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The Energy Report

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


A Crack To Be Ignored. The Energy Report 08/18/2026

Now everyone is talking about the diesel crack spread. We pegged this as the market most at risk of going parabolic because of the U.S.-Iran war, the Russia-Ukraine war, and the global green energy agenda that left the world with a perpetual shortage of refining capacity while trying to restrict heavier blends of crude. The expiring September diesel crack—the amount per barrel refiners make turning crude into diesel—surged to a record $102.49 before pulling back. Casual market watchers finally get it: this number is too big to ignore.

It did not happen overnight and you can’t just blame President Trump or the War, though that has exposed this situation. For years the green energy movement targeted diesel even after it had been refined to near-zero sulfur, with no real consideration of the impact on the global economy. Diesel doesn’t just power trucks, trains, and some automobiles. It is the workhorse for jet fuel, ships, construction equipment, concrete production, agriculture, and the polymers that go into everything from plastics to infrastructure. When you choke the supply of that molecule, everything else gets more expensive.

Canada’s policies helped close a major diesel-capable plant. The Come By Chance refinery in Newfoundland (North Atlantic, ~130,000 bpd) shut in 2020 and was later converted to a much smaller renewable-diesel operation. Other eastern Canadian capacity vanished earlier: Shell Montreal, Dartmouth, and Oakville. The net result is less conventional refining and more reliance on imports and a disel cris that was just waiting to happen.

The EU o.is at even a bigger risks at risk from the runaway crack has their green energy policies o blame. In the EU, roughly 30–34 refineries have been closed or converted since 2000. Recent examples include Petroineos Grangemouth in the UK, Shell’s Wesseling unit in Germany, and parts of Eni’s Italian system.

At the same time they shut major fields. The Groningen gas field in the Netherlands—one of Europe’s largest—was permanently closed after earthquakes, leaving massive reserves in the ground. The UK North Sea is in managed decline: no new exploration licenses, accelerated field closures (hundreds of sites heading that way by 2030), and higher taxes that make remaining barrels uneconomic. Heavier, more complex crudes that make diesel were the first to be squeezed. Ukraine has added a kinetic layer. Its long-range drone campaign has hit at least 24 of Russia’s 34 large refineries in a matter of months. Repeated strikes have damaged Ilsky (Krasnodar, a Black Sea export plant that makes diesel and marine fuel), Syzran (Rosneft), Slavneft-YANOS in Yaroslavl (one of the top five, hit multiple times), Gazprom Neftekhim Salavat, the giant Omsk plant in Siberia, TANECO in Tatarstan, Kstovo, Moscow’s Kapotnya, Afipsky, and others. Russian crude processing fell to 21-year lows. Moscow banned diesel exports to protect domestic supplies. Those missing barrels have to come from somewhere else—usually the same constrained global pool already strained by Hormuz disruptions.

The U.S.-Iran conflict cut Middle East flows through the Strait of Hormuz. Those barrels and the products they produce are not easily replaced. Combined with years of underinvestment in new conventional refining capacity and policy that actively discourages the very crudes best suited for diesel, you get a market that can spike to $100+ cracks in a hurry as the market is begging the refiners to keep the diesel flowing.

This is the bill coming due for treating diesel like a climate villain instead of the fuel that actually keeps the modern economy moving. The crack is the scoreboard.

And overnight Russia is stinking back at Ukraine for targeting their distillate rich energy infrastructure. Russia struck back hitting fuel tanks at Ukraine’s port of Odesa (IFX). Moscow said it hit oil tanks and related port infrastructure used for military fuel. Ukraine is hitting back the only way that moves the diesel market: more drones on Russian refineries and depots. So as it goes Russia knocks out tanks in Odesa. Ukraine knocks out processing at Ilsky, Syzran, Yaroslavl, Salavat, Omsk, TANECO and the rest, It a circle that is subtracting.

