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The Energy Report

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


The Revenge of the Crack. The Energy Report 09/28/2026

The diesel crack is back over one hundred dollars a barrel after President Trump rejected Iran’s so-called peace proposal. Crude is still moving. Saudi barrels are moving. Iran is still lashing out at civilian ships in a pathetic display of a failing regime. And the crack is looking for revenge.

The spread is widening because the product market is tight, not because crude is running away. Diesel supply is short relative to available refining capacity, which means the crack can keep expanding even while WTI and Brent chop sideways. Yet crude is not sitting still. Kpler data out this morning show Middle East oil exports rebounding to about 12.8 million barrels a day in September, the highest since the war began in late February, still roughly six million barrels a day below the pre-war pace. Flows through the Strait of Hormuz itself are on track for about 7.4 million barrels a day this month. That is a recovery, not a reopening. Nineteen VLCCs carrying Saudi crude passed the strait last week. Ras Tanura loadings jumped to about 3.6 million barrels a day from under a million in August. Saudi exports as a whole are running near 5.4 million barrels a day.

The East-West pipeline is part of that story. After the mid-September drone hits that shut Yanbu loadings, Riyadh pushed more crude back into the Gulf and through Hormuz, often with AIS dark and with ship-to-ship transfers off Oman stretched to the limit. Sources say the Petroline has been restarted at reduced rates and is building pressure toward Yanbu again, but a full return is still weeks away. Iran can harass traffic. It has not stopped the barrels. Russia remains the missing barrel. Ukrainian strikes have cut Russian refining runs, and Moscow banned diesel exports. Reports say the producer ban is being extended through late October. Russia was a major seaborne diesel supplier to Europe, and those barrels have not returned. Middle East logistics are still throwing sand in the gears. Traffic through Hormuz remains constrained relative to the old 20-million-barrel-a-day world, and Gulf refining and export routes have been hit or disrupted. That has removed both crude feedstock for some refiners and finished diesel and gasoil that once flowed west.

This morning’s Financial Times coverage, citing Argus, has Europe’s diesel crack clearing one hundred dollars a barrel against North Sea crude. Argus called it unprecedented. Southern Europe printed above $104 earlier this week.

U.S. tanks are thin, and refiners are already running hard. Distillate inventories have been running about twelve to fourteen percent below the five-year average, with East Coast stocks especially tight. A one-hundred-dollar diesel crack is the market screaming for more ULSD, but there is almost no spare distillation capacity left to answer the call. Extra U.S. barrels have gone to export markets instead of rebuilding domestic inventories. Harvest demand, trucking, the approach of heating season, and fall refinery turnarounds are all arriving on top of a short market. That is why the next six to eight weeks may matter far more than the last six to eight.

The U.S. diesel crack punched through one hundred dollars a barrel in August and posted record closes near one hundred three to one hundred eight dollars in early September. Physical New York Harbor diesel versus WTI was still printing well into triple digits later in the month. Europe’s physical diesel premium over crude also cleared one hundred dollars a barrel. Retail diesel has been setting new nominal highs even with crude well below previous crisis peaks. In other words, the refinery margin—not the crude barrel—is doing most of the damage at the pump.

ULSD futures suffered a sharp pullback last week. Front-month Nymex ULSD fell more than seven percent in the week ended September 25, settling near four dollars and sixty-eight cents a gallon. Yet the physical story barely blinked. Russia’s ban remains in force, Hormuz is still constrained, U.S. stocks are still lean, and European diesel premiums have jumped back to record highs. Futures mean-reverted. The shortage did not.

The crack will keep doing the market’s dirty work until one of the pressure valves opens: Russia restarts meaningful diesel exports, Hormuz and Gulf product flows normalize, U.S. inventories post a genuine rebuild as exports fall, or refinery turnarounds end without another wave of outages. Until then, crude can sag while diesel stays expensive. That is the 2026 setup, and for now the crack is getting its revenge.

That tightness is no longer just a trader’s story. It is a farmer’s story and an economy story. Diesel is the fuel that plants the crop, hauls the grain, runs the trucks, and keeps freight moving. AAA puts the national average for diesel at about six dollars and forty-seven cents a gallon this morning, a couple of pennies off the recent print but still near last week’s record near six dollars and fifty-three cents. A month ago diesel averaged about five dollars and sixty-one cents. A year ago it was three dollars and sixty-nine cents. Regular gasoline is about four dollars and forty-eight cents a gallon, almost unchanged from yesterday and a week ago, but thirty-nine cents higher than a month ago and a dollar thirty-four higher than a year ago. Mid-grade is about four dollars and ninety-nine cents and premium is about five dollars and thirty-eight cents. The pump is telling you the same thing the crack is telling you: gasoline is expensive, and diesel is the product that is rationing the shortage.

Natural gas is a different tape. LNG feedgas demand rose above eighteen billion cubic feet a day yesterday for the first time since Cove Point went down for maintenance and looks set to hold near that level. Were Cove Point up and running, that eighteen-point-eight billion cubic feet a day would sit within seven-tenths of the all-time high. Expect that level to be breached later this fall once the Maryland plant returns, likely around October 10 or 11. Working gas in storage was 3,351 Bcf as of September 18 after a 53 Bcf injection, a little above the five-year average and still building into winter.

In Europe, as reported by the Wall Street Journal, European gas prices rose more than 2 percent after President Trump rejected Iran’s truce proposal, fueling concerns over prolonged disruptions to LNG flows ahead of winter. In early trading, the benchmark Dutch TTF contract was up 2.4 percent to 73.63 euros a megawatt-hour, with lower Norwegian flows adding to the bid.

Fox Weather and the model suite are in a classic shoulder-season tug-of-war. The European model is leaning cooler into early October across the Midwest and East, which would pull heating demand forward. The American model has been warmer run over run. If the cooler solution verifies, prompt gas gets a weather bid even with tanks still comfortable. If the warmth holds, LNG and power remain the demand story until real heating weather arrives. Either way, diesel is the product that is already tight. Natural gas is still waiting on the first real cold front.

Make sure you download the Fox Weather app and stay tuned to the Fox Business Network. Open your account by calling 888-264-5665 or email me at pflynn@pricegroup.com.



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