Analysis: Global Diesel Crunch Reprices USGC ULSD


   
Miguel E. Andujar
DTN Refined Fuels Market Reporter

   DAVENPORT, FL (DTN) -- A global diesel supply crunch has nearly doubled U.S. 
Gulf Coast ULSD prices since the Middle East conflict escalated in late 
February, as reduced supplies from the Persian Gulf and Russia increased demand 
for U.S. exports and placed a higher value on Gulf Coast barrels.

   DTN assessed USGC ultra-low sulfur diesel spot price at $4.3391 gallon on 
Thursday (9/24), up $2.1031 from $2.2360 on February 27, immediately before the 
conflict escalated, according to DTN market data. The increase was even more 
pronounced against the previous year, with Thursday's assessment $2.1627, or 
99.4%, above the $2.1764 gallon recorded September 24, 2025.

   Higher crude prices accounted for only part of that increase. The implied 
USGC ULSD crack against West Texas Intermediate crude stood at $87.65 bbl 
Thursday, more than triple the $26.89 margin on February 27 and $26.42 on the 
comparable day in the previous year. The crack reached a record $106.90 bbl on 
September 16, while jet fuel margins have followed a similar path, with the 
implied USGC jet crack at $97.10 bbl Thursday compared with $33.72 before the 
conflict and $27.57 on September 24, 2025.

   The sharp expansion in middle-distillate margins followed disruptions to the 
Strait of Hormuz, one of the world's most important petroleum transit routes. 

   Diesel and gasoil exports from the Middle East averaged only 390,000 bpd in 
August, slightly more than one-quarter of pre-conflict levels, as flows through 
the Strait remained severely constrained, according to the International Energy 
Agency.

   The reduction left buyers searching for barrels from other major refining 
centers.

   External pressure

   The loss of Middle Eastern supply has been compounded by reduced Russian 
refinery output following repeated Ukrainian attacks on the country's refining 
system. Russia has about 6.5 million bpd of installed refining capacity, but 
refinery throughput fell to 3.8 million bpd in June, the lowest in more than 20 
years and about 30% below the previous year, according to the IEA. Russian 
diesel production was also nearly 30% below 2025 levels.

   Together, the disruptions have removed a significant amount of diesel from 
the international market. Combined Middle Eastern and Russian diesel and gasoil 
exports in August were 1.6 million bpd below February levels, when the two 
regions accounted for nearly 45% of global seaborne diesel trade, according to 
the IEA. Higher refinery runs and exports elsewhere have provided only a 
partial replacement for those barrels.

   That shortage has increased demand for U.S. refined products. U.S. 
distillate exports averaged 1.56 million bpd during the second quarter, 30% 
above the five-year average, with shipments increasing to all major export 
markets, the Energy Information Administration (EIA) reported. Jet fuel exports 
averaged a record 356,000 bpd during the quarter, more than double the 
five-year average, with shipments to Europe increasing substantially.

   The Gulf Coast supplied most of those additional diesel barrels. PADD 3 
distillate exports increased from 1.008 million bpd in February to 1.477 
million bpd in May, up 469,000 bpd, or 46.5%. More specifically, exports of 
ULSD containing 15 ppm sulfur or less increased 56% over the same period, from 
879,000 bpd to 1.371 million bpd, according to EIA data.

   Great incentive

   Gulf Coast refiners responded to the stronger export demand by maintaining 
high operating rates and increasing middle-distillate production. PADD 3 
distillate output exceeded 3 million bpd during much of the spring and summer 
and stood at 3.051 million bpd during the week ended September 18. Regional 
refinery utilization was 96.5%, up from 94% during the comparable week in the 
previous year, EIA data shows.

   The combination of high refinery runs and strong diesel prices shows 
refiners have increased supply while the global market has continued to place a 
high value on USGC barrels. That pressure has also been reflected in the NYMEX 
ULSD futures curve, where backwardation has maintained a premium for prompt 
supply. Front-month ULSD traded 23.23cts gallon above the second-month contract 
Thursday, compared with 15.70cts on the comparable day in the previous year, 
according to DTN market data.

   For that reason, industry participants pushed back on reports that the U.S. 
Department of the Treasury was considering a ban on U.S. diesel exports to ease 
domestic price pressure, arguing that such a move could force Gulf Coast 
refiners to reduce crude runs and ultimately tighten domestic supplies of 
diesel, gasoline and jet fuel.

   Another disruption added to global supply concerns this month when a 
September 11 attack damaged Saudi Arabia's East-West Pipeline, one of the 
principal routes available to move Saudi crude to the Red Sea and bypass 
Hormuz. Saudi Arabia restarted the pipeline at reduced rates this week, 
although full restoration could take six to eight weeks. The pipeline primarily 
carries crude, but the disruption temporarily reduced an alternative route 
around Hormuz while refiners were already competing for crude and finished 
fuels.

   USGC diesel prices strengthened sharply during that period. ULSD was 
assessed at $4.5768 gallon on September 11 before rising to $4.9840 on 
September 16, while the implied USGC diesel crack increased from $92.18 bbl to 
a record $106.90 bbl over the same period, according to DTN market data.

   Yet, one of the clearest indications that the rise in USGC diesel has not 
been driven solely by a local supply shortage can be found in the regional 
basis. 

   USGC ULSD was assessed Thursday at a 39cts gallon discount to NYMEX futures, 
slightly wider than the 36cts discount on February 27. Despite that discount, 
the outright USGC price has risen 94% and the diesel crack has more than 
tripled since the conflict began.

   The contrast shows how the global diesel crunch has repriced USGC ULSD. With 
Russian refinery output constrained, Middle East diesel exports still sharply 
below pre-conflict levels and U.S. Gulf Coast refiners running at higher rates 
than the previous year, U.S. exports have become an increasingly important 
source of replacement supply. 

   Until the Middle East conflict and related supply disruptions ease, USGC 
diesel prices are likely to remain driven by both regional fundamentals and the 
global competition for available middle-distillate barrels.

    




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