ivanlabrie

Dec $CL closed Tuesday at 96.09, down 0.38%, and Jan $BZ lost 1.12% to 103.60. In the same session Dec ULSD, the US diesel futures contract, rose 2.47% to 4.5306 and Dec gasoline added 1.22%, so the products went up on a day both crude benchmarks fell.
The day before had gone the other way. Dec WTI fell 7.36% on Monday and the diesel crack, which is roughly what a refiner earns turning a barrel of crude into diesel, gave back $3.03 with it, from $92.28 at the end of October to $89.25. On Tuesday the crack gained 5.55% to $94.20, which leaves it $1.92 above where it finished October, while Dec WTI is still 7.71% below its October finish.
I think we're watching two different premiums leave the barrel at different speeds. Most of what crude has lost since Friday came on headlines from the Iran talks, while the drone strikes on Russian refineries keep hitting diesel supply directly. A headline can pull risk premium out of crude in one session, but it doesn't put any diesel back in the tanks.
And those tanks are low. US distillate inventories fell 1.5 mb in the week to 23 October to about 102.8 mb, against a five-year average of 113.7 mb, which leaves them 10.9 mb or 9.59% below normal going into winter. EIA's outlook has East Coast distillate stocks 20-30% under average through the winter, and the IEA said in October it expects middle distillates to stay tight well into 2027.
I don't see supply fixing that quickly either... Russia extended its ban on diesel, marine fuel and gas oil exports by producers to 31 January 2027, announced on 31 October, and Russian refinery runs were about 3.6 mb/d in July, the lowest since May 2002.
The futures curves are telling the same story as the crack. Both crude curves flattened again on Tuesday, although they're still backwardated at every tenor, and Dec ULSD and Dec RBOB were the only two energy contracts whose spread to January widened over the last five sessions.
This is why I watch products more than flat crude for the inflation side of the story. Diesel runs trucks, trains, ships and farm machinery, so it reaches freight bills and goods prices faster than the crude headline does, and in the earnings season we just had, the rail and parcel carriers were already recovering more in fuel surcharges than their own fuel bills rose. My read since August has been that the cost-push chain weakens through flat crude and strengthens through products and refining, and Tuesday was a clean session for it. Warsh has named crack spreads as a driver of yields before, too.
The US rates market is leaning the other way for now. Fed funds futures took hikes out of every meeting from January 2027 to December 2027 overnight, with December unchanged at 0.76 of a hike, roughly a 76% chance of one hike on 9 December. In Europe they're saying it out loud... the ECB's Nagel called a December hike "very likely to be necessary" and said "we can and must prevent energy price spike causing broad-based inflation."
The next thing I want to see is positioning. In the CFTC report for 27 October, money managers held a net long in gasoline equal to 27.4% of open interest, the 94th percentile, and gasoline then fell 8.12% on Monday. Their WTI net long sat at the 7th percentile. Friday's report covers positions as of 3 November, so it's the first one that includes Monday's break and Tuesday's recovery, and October payrolls come out the same morning.
If diesel keeps holding up while crude trades the headlines, I think more of this oil shock could end up in the inflation prints than the price of a barrel suggests, and the 8-9 December FOMC, with new dots, is where that likely gets tested. I'll keep watching the crack against Dec $CL into Friday.
#Oil #Diesel #Inflation #Fed #Macro