Hormuz Reopening Is Not a Stock Rebuild
Friday, September 25 brings another crude-down, gold-up session, but the inventory damage keeps me cautious about the diplomatic optimism. November Brent fell $1.90 to $104.70/bbl while December gold gained $31.50 to $4,329.50/oz. Global observed oil inventories declined 507 million barrels over the first six months of the conflict, averaging 2.8 million b/d. Within that broader draw, China’s above-ground crude tanks lost approximately 68 million barrels. Restoring flows through Hormuz would help meet consumption, but rebuilding inventories requires supply to exceed demand. That distinction matters when August flows through the strait averaged only 7.6 million b/d, still 13.1 million below pre-war levels. I remain dubious about the negotiations and lean toward renewed military escalation in early October. That timing is my working view; sustained shipping accompanied by rising inventories would give me more reason to reconsider than an agreement alone. IEA, September 18.
In NWE, October gasoil fell almost $86/mt to $1,434.50, while October/Jan backwardation narrowed to $162.25/mt. FAME0 traded at +$305/mt, marginally below September’s previous forward-swap premium low of approximately +$306. UCOME returned to +$460, toward the lower end of its monthly range, while HVO Class II window trades averaged +$1,135/m³ rather than +$1,185. Outright window prices were approximately $1,726/mt for FAME0, $1,881 for UCOME and $2,994 for HVO II. Compared with September 18’s high assessment marks, those represent declines of roughly $174, $100 and $141/mt, although window transactions and daily assessments use different pricing bases. September 18 was not the monthly peak for every grade either: UCOME reached $2,007/mt on September 15 and HVO II $3,179 on September 17.
European biodiesel still shows a positive gross product-versus-feedstock spread, but today’s BOGO rebound puts that cushion under pressure. FAME0 at $1,726/mt against Dutch soybean oil offered at €1,230, equivalent to approximately $1,403 at EUR/USD 1.1403, leaves about $323/mt. RME at $1,852 against rapeseed oil offered at €1,245, or roughly $1,420, leaves approximately $432/mt. These simple gross comparisons exclude yield adjustments, processing, freight and by-product revenue; they are gross indicators rather than executable plant margins. October BOGO widened $93/mt to +$48, with around 92% of the increase coming from falling gasoil. Feedstock consequently became more expensive relative to fossil diesel while the physical FAME premium reached +$305. Forward premiums moved differently: October FAME0 was indicated $30 higher at +$255 and October UCOME $25 higher at +$380, separating today’s physical weakness from forward pricing.
China’s reduced access to Iranian crude adds another concern ahead of October. Imports during September’s first 20 days were running at their second-lowest level in more than a decade, following monthly flows that frequently exceeded 1 million b/d during 2024–25. This measures Iranian supply rather than total Chinese imports, but alongside the approximately 68-million-barrel draw from Chinese crude tanks, it reinforces the importance of replacement deliveries. Holiday domestic flight bookings starting today through October 7 above 8.58 million, more than 10% higher year on year, add a jet-demand pressure point. Meanwhile, September 23 China UCO indications of $1,115–1,135/mt FOB for standard RED bulk and $1,160–1,180 for premium material were only $5 lower at their midpoints than September 18. Feedstock relief has therefore been modest compared with Europe’s $86/mt gasoil decline. I would be cautious about assuming China can expand fuel exports while meeting holiday requirements and rebuilding stocks unless crude arrivals recover sustainably.
US biodiesel economics moved in the opposite direction. October heating oil near $4.80/gal, plus approximately $3.15 from 1.5 D4 RINs at $2.097 each, gives a combined value of $7.95/gal. Soybean oil at 67.26 cents/lb costs about $5.04/gal using a 7.5 lb requirement, leaving a gross spread near $2.90/gal before processing and delivery costs, excludes other credits like 45z/LCFS and by-product revenue. A $0.59/gal cost allowance reduces that to roughly $2.31 for conventional biodiesel; this calculation combines October fuel and feedstock with December RIN pricing, while renewable diesel requires separate yield and hydrogen assumptions that double the cost of transformation and yields a gross margin of ~1.48/gal excluding 45/lcfs. The matched November heat crack rose $3.69 to $99.26/bbl, whereas the 3:2:1 slipped just $1.13 to $60.98. Another important US issue is the postponement of maintenance by most refineries who are now running at max capacity. However, one exclusion is Suncor’s September 25 Commerce City notice that confirms work over the following week which is about 100,000bpd lost. The diesel export ban discussions are not over despite overtures on voluntary export restraint rather than an agreed replacement for the proposed 90-day ban. Am inclined to think that diesel domestic pricing situation will force the ban to come into place. With US October/December diesel backwardation widening to 35.54 cents/gal, Friday’s European sell-off has not persuaded me that October supply will be comfortable and that a ban is not in the cards.
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