Washington Grabs for Any Relief as Diesel Inventories Head Toward October Low

EIA’s September outlook gives the diesel market a specific concern for October: its chart projects US distillate inventories falling to approximately 93 million barrels at month-end before recovering in November and December. That is an inventory low, not a forecast of an October price bottom. EIA expects stocks to remain below the 2021–2025 range through year-end and most of 2027, despite the subsequent rebuilding. Its forecast was finalized on September 3 and assumes improving Middle East flows; it explicitly warns that restrictions persisting beyond year-end would produce higher diesel cracks than forecast. September 29’s prices illustrate that risk without proving the forecast: November Brent traded down $2.71 at $102.57/bbl ahead of expiry, while the nearby heating-oil/WTI spread reached $115.80/bbl. Heating oil at $4.8868/gal multiplied by 42, less WTI at $89.45/bbl, produces that spread. Of its $8.67/bbl daily increase, $5.52 came from stronger heating oil and $3.15 from cheaper crude. This nearby futures spread is not a complete refinery margin, but the arithmetic shows diesel itself supplied most of the widening.

In the US, official announcements identify at least five states with enacted or proposed fuel-tax relief: Georgia, Indiana, Massachusetts, Ohio and Nebraska. Georgia’s suspension began September 29, covering 37.3 cents/gal on diesel and 33.3 cents on gasoline; Indiana’s gasoline-tax suspension runs through October 5; Massachusetts has proposed a two-month, 24-cent/gal suspension; Ohio has introduced temporary motor-fuel tax reductions; and Nebraska provides targeted diesel-tax refunds for qualifying agricultural transport. These are different measures, not five equivalent diesel-tax holidays. Even full pass-through of Georgia’s diesel suspension would equal approximately 5.8% of EIA’s September 28 national diesel average of $6.382/gal, an illustrative comparison rather than a Georgia price forecast. Tax relief can reduce the bill without producing additional gallons. Meanwhile, December D4 traded at $2.070/RIN, December soybean oil rose 0.70 cents to 68.36 cents/lb, and December ULSD fell 2.41 cents to $4.3440/gal. Using 7.5 lb of soybean oil per gallon, December BOHO widened from approximately 70.64 to 78.30 cents/gal. That feedstock spread deteriorated even as October–December ULSD backwardation widened to 56.60 cents/gal although Oct expires tmrw.

Heating Oil ULSD oct/dec

Northwest Europe is reportedly being asked to release emergency diesel stocks, but no agreed volume or delivery schedule has been established in the material reviewed. The EU minimum is the greater of 90 days of net imports or 61 days of inland consumption, covering crude and petroleum products together. National systems use agencies and obligated companies; transfers between holders do not remove the aggregate requirement. An authorized drawdown could reduce replacement buying, but moving from 90 to 45 days on the same measurement basis would halve that coverage. I doubt governments would readily accept such a reduction; that is my judgment, not an announced European position as Europe situation is not similar to US. Today’s market already distinguishes between products: October gasoil fell $49.25 to $1,395.75/mt, while end-of-day October RME, FAME and UCOME paper premiums increased by $85, $53 and $50 to +$420, +$288 and +$415/mt against the report’s previous marks. November HVO II gained $15 to +$1,595/mt. Physical RME rose $25.64 to $1,882.94/mt, while FAME fell $19.36 to $1,662.94, leaving a $220/mt difference. Those prices show why a decline in gasoil cannot be treated as an equivalent reduction in winter biodiesel procurement costs.

Asia’s trade developments also require a distinction between soybeans and soybean oil. The supplied market reports link Monday’s nearly 31-cent decline in November soybeans to disappointment that US soybeans were excluded from the proposed new Chinese tariff reductions. The official US–China framework describes its product lists as recommendations subject to domestic procedures, not an implemented blanket tariff agreement. Tuesday’s screen then showed November beans recovering 9.5 cents to $12.9775/bushel and December soybean oil rising 0.70 cents to 68.36 cents/lb. At that oil price, the tonne equivalent is $1,507.06; against December gasoil at $1,292/mt, the difference is $215.06/mt before conversion and freight. January Chinese palm olein rose 24 yuan to 9,595 yuan/mt, and January rapeseed oil gained 190 yuan to 10,234 yuan/mt. Palm’s latest supplied Malaysian December settlement, dated September 28, was 4,663 ringgit/mt, down 9 ringgit, with market estimates placing possible end-September stocks near 3 million tonnes. That stock estimate remains unconfirmed. The observed price changes therefore do not support assuming that weaker soybean export expectations have already delivered cheaper oil feedstocks for biodiesel or renewable diesel.

The sunflower forecast offers potential relief, but its concentration deserves attention. World sunflower seed production is projected at 62.1 million tonnes in 2026/27, up 5.6 million tonnes, or 9.9%. Russia rises from 17.5 to 21 million tonnes and Ukraine from 12.2 to 13.5 million; their combined 4.8-million-tonne increase accounts for 85.7% of the global gain. EU production increases just 0.2 million tonnes to 8.9 million. These are seed forecasts, not quantities of exported vegetable oil. With nearly 86% of the additional crop concentrated in Russia and Ukraine, my concern is that disruptions to crushing, power or Black Sea shipping could limit the timing and size of the benefit for world buyers; the supplied figures do not quantify those potential losses. That distinction also shapes my view of Washington’s response. Against EIA’s projected October stock trough near 93 million barrels, temporary tax reductions and an unquantified European reserve request do not yet demonstrate a durable supply recovery. I expect the export-ban discussion to return if relief disappoints, possibly encompassing all refined fuels, but that remains a scenario. The evidence to test it will be actual inventory rebuilding, confirmed reserve deliveries and whether diesel strength persists beyond the expiring contracts.