The Diesel crisis is going global

XTI/USD

Key zone: 90.00 - 93.50

Buy: 94.00 (on a confident break above 93.50); target 96.50; StopLoss 93.30

Sell: 88.50 (on strong negative fundamentals); target 86.50-85.50; StopLoss 89.20

There is enough oil in the world — what is lacking is diesel fuel, spare refining capacity, and inventories capable of withstanding another supply disruption. Empty storage tanks, record refinery margins, and military risks are turning diesel fuel from an energy problem into a new source of inflation and political pressure in the U.S.

According to the EIA, in the week ending September 11, U.S. distillate inventories were down 13.5% year over year. Moreover, the bulk of inventories — about 97 million barrels — consists of low-sulfur distillates with sulfur content of no more than 15 ppm, which include modern ULSD automotive diesel fuel.

In the U.S., the problem has spread from the wholesale market directly to gas stations. On September 20–21, the average retail price of diesel fuel exceeded $6.50 per gallon, setting a new all-time high. This means a sharp increase in the cost of every trip; for farmers — higher expenses directly during the harvest season; for industry — additional inflation through logistics.

A reminder:

The most alarming signal is coming not from the oil market, but from the storage market. Available fuel storage capacity in North America and the Caribbean has risen to 13 million barrels at present — the highest level in four years. The reason is paradoxical: tanks are being freed up not because there is too much fuel, but because there is not enough of it to fill them.

Storage tank contracts are typically signed for 6–12 months, so a refusal to renew leases means that major market participants do not expect commercial inventories to recover quickly. Refiners and traders see no point in renewing leases for empty storage capacity.

A strong price signal is now emerging in refining. On September 14, the U.S. ULSD crack spread — the difference between the value of diesel fuel and crude oil — reached a record $118.62 per barrel.

A crack spread around $100+ is not the new normal. It is the price of scarcity.

Such a spread means that the market is desperately trying to incentivize the production of every additional barrel of diesel.

The EIA expects the average diesel crack spread to remain above $2 per gallon from August through November, after which it should gradually decline toward mid-2027, provided that transportation of crude oil and petroleum products from the Middle East normalizes.

That condition is the main risk to the forecast. If transportation restrictions persist for longer, crack spreads could remain significantly above the EIA’s baseline scenario.

Higher diesel prices are transmitted through the economy in several waves.

• Direct increases in expenses for transportation and agricultural companies;
• Fuel surcharges imposed by carriers;
• Higher final prices for goods;
• Deteriorating margins for companies that cannot fully pass the costs on to customers.

Only after that does the consumer feel the impact. This makes diesel fuel a potentially more unpleasant inflationary factor than gasoline. Gasoline is visible on the price board at every gas station. The price of diesel fuel is hidden inside the price of goods.

Analyzing only Brent or WTI is dangerous right now. What needs to be monitored:

• EIA distillate inventories — the 100 million-barrel zone matters.
• ULSD crack spread — a sustained decline would be one of the first signs of market normalization;
• U.S. refinery utilization — high margins should translate into increased supply;
• PADD 1, meaning the U.S. East Coast — nationwide inventories may look better than the actual overall situation in the market;
• China’s export quotas;
• Refining in Russia;
• Physical flows through the Middle East.

And What Is the Result?

The Brent price shows the “theoretical” cost of crude. The ULSD crack spread shows the price of energy stress. And as long as this spread remains extreme, the global diesel crisis is not over. But the margin of safety has virtually disappeared.

The record crack spread is already forcing refineries to increase supply, so a gradual normalization of the market during 2027 is quite likely.

But in the coming months, trading petroleum products may be more important than trading crude oil itself.

So we act wisely and avoid unnecessary risks.

Profits to y’all!