[+ Font] :: [- Font] :: Printable

The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


Hoarders. The Energy Report 10/01/2026

Europe’s and China Is Sitting on It. You’re Paying for It. Crude is moving and has been through the Strait of Hormuz, yet when it comes to Diesel Europe and China are hoarding supply. Kpler says Persian Gulf loadings hit about 16.5 million barrels a day in September, the most since February and roughly 80 percent of pre-war flows once Iran is taken out. Goldman Sachs puts Gulf exports, including “dark” cargoes on ships with transponders off, at 23.3 million barrels a day over the last week, back in line with the 2025 average after exports doubled in September. About 40 percent of that oil is now bypassing Hormuz through pipelines, outside ports, and ship-to-ship transfers, versus 17 percent before the fighting. Saudi barrels led the rebound, helped by the U.S. military’s work to keep the strait moving. Iranian exports are effectively zero under the blockade.

Diesel did not come with the crude. Iranian diesel is locked in. Ukrainian strikes on Russian refineries led Moscow to extend its diesel and product export ban through the end of October. Now Reuters reports China has suspended oil-product exports. Gasoline, jet, and diesel shipments from the Gulf are still around half of pre-war levels.

Still even with the export ban news RBOB is down about 13 to 15 cents, near $3.30 a gallon. Heating oil and diesel futures are off roughly 30 to 35 cents, back toward $4.60 after yesterday’s blow-off. The 3-2-1 crack has given back about $10 a barrel and is sitting in the mid-$60s, still historically fat, but no longer the panic print.

The gasoline crack is the calmer one, in the high $30s to mid-$40s depending on the crude you crack it against yet it spiked yesterday. Diesel did the damage. It spiked to a record near $108 a barrel yesterday and is only backing off toward $100. That is a market catching its breath after it ran out of sellers.

Retail has not. Just yet . Regular is still about $4.43 a gallon, $1.28 above a year ago, and diesel at the pump is at or through the old 2022 record. A gasoline crack in the $40s and a diesel crack still north of $100 is the market telling you the barrel is available and the gallon is not. Investors are still weighing diplomatic efforts to end the U.S.-Iran war.

Asa I wrote yesterday, Europe is sitting on diesel while the United States carries the load. Commercial stocks in Amsterdam-Rotterdam-Antwerp are still well below the five-year average. France and Germany hold more than a third of the EU’s emergency diesel, on the order of 8.2 and 5.6 million tons. Washington has told Paris and Berlin to draw those stocks and has asked the EU for about 120 million barrels of diesel over six months, or face a possible U.S. diesel export ban. Energy Secretary Chris Wright has said the U.S. and Japan delivered on the March IEA pledge, while several European members released only a fraction. The EU is still talking. Hoarding emergency diesel into a global distillate shortage is a policy choice, and American drivers and truckers are paying for it. If that export-ban threat gets real, watch the diesel crack.

The Dallas Fed’s third-quarter Energy Survey says the people who produce and service this industry do not see the diesel crack coming back anytime soon. Nearly half of respondents, 48 percent, said it will take more than four quarters for the diesel-to-crude spread to return to 2025 levels. Only 36 percent said the same for gasoline. On crude, 40 percent do not expect Persian Gulf exports back to normal until the end of the second quarter of 2027. Another 21 percent said 2028 or later. In plain English, diesel stays unusually expensive well into 2027.

Activity is still expanding, just not as fast. The business activity index eased to 38.8 from 46.1, but stayed firmly positive. The oil production index moved to 20.7 from 15.0, and the natural gas production index jumped to 14.8 from 3.7. Free cash flow is up versus a year ago, and the share of E&P firms planning to raise 2027 capital spending doubled to 22 percent from 10 percent in June. Costs are still hot and supplier delivery times are still long, so this is not a flood of new barrels. It is disciplined growth into a market that is still short diesel.

The cautious note is the price deck. Executives on average see WTI at $88 by year-end 2026, below the roughly $99 spot during the Sept. 16–24 survey window, with answers ranging from $70 to $126. Two-year and five-year averages were $79 and $82. That is a market that has learned not to budget the spike. It is not a market that thinks the product shortage is over.

“Diesel is the mother’s milk of the economy,” as one services executive put it, and the broader effects are only beginning to emerge. If those closest to the wellhead and service yard are right, cracks will remain wide, refiners will keep winning, and demand for U.S. barrels will persist into 2027. Natural gas looks more promising after the pullback, largely because of the weather outlook. The front-month contract is back below $3, trading near $2.95 after settling at $3.026 yesterday and retreating from its late-September spike toward $3.32. The market rallied on heat and some short-covering, then turned its attention to what lies ahead.

What lies ahead is a Super El Niño and, according to early forecasts, a mild winter. NOAA says El Niño is already in place and strengthening, with a better-than-even chance of becoming one of the strongest events on record. The Old Farmer’s Almanac offers a similar outlook: near- or above-normal temperatures across much of the country, with colder conditions concentrated more in Appalachia and the Ohio Valley than nationwide. A strong El Niño often shifts the jet stream and reduces heating demand in major northern markets. Winter contracts already reflect some of that expectation, with December through February averaging about $3.49, below last winter’s $3.96. Storage remains a few percent above normal, and a warm October and November could extend the injection season by another week or two. Production remains strong. If the weather stays mild, LNG demand provides a floor, not a ceiling.

That does not mean natural gas is finished. A Super El Niño can still produce a polar outbreak, while the South and West may turn wet. One cold week in January could quickly revive the market. For now, however, the base case is comfortable inventories, record supply, and a winter too mild to justify another spike. The outlook is hopeful, not bullish; the bulls need Fox Weather to be wrong.

Download the FoxWeather app and follow the forecast yourself. If Fox Weather’s Super El Niño outlook holds and the winter is as mild as the models suggest, natural gas should remain a weather-driven trade with modest support, while the real squeeze stays in diesel rather than heating bills.

Stay tuned to the Fox Business Network. Call me at 888-264-5665, or shoot me an email at pflynn@pricegroup.com.



There is a substantial risk of loss in trading futures and options.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. PFGBEST, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

PLACING CONTINGENT ORDERS SUCH AS "STOP LOSS" OR "STOP LIMIT" ORDERS WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS. SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Contact Phil at 1-888-264-5665 or pflynn@pricegroup.com.