Diesel crack falls to $70 from $85 as G7 readies 100-million-barrel release
The ICE gasoil crack is back around $70 a barrel, down from as high as $85 in the middle of last week, after the G7 said it will release 100 million barrels of crude and diesel over the next four months. Middle distillate margins had hit record highs last month. For anyone buying diesel, this is the first time in weeks the pressure has eased on the product side.
The G7 release
The release does two things at once. It puts crude and diesel into the market over four months, and it cuts the odds of a US ban on diesel exports, which is what had the distillate market wound so tight. Warren Patterson at ING pinned the drop in the gasoil crack on both.
President Trump has threatened a US diesel export ban unless Germany and France release diesel from storage. A US export ban would keep barrels home and pull domestic diesel prices down, so the threat alone takes some pressure off the market. It also shows how thin global diesel is when Washington is leaning on allies to open their tanks.
China is not helping supply. It said this week it will suspend all fuel exports this month to keep its own market supplied. Fewer Chinese barrels on the water means the rest of the world competes harder for what is left, and that floor under diesel is part of why the crack sat so high going in. For haulers watching their fuel line, a crack coming off its highs could show up at the rack over the next few weeks, though it has a long way to fall before anyone calls diesel cheap.
OPEC+ holds output
OPEC+ kept its November quota at 31.01 million barrels a day, unchanged from October, in line with what the market expected. The group spent this year unwinding its earlier cuts to make up for lost Middle East supply.
The quota is not the real number. In August the eight members under the quota produced about 25 million barrels a day, roughly six million below their own ceiling. So the headline hold matters less than whether they can actually lift output toward the quota. If they can, more crude is coming. If they can't, the quota does not mean much for actual barrels.
Hormuz reopens
Crude eased this week as oil out of the Strait of Hormuz came back above pre-war levels, according to Kpler. Brent still held above $100, trading around $101.20. That strait carries a big share of the world's seaborne crude, and getting flows back above where they were before the fighting is the single biggest reason crude softened.
It held up despite Houthi attacks on Saudi energy infrastructure and Iranian attacks on tankers in the strait. Tanker traffic is moving. For a US buyer, more crude on the water and Brent off its highs could feed into lower feedstock costs down the line, though crude above $100 is still expensive.
Bayway
Phillips 66 is facing a strike threat at its Bayway refinery over safety and wages. Bayway feeds the East Coast, so a walkout there would tighten gasoline and diesel supply in the region that leans hardest on outside barrels. Watch this one even with the G7 release coming.
The other squeeze is in Russia. Ukrainian strikes have knocked out around half of Russia's refining capacity, and Moscow says it will intensify its own strikes in response. Less Russian refining means less diesel and product reaching the global market, which works against the G7 release and is part of why the crack, even at $70, is not low by historical standards.
What to watch
The export-ban threat is the main lever. If Germany and France release barrels and the US holds off, diesel margins could ease further. If they refuse and Washington follows through, US domestic diesel could come down while export markets tighten, which would reshuffle where Gulf Coast refiners send their product.
Watch whether OPEC+ actually produces toward that 31.01 million quota or stays stuck near 25. Watch Bayway, because an East Coast outage would hit US pumps fast. And watch the Russian refinery damage, because the G7 release adds barrels over four months while the strikes keep taking product capacity out.