Oil Price is adding to crack worries reporting that he Iran-aligned Houthi group on Tuesday claimed it had targeted Saudi Aramco’s Jazan oil refinery on Red Sea coast in southwest Saudi Arabia, in what was the third Houthi attack at the facility in the past two weeks, amid escalating hostilities in the region and a deadlock in the U.S.-Iran talks. The Houthis say they hit it with several drones in a precise strike, calling it payback for Yemeni airspace being violated over Saada and Hajjah. Saudis haven’t confirmed anything yet. The 400,000-barrel-a-day plant was already shut down at the end of July after the earlier attacks.

So the crack is leading and the oil is following. This comes as ships are turning around in the Strait. Traffic is still in single digits. Iran reportedly commandeered a UAE-linked tanker near Qeshm—Fars and Iranian state media said it was seized for “violating Iranian maritime laws” and taken toward the island. Another vessel was hit by a projectile leaving the strait. Some ships go dark. Some U-turn. Hormuz is not closed on a map. It is closed in practice.Talks are still going through Oman. The 60-day window is over. Trump says he’s patient—no hurry, the blockade is working. The diesel crack is not patient.

Horse trading the crack is possible with a 1 by 1 you don’t have to do the 321 anymore which makes it a lot simpler plus they take stops on top of that of course we can look at the crude oil and it does look like a bit of a breakout we did fill the downward gap yesterday which means we could find some consolidation here but if you look at the overall formation the trend could poke higher over the next couple of days tonight we will get the API on the inventories we’ll see if we get a supplies bill but also keep an eye on the products because products are the focus not only diesel but gasoline.

Natural gas has given back its recent rally, and record U.S. production is a big reason why. The EIA’s August Short-Term Energy Outlook put U.S. marketed natural gas production on track to average a record 122.5 Bcf/d in 2026, beating last year’s 118.5 Bcf/d mark. First-half 2026 already ran 121.3 Bcf/d — up 4% or 4.6 Bcf/d from the same period in 2025 — with most of the growth coming from associated gas in the Permian (Texas and New Mexico) and the Haynesville. Lower-48 dry production has been even more impressive in the near term. Output has averaged around 111.6 Bcf/d so far in August, topping July’s monthly record of 110.7 Bcf/d. That extra supply, combined with storage that’s stayed above the five-year average since March, has kept the market well-supplied. Front-month futures slipped to a more-than-one-week low near $2.70, pressured by the production numbers and forecasts for milder weather ahead.

Fox Weather has been tracking Hurricane Lala as it battered Hawaii over the weekend. The Category 1 storm passed just south of the Big Island on August 15, dumping extreme rain (over 43 inches in spots), triggering flash floods, landslides, and power outages that affected hundreds of thousands of customers. Damage included homes swept off foundations and downed infrastructure. The storm has since moved away, but recovery on the islands is still underway.

Closer to home in the Lower 48, the weather picture for natural gas cooling demand is mixed but trending toward the seasonal fade. Fox Weather outlook shows a lingering heat wave across the South and Southeast this week, with heat indices hitting 105–115 in places and Extreme Heat Warnings in effect. There’s still a “spurt of heat” coming, especially in the Southwest and southern Plains as ridging builds.

That said, the bigger picture points to cooling demand starting to wind down. Fox Weather models have moderated, and late-August patterns typically bring a drop in population-weighted cooling degree days even if some regions stay hot.

Demand this week is still elevated, so go to the beach while you can but projections show it easing next week as the heat becomes more isolated. Severe storms are also in the mix for the Midwest and Plains, which can disrupt both production and power burn.

Fox Weather’s coverage of both the Hawaii system and the Lower 48 heat/severe weather setup is a good reminder of how quickly the weather can shift the natural-gas balance. For the latest maps, radar, and long-range outlooks, download the Fox Weather app. It’s a muset have tool for tracking the conditions that actually move this market.

The combination of record output and a weather pattern that’s no longer uniformly bullish for power burn is why the rally faded. We’ll keep watching the next storage report and any late-summer heat surprises. Also stay tuned to the Fox Business network because they are invested in you! Also make sure you get signed up for my daily trade as well as special reports. Just call me at 888-264-5665 or email me at pflynn@pricegroup.com



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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.

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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.