Even with a preliminary deal in place to end the Iran war and reopen a critical Middle Eastern shipping lane, profits for diesel fuel producers remain stubbornly strong — a sign that traders aren’t yet convinced the crisis is over.
The U.S. diesel futures crack spread — a key measurement of how profitable it is to refine diesel fuel — reached its highest point in three weeks on Thursday, settling at $62.84 per barrel, according to LSEG data. That marks the highest level since June 3. The crack spread is calculated by looking at the gap between the price of ultra-low sulfur diesel futures and the U.S. crude oil benchmark known as West Texas Intermediate.
Analysts say the strength in diesel refining margins reflects a cautious mindset among fuel traders, who are hesitant to bet against prices in case tensions in the Middle East reignite. The diesel market has been among the hardest hit by the blockade of the Strait of Hormuz — a vital waterway for global fuel supplies and for Middle Eastern crude oil grades that are particularly well-suited for diesel production.
Rory Johnston, founder of the Commodity Context newsletter, explained the current dynamic this way: “It is pretty clear at the moment that oil market tightness is concentrated in products rather than crude, so it is probably a safer way to play upside.”
Johnston also noted that Russian fuel exports have dropped sharply due to damage caused by Ukrainian drone strikes on refineries inside Russia, adding further strain to global diesel supplies.
The diesel crack spread, along with the broader oil market, has fallen significantly in recent weeks as U.S. negotiations with Iran made progress toward ending the conflict and reopening the Strait of Hormuz. At its peak back in March — the first month of the Iran war — the U.S. diesel futures crack spread topped $90 per barrel, and climbed even higher in physical markets.
Still, diesel prices have held up far better than crude oil during the recent retreat. Since the beginning of this month, West Texas Intermediate crude futures have tumbled roughly 22%, while ultra-low sulfur diesel futures have declined just over 9%.
Uncertainty in the region persists. Although some vessels that had been stranded have recently passed through the Strait of Hormuz, a container ship was struck near Oman on Thursday, and the United Nations temporarily halted its efforts to guide ships and sailors through the waterway.
Brokerage StoneX told clients Thursday that diesel inventories are the tightest of all refined fuel products, making diesel especially vulnerable to any new developments in the Middle East.
The most recent government data paints a clear picture of that tightness. U.S. distillate fuel inventories — made up mostly of diesel along with smaller amounts of heating oil — stood at 106 million barrels as of June 19, roughly 12 million barrels below the five-year average, according to the Energy Information Administration.
