Diesel Futures Diverge from Crude as Refinery Damage Deepens the Product Shortfall
U.S. diesel futures rose 26% through July even as crude eased; record refinery runs have not closed the global product supply gap.
NYMEX ULSD front-month heating oil held at $4.24 a gallon as of August 13, down fractionally on the session. It is still up 26% through July, even as ICE Brent crude front-month softened on signals of de-escalation in the U.S.-Iran standoff. Crude traders see an orderly market. Anyone running a diesel book does not.6,8
U.S. commercial oil stocks sat 6% below the five-year seasonal average despite a build in the week to July 17, with crude at Cushing, Oklahoma, and in the Strategic Petroleum Reserve at multi-year and four-decade lows respectively. A combination of strategic reserve releases, rerouted Saudi and UAE pipeline exports, and rising U.S. export volumes has partially stabilized crude flows. The product market has not followed.6,1
EIA data for the week ended July 20 showed U.S. refineries averaging 17 million barrels of fuels per day, a post-pandemic record. Refining margins are at record highs. Yet the world remains short on fuels. Sources on Bloomberg Surveillance noted in July that normalizing refined product output would take considerably longer than crude flows, because refining capacity itself has been damaged, not just crude supply chains.7,4,5
That capacity damage is hard to price quickly. Global refinery crude runs in 2026 are now expected to average around 82 million b/d, nearly 1.6 million b/d below 2025 levels, according to OGJ data. That shortfall in processing means a full crude supply recovery would not translate into equivalent product availability. Refiners running at record utilization rates cannot compensate for capacity that simply isn't running.2
The inventory picture reinforces that constraint. Observable global oil stocks fell a cumulative 246 million barrels since the conflict began, per OGJ analysis. The draw ran 129 million barrels in March and another 117 million in April — equivalent to about 3.9 million b/d. Excluding barrels stranded in Gulf storage or aboard tankers unable to transit the Strait of Hormuz, the effective decline runs steeper still. Drawdowns of that scale do not reverse in weeks.2
Asia illustrates the crude-versus-products split most sharply. Regional crude imports were expected to recover to around 22.18 million b/d in June, up from 20.35 million b/d in May, according to Kpler data, approaching pre-conflict volumes. But refined product flows into the region remained constrained, with fuel prices continuing to reflect the supply stress. Crude imports are recovering; product imports are not keeping pace.3
Europe faces a separate pressure point. Around 75% of Europe's jet fuel imports originate in the Middle East Gulf, according to OGJ data, meaning any Strait disruption hits European aviation supply directly with few alternative sources. Jet fuel and diesel compete for the same distillate fraction through the refinery slate, so tighter jet fuel availability constrains diesel output in turn. The linkage matters most when refining capacity is already running flat.2
The IEA warned earlier this year that peak summer fuel demand, combined with ongoing disruptions and depleted global stockpiles, could push the oil market into what it called the "red zone" during July and August. That window is now open. A ceasefire or Strait reopening would cut product prices quickly, but damaged refining capacity would cap how fast actual product availability recovered. August inventory reports will show whether the drawdown pace has slowed enough to matter.1,8