Diesel Bounces as Washington Buys Time
Diesel recovered sharply on the supplied afternoon screens. October ICE gasoil stood at $1,379/tonne, up $49.50 against the previous settlement, after this week’s low of $1,309.25 approached moving-average support near $1,303 on the weekly chart. The nearby heating-oil/WTI crack returned above $100 to $103.32/bbl: heating oil at $4.6050/gallon multiplied by 42, less WTI at $90.09/bbl. The displayed 3:2:1 was $67.44/bbl, using the same crude and heating-oil values alongside gasoline at $3.3235/gallon. These are gross futures spreads before operating costs. My interpretation is that expectations of policy relief ran ahead of its effect on diesel availability. The rebound supports that reading as shelving of the US export ban definitely helped the supporting action.
In the US, the dyed-diesel order changes tax treatment and highway access rather than adding production. Farmers already using dyed fuel off-road gain little directly; eligible highway users, including grain haulers, have more to gain. The federal tax component is roughly 24 cents/gallon (~72/mt), but the October 5 order provides for a conditional deferral covering October 5–December 31, with forgiveness still to be explored and state rules still relevant. I regard this as political relief that cushions consumption while avoiding an export ban; its actual demand effect remains unquantified. US distillate stocks were approximately 105.2 million barrels on September 25, the lowest last-full-week-of-September reading in the accompanying EIA series dating back to 1982. EIA’s October outlook also puts September East Coast stocks 32% below their five-year seasonal average and forecasts a 20–30% deficit through winter. The order contains no RFS exemption or change to renewable volume obligations, leaving my direct RFS reading neutral.
Northwest Europe’s November–April ICE gasoil spread shows that the premium for winter supply extends beyond October expiry. November stood at $1,341/tonne against April at $1,158, a $183 backwardation, widening $21.50 against the previous settlement as November gained $47 and April $25.50. The supplied regional chart puts late-September ARA gasoil stocks approximately 25% below their seasonal five-year average; that is a hub measure, not total European inventory. India’s use of authorised Venezuelan crude may help refiners document non-Russian feedstock and preserve European market access, but it does not itself increase global diesel production. September India-bound Venezuelan crude and fuel-oil loadings were approximately 253,000 b/d, below August’s 297,000 b/d. Earlier Q1 renewable-product trades also diverged: FAME premiums rose $45 to +$265/tonne, UCOME rose $16 to +$431, and HVO II fell $60 to +$1,465. The October 6 sheet carries unchanged UCO indications of $1,295/tonne CIF ARA and $1,255 ex-works Netherlands. Those spot feedstock indications and forward product premiums are not directly comparable production margins.
Asia’s stock figures give a more mixed picture than a claim of worldwide record-low diesel inventories would suggest. The supplied context puts Singapore middle-distillate stocks near 8.8 million barrels (Singapore sells roughly 2.6 million barrels a month of marine gasoil bunkers, but its distillate stocks of 7–9 million barrels mainly serve a hub that refines and exports several times that volume, so they cover only about two to three weeks of total throughput.) on September 30, a seven-week high, and Fujairah at 2.69 million barrels on September 28, compared with 1.13 million in May. These are storage-hub readings, and the regional comparison chart mixes dates and reference periods. Chinese refiners are reportedly withholding October fuel exports beyond Hong Kong and Macau, although no official announcement was identified in the supplied reporting; replacement buying could draw Indian diesel away from Europe. CPO has a different balance. September Malaysian palm inventories are estimated at 3.37–3.45 million tonnes against approximately 2.82 million in August, pending official confirmation. The supplied dollar screen puts November CPO at $1,154.50/tonne and December at $1,177.75. Against December gasoil at $1,302.50, December palm is $124.75/tonne cheaper before processing and freight, a relevant feedstock discount for palm biodiesel producers meaning it is becoming compelling to consider blending into Gasoil at some stage if Gasoil spikes in next few weeks. There is no Chinese export-price confirmation during Golden Week, so it provides no basis for assuming an equivalent improvement in waste-oil procurement costs.
The accompanying US feedstock chart shows soybean oil’s share of combined biodiesel and renewable-diesel feedstock use rising from approximately 37% in July 2025 to 43% in July 2026, a six-percentage-point increase, while tallow fell from 28% to 20%. Yellow grease increased from 14% to 16%, canola oil from 7% to 8%, and corn oil remained near 12%. These rounded shares describe the mix rather than absolute consumption, and yellow grease is broader than UCO. On the later December spread chart, soybean oil at 69.78 cents/lb converts to $1,538.37/tonne; against gasoil at $1,302.50, BOGO is $235.87/tonne before conversion costs. My base case is another diesel price spike starting now, with strength lasting longer than the last rally to probably take out the last ICE Gasoil highs of $1575/mt. The $21.50 widening in November–April gasoil and the 105.2-million-barrel US seasonal stock reading support that forecast, but do not prove its timing. Sustained inventory builds and recovering export availability would challenge it. Until those appear, I expect tax relief to cushion demand without resolving the supply deficit.
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