreads—and could unwind quickly if conditions normalize.
Why Crude Prices Can Matter Less for Downstream Companies
If you’ve passed a gas station lately, you’ve likely done a double-take at how quickly prices have risen in just a few short weeks. According to AAA, the average national fuel price in the United States is currently $3.94—up more than $1 in just a month.
But unless you own a vehicle that needs it, you’ve probably paid less attention to diesel prices, which have soared higher at an even faster rate. Crack spreads highlight why the energy sector is separated into upstream, midstream, and downstream companies:
- Upstream: Companies that directly benefit from oil price increases, as they extract oil from the ground.
- Midstream: Companies that operate the infrastructure connecting upstream to downstream and focusing on transportation, storage, and processing.
- Downstream: Companies that refine, process, and market finished products, including gasoline, diesel, and petrochemicals.
Downstream companies don’t necessarily benefit from high or low oil prices. Rather, the crack spread between the crude oil and the refined output is their focus. Oil prices have skyrocketed since the fighting in Iran began, but downstream companies have been insulated by widening crack spreads, which have dramatically widened since Persian Gulf refining capacity went offline, boosting margins for downstream refiners.
Many market participants had priced in a short war in Iran, but now that the fighting seems entrenched, stocks in this industry have gone parabolic. However, this repricing ignores serious margin headwinds that could materialize just as quickly as crack spreads blew out in the first place.
Some catalysts to watch for include:
- When the Strait of Hormuz reopens: If the Strait of Hormuz reopens faster than expected, crude prices will likely remain elevated as capacity slowly comes back online. However, the supply of refined products would resume flowing at a faster rate, causing wholesale prices to dip while crude prices would remain elevated, hitting refiner margins from both sides.
- Demand destruction from prolonged shock: The cure for high prices is often higher prices, but this isn’t a scenario that benefits the oil industry. If crude oil prices remain elevated for an extended period, it could spur a recession and reduce demand for refined petroleum products. For example, if travel demand plummets, airlines will slow fuel purchases at elevated prices, which would reduce refiners' revenue.
On top of these risks, governments are releasing crude from strategic reserves to limit price spikes, which could also help normalize spreads. Meanwhile, China's policy decisions loom large. If China ramps up gasoline and diesel exports to Europe and Asia, U.S. refiners' margins could compress swiftly.
2 Oil and Gas Stocks That Don’t Want Spreads to Normalize
Large-cap refiners have different ways to offset spread volatility, such as hedging programs and healthy balance sheets. However, small cap refiners often lack these safety blankets, and a quick crack spread reset could trigger instant repricing.
Here are two small-cap downstream stocks where profit-taking could be prudent.
CVR Energy: Beware the False Breakout
CVR Energy Inc. (NYSE: CVI) is already up more than 60% this month thanks to both soaring petroleum and fertilizer prices.
The company's Petroleum Products division refines crude into diesel, gasoline, and jet fuel, while its Nitrogen Fertilizers segment produces ammonia and urea for plant nutrients.
Before the Iran War began, CVR Energy reported a year-over-year (YOY) revenue decline of 7% in its Q4 2025 numbers, so this price shock couldn’t have come at a better time.
CVI shares have torn through their 50- and 200-day moving averages over the past few weeks, but the rally now appears tenuous.
The Relative Strength Index (RSI) is firmly in overbought territory with a reading above 76, and nearly 6% of the float is currently sold short, so this rally could partly be fueled by short-covering. And despite the recent boost, five of the six analysts covering CVI rate the stock a Sell rating.
PBF Energy: Earnings Beat Could Be a Top Ticking Event
Unlike CVR, PBF Energy Inc. (NYSE: PBF) received a company-specific tailwind from its Q4 2025 results, which helped fuel a parabolic rally.
While revenue targets weren’t met, earnings per share of 49 cents blew away the expected loss of 15 cents.
Meanwhile, management noted that crack spreads were already benefiting the company before the first strikes against Iran were even launched.
The stock is up more than 80% so far in 2026, including a massive gain of more than 40% in the past month alone.
Now that the earnings boost is fading, technical headwinds are emerging. With current short interest of more than 20%, the stock has benefited from both bulls and bears over the last few weeks. But this has pushed the stock into overbought territory on the RSI, and a dreaded double-top pattern is forming on the daily chart.
Insiders sold more than $300 million worth of PBF shares in Q1 with negligible buying activity, and analysts still assigned the company a Sell rating with a consensus price target more than 30% below current prices.
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The article "As Energy Surges on Crack Spreads, Consider Taking Gains on 2 Small Cap Oil Stocks" first appeared on MarketBeat.
