Refinery Outages And Global Conflicts Keep Distillates In The Driver's Seat

Diesel futures are leading the energy complex in a healthy rally to start the week, after the U.S. President rejected Iran’s offer to re-open the Strait of Hormuz that sent prices reeling on Friday.

While the market is curbing their enthusiasm for a deal, talks between the U.S. & Iran are set to continue this week, KPLER data shows that oil exports from the Middle East reached their highest levels since the war started in September, and Saudi Arabia confirmed its resumed exports from its East West pipeline despite the escalating war with the Houthis. All of those relatively positive notes seem to be limiting today’s gains, with crude oil futures already pulling back $2/barrel from their overnight highs, and diesel prices “only” up 10 cents at the moment after trading up 22 just a little more than an hour ago.

Ukraine struck 3 different crude units and a tank farm at the 133mb/day Ilsky refinery near the Black Sea Saturday. 3 people were reportedly killed in the strikes, and the entire facility was taken offline as a result. That marks the 14th Russian refinery strike in September, and at least the 10th time this facility has been hit since the war started. The weekend attack is also a clear signal that Ukraine is not bending to the U.S. President’s requests to stop attacking Russian facilities to try and ease diesel prices.

Marathon reported unplanned flaring at the Wilmington section of their 365mb/day refining complex Saturday night, due to unknown causes according to a filing with the AQMD.

With all the back and forth price action of late, it’s not surprising to see money managers have mixed reactions in the most recent CFTC data. Friday’s report, which is based on positions as of last Tuesday, show that the large speculative trade category was adding to net length (betting on higher prices) in WTI and RBOB contracts, while reducing their net length in Bretn, ULSD and Gasoil contracts. The big mover once again was the Brent crude oil contract that saw a net decrease of more than 64,000 contracts (22%) with 43,000 long positions liquidated and 21,000 new short bets added on the week. That big shift in Brent appears to be the big money bettors throwing in the towel as prices dropped $10/barrel, meaning many of them missed out on the subsequent rally after prices bottomed out on Tuesday.

Baker Hughes reported a net increase of 3 oil rigs drilling in the U.S. last week, and 1 natural gas rig. The 455 total oil rigs is the highest count since May 2025, and the 135 total natural gas rigs are the most since July 2023. The Primary Vision count of fracking crews active in the U.S. jumped by 8 last week to 195, which is still 10 crews less than where the count topped out in July.

Doubling down: A new 700mb/day refinery project in Kenya is set to break ground this week, with the nation hoping that the recent successes of the Dangote refinery in Nigeria can be repeated on the other side of the continent.