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The Energy Report

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


The Diesel Dump. The Energy Report 10/19/2026

Diesel dump / crack spreads came under pressure on the news that President Trump waived key new Russia sanctions (Graham Act) and related measures, plus the earlier diesel deal. They then bounced back on reports of continued Russian strikes on Ukrainian energy and oil infrastructure. The market is treating the supply relief as limited and temporary while the war keeps disrupting refined-product flows. This war between the US and Ukraine has always been about Energy and that’s why right now refineries and infrastructure area key targets of the war. And while many people are upset about president trump lifting sanctions on Vladimir Putin the reality is that president trump knows that Russia was exporting war and to your soul before their self-imposed export ban last July and that caused the US prices to rise by $1.60 a gallon as the world is more dependent on US diesel exports.

Let’s go over what happened on Friday night, President Trump signed an executive order waiving application of major new sanctions and tariffs under the Lindsey O. Graham Sanctioning Russia and Iran Act that he had signed into law in mid-September. The law was set to take effect around Oct 18; the waiver was certified as being in the U.S. national interest. It covers a broad range of measures (including certain financial and trade.

This is separate from, but related to, the Oct 9 Trump-Putin call that produced a diesel supply agreement. Under that deal, Russia said it would release more than 300,000 metric tons of diesel immediately, another 500,000 tons in November, and further volumes thereafter (depending on refinery conditions). The U.S. Treasury issued a general license allowing transactions involving Russian-origin diesel until April 7, 2027. Russia has partially lifted its own diesel export ban (originally imposed July 8, 2026, after Ukrainian drone strikes on its refineries, and later extended).

The stated goal is to help the world build refined-product supply ahead of winter. While some say that market impact on the war itself is expected to be limited the realty is that we could see diesel drop over a dollar a gallon.

The war prize is on energy. That’s why Russia’s continued strikes on Ukrainian energy facilities are so important. Zelenskyy said there were roughly 76 attacks on energy, oil, and gas sites in the week after the announced “energy ceasefire.” Ukraine has also resumed strikes on Russian refining capacity, making one thing clear: no lasting energy truce has taken hold.

Now, The Wall Street Journal reports that Putin has proposed meeting with Trump and Xi Jinping at a summit next month to discuss ending the war in Ukraine. The terms would reportedly favor Moscow, and Zelenskyy would not be included. The idea came up during the same Oct. 9 Trump-Putin call that produced the diesel deal. The Kremlin has suggested holding the meeting on the sidelines of the APEC summit in Shenzhen on Nov. 18–19. Kremlin spokesman Dmitry Peskov confirmed that discussions are underway and said all three sides recognize the hypothetical possibility of such a meeting, though the details and agenda remain unclear.

China is still the world’s largest oil importer, and global diesel supplies remain tight and well below average in key markets. U.S. distillate inventories recently stood at about 102.6 million barrels for the week ending Oct. 9—the lowest level for that week of the year in EIA data going back to 1982 and roughly 12% below the five-year average. With Russian refining capacity reduced by drone strikes and the export ban, along with other disruptions, the U.S. has been carrying an outsized share of the load as an exporter.

The sanctions waiver and the release of Russian diesel put a few more barrels back on a market that has been running on fumes, thanks to Russia’s July export ban and earlier U.S. restrictions. That should give the world a little help building supplies ahead of winter—but let’s not get carried away. These volumes are small compared with the global shortfall, Russian refining capacity is still damaged, both sides continue to target energy infrastructure, and inventories—especially U.S. distillates—remain historically low. That’s why diesel and crack spreads initially tumbled on the waiver headlines overnight, only to come roaring back when reports of more infrastructure strikes hit the wires.

The bipartisan political backlash is real, but for the market, the immediate questions are simple: Will those Russian diesel barrels show up, and will the attacks on energy infrastructure finally begin to ease? U.S. natural gas is looking strong heading into the rest of 2025 and beyond. The Energy Information Administration’s latest short-term outlook shows production climbing to new record highs, and demand is holding up nicely right along with it. The EIA sees dry gas production rising from a record 107.6 billion cubic feet per day in 2025 to 112.2 bcfd in 2026 and 116.1 bcfd in 2027. Domestic use is expected to edge higher as well—from 91.9 bcfd this year to 92.4 bcfd next year and 93.8 bcfd in 2027. On top of that, LNG exports keep growing, jumping from 15.1 bcfd to 17.6 bcfd and then 18.6 bcfd. That’s a healthy picture of both supply and demand moving in the right direction.

Storage is finishing the injection season in good shape. Inventories stood at about 3,523 Bcf at the end of September, and the EIA expects them to build to roughly 3,850 Bcf by the end of October—about 2% above the five-year average as we head into heating season. Recent weekly builds have been a little lighter than some folks expected (the latest was 67 Bcf), but the overall cushion still looks comfortable. On the price side, the EIA forecasts Henry Hub averaging around $3.48 in 2026 before easing to $3.16 in 2027 as production growth covers the rising LNG and power-sector demand. Prompt futures are trading near $3.14–3.15 right now—pretty typical for this shoulder-season stretch.

It’s the classic late-fall setup: plenty of supply and solid inventories give the market a nice buffer, while weather remains the big swing factor. Mild conditions keep residential and commercial demand in check, but any real cold snaps can tighten things up quickly—especially with LNG feedgas staying strong. Fox Weather outlook: NOAA’s latest winter outlook for December 2026 through February 2027 is shaped by a strengthening El Niño. Warmer-than-average temperatures are favored across much of the northern tier—the Pacific Northwest, northern Rockies, Midwest, and large parts of the East—the areas that usually drive the bulk of heating demand. Wetter conditions look more likely across the South and along the East Coast. Nationally, heating degree days are expected to come in near last winter’s levels and a touch below the five-year average. That points to a relatively moderate heating season overall, which should help keep storage draws manageable and limit big price spikes unless we get a string of Arctic blasts. As always, the day-to-day swings will matter. Download the Fox Weather app for the latest forecasts, radar, and alerts—it’s the easiest way to stay ahead of the weather that moves this market. Stay tuned to the Fox Business Network. Call me at 888-264-5665 or email pflynn@pricegroup.com for the latest levels and to talk about your hedge or trading plan.



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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.

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