Diesel Strength Offsets Gasoline Weakness As Supply Concerns Mount

It’s a mixed bag for energy markets to wind down another wild week of trading. RBOB gasoline futures are trying to pull the complex lower, with October futures down around 6.5 cents, while the November contract trades down around 5.5 cents, but ULSD and WTI seem unimpressed by the gasoline backwardation deflation so far and are hovering near breakeven at the moment.

Another tanker was attacked by Iranian forces near the Strait of Hormuz overnight as the battle of attrition keeps official transits down to a bare minimum (2-4 per day per KPLER stats) while dark transits escorted by U.S. military assets apparently continue at unknown levels. The UKMTO monitoring agency has reported a handful of ship attacks in the past week, and yet so far the U.S. military has not retaliated for any of those strikes as they appear to be targeting commercial ships and not the Navy.

Despite claims of an “energy truce” between Russia and the Ukraine, neither side acknowledges an agreement and both continued to target energy assets overnight. Ukraine’s drones struck the 315mb/day Yaroslavl refinery again on Thursday, marking the 8th refinery strike so far in September.

Chicago diesel prices have spiked this week as the two largest refineries in the region are both dealing with upsets just in time for the fall harvest demand season to start kicking off in the next couple of weeks. Exxon was forced to shut down its 275mb/day Joliet IL refinery Sunday after a power outage that caused unplanned flaring at multiple units according to filings with the IEMA. Thursday the facility reported an oil release as flood water overwhelmed a pump on site.

The 430mb/day BP Whiting refinery also reported a “release” (AKA spill) on site Thursday, but said that was isolated and controlled. It’s unclear whether any operating units at the plant were impacted at this point, but the spike in basis values Thursday would suggest at least one person is betting they may not be producing at full capacity, which to others may have been obvious since the facility was undergoing planned maintenance already.

Turn that pipe around? The spike in Chicago comes just after Buckeye Pipeline received approval to reverse its Laurel line all the way across Philadelphia, which will allow Mid-Continent refiners that often struggle to push their excess product without the benefit of a coastline to export fuels, only now they would prefer to ship from the East to the West given the current values. See the NYH vs CHI ULSD chart below.

The EPA’s monthly RIN generation data showed a 12.9% decrease in D4 (Bio-mass based diesel/jet) production in August, as a handful of upsets at domestic facilities slowed RD output, and imports remain essentially non-existent. That drop in RD production also contributed to the sudden and dramatic tightening of inventories across California after those markets had faced a glut of renewable supply for much of the year. RIN markets seemed unimpressed by the drop in output however, with values slipping a couple of cents to just below the $2 mark for D6 2026 vintage RINs following the report, while D4 2026 values are holding about a nickel higher.

With retail diesel prices holding at record levels, the calls to ban or restrict U.S. exports continue. The chart below shows the countries that rely most on U.S. diesel exports, with Mexico and several Latin American countries set to feel the worst of any restrictions. Western Europe would also feel the squeeze as exports to the Netherlands (part of the ARA hub) have spiked in 2026 due to the loss of barrels from the Middle East. The other big losers would be USGC refiners who would struggle to find enough domestic buyers for their fuel and would likely end up having to cut run rates if export restrictions are put in place.