EIA Moves the Diesel Shortage Into 2027
The biggest change today comes from EIA, which has moved U.S. distillate tightness well beyond this autumn. Its September 9 STEO forecasts inventories below 100 million barrels during September, below the 2021-2025 five-year low through year-end and through most of 2027. EIA raised its 2026 distillate crack forecast from $1.30 to $1.57/gal, up 20.8%, and its 2027 forecast from $0.97 to $1.25/gal, up 28.5%. Retail diesel forecasts rose from $4.85 to $5.07/gal for 2026 and from $4.07 to $4.40 for 2027. The ICE curve supports the same message. September gasoil expired $84.50/mt over October, yet October/December is around +$155, October/January +$207 and October/April +$329 reflecting our worst fears. October gasoil near $1,485/mt and October heating oil around $5.055/gal against WTI near $102 put the heat crack now close to $110/bbl. September expired, but the shortage premium moved directly into the new front month. Better fasten your seatbelts.
Northwest Europe followed diesel higher, while bio paper liquidity remains subdued. Thursday’s barge window put RME around $1,858.50/mt versus a September average of $1,839.50, FAME around $1,824.83 versus $1,767.51 and UCOME around $1,963.50 versus $1,874.01. Those differences are +$19, +$57 and +$89/mt. RME/FAME compressed to $33.67/mt versus a September average near $71.99, while UCOME/FAME widened to $138.67 versus $106.50. Preliminary Week 36 paper volume totals about 171,000 mt across RME, FAME0, UCOME and HVO2 versus 668,800 mt in Week 35 and about 791,500 mt in Week 32. Thursday and Friday are not fully included, and Thursday HVO II alone added 68,000 mt, but activity still runs well below recent weeks. Physical logistics remain difficult. Kaub was 25 cm Wednesday versus the 77 cm GlW reference, matching the 2018 low-water extreme, with the near-term forecast reaching roughly 15 to 17 cm. Latest Basel tank-barge freight averaged €142/mt.
The U.S. weekly petroleum report provided the strongest counterpoint to the bullish thesis. Distillate inventories built 2.087 million barrels to roughly 106.3 million, while refinery utilization reached 97.8% and distillate production rose to about 5.3 million b/d. Four-week distillate product supplied averaged 3.7 million b/d, down 2.6% year over year. Despite near-full refinery utilization, higher production and softer year-on-year demand, EIA still forecasts stocks below 100 million barrels during September. The strategic cushion also fell again. SPR inventories declined 1.244 million barrels to 285.36 million, down roughly 130 million barrels from about 415 million in early March and at their lowest level since 1982. December D4 RINs near $2.175 slipped slightly while the screened RD biodiesel crush rose 7.9% to 1.8708 and conventional biodiesel crush rose 6.8% to 2.3674. The petroleum leg is now providing more of the improvement in U.S. biofuel economics than another move higher in RINs.
Asia has ample inventory today but a more difficult forward replacement problem. Malaysian August palm stocks rose 7.5% to 2.82 million mt as production increased 1.4% to 1.82 million mt and exports fell 7.5% to 1.29 million mt. The stock figure exceeded the Bloomberg poll near 2.78 million mt by about 40,000 mt and the Reuters poll near 2.76 million by about 60,000 mt. China also holds soybean port stocks near record levels, so the issue is not immediate availability. The pressure sits in the replacement pipeline. China bought roughly 1 million mt of U.S. soybeans this week, taking purchases toward half of its 25 million mt annual commitment, with much of the new volume for December-February Gulf shipment. Private Chinese crush margins remain negative, while the 10% tariff increases the cost of U.S. replacement. Mississippi logistics add another constraint. St. Louis barge tariffs stand 45.5% above their 90-day average, Cairo-Memphis 66.3% above, Memphis is at -2.59 feet and tow-size reductions near 13% remain relevant. One million mt represents roughly 735 standard 1,360 mt grain-barge loads before low-water reductions. My expectation remains Beijing keeps the soybean tariff as negotiating leverage into the Xi visit and offers relief only in exchange for a U.S. concession worth more to China.
My bias remains bullish distillate and bearish prompt BOGO - see chart swan dive. Have been bearish since +550 but cannot find a reason to catch this falling knife considering diesel scenario. October soybean oil at 71.41 cents/lb is worth about $1,574/mt against October gasoil near $1,485, leaving prompt BOGO near +$90/mt. Zero BOGO requires gasoil near $1,574/mt with soybean oil unchanged, about $90 above current gasoil, or soybean oil near 67.3 cents/lb with gasoil unchanged. Forward BOGO remains much wider at roughly +$257 December, +$314 January and +$396 March, so the curve still prices substantial normalization after the prompt squeeze. FOB Paranaguá soybean oil basis is also moving lower versus CBOT, with October around -1.350 to -1.460 cents/lb and Nov/Dec around -1.38 to -1.55 cents/lb, reinforcing the separation between Chicago and international export values. CBOT remains supported by the U.S. RFS island, while international soybean oil is failing to follow at the same pace. I still expect gasoil to test $1,550/mt and prompt BOGO to test zero. With EIA carrying sub-five-year-low distillate inventories through most of 2027, October/January gasoil at +$207 and the heat crack near $110/bbl, the shortage has moved forward rather than disappeared with September expiry.
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