In this report: Diesel margins are blowing out to levels that guarantee new pump highs, even as Iranian exports surge and gasoline gets cheaper
Last week. Brent WoW -6.66% (-$6.29) Open $91.90 High $92.06 Low $84.56 Close $88.10
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TOR (The Oil Report) EIA weekly report.
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“Dark” Tanker Fleet Shatters Iran’s Hormuz Stranglehold As Gulf Oil Exports Top Two-Thirds Of Pre-War Level
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‘The New Joule Order’ and ‘The New Martial Plan’- Jeff Currie.
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We are at an interesting junction now, transitioning into the third order consequences of The Iran war. The first order consequences we all know. 20mb/d Hormuz lost, down to about 4mb/d, which have since crawled back to 7mb/d and 15mb/d depending on who was counting last week- more below. Refinery runs got walloped from 86.3mb/d in Dec 2025 to 80.9mb/d, showing up as a false demand decline of 2.4mb/d- read America inc. August 24th 2026. Middle East plus Russian diesel and gas oil exports moved down to 1.6 mb/d (Vortexa). US distillate also drained to 103.4 mb, 14% below the five-year average, the lowest for the time of year in thirty years. All cushioned by an IEA 400mb strategic band aid. This priced into $119 brent highs and priced out in the first month and has us holding at 43% higher prices than in Feb.
We then moved into second order consequences, heralded by the signing of the Islamabad memorandum June 17th (The MOU). This coupled with the strategic release served to cap paper crude prices, meanwhile physical crude continued to trade higher over futures, laying bare the naked bullshit that paper markets can be when reality hits. Crude found workarounds via pipelines, a CENTCOM guided lane or a motorbike headed for Pakistan.
But the real mayhem was just getting started in products. Refining was/is flat to the mat. Cracks priced in the scarcity of knocked out global refinery. ULSD crack from the low $30s to $94.73 Friday. Gasoline $44.71. Freight rates price a $10m Hormuz premium, insurance remained elevated and ship rates hit $520,000 per day! Roll it all up, and hedge funds are now the most overweight energy relative to global stocks since June 2024. This marks a sharp reversal from their most underweight positioning since 2021.
The ‘buy low’ phase of energy stocks is well gone and the trade is officially crowded! But it certainly is not wrong. So what’s coming in September, to December? What do we need to watch into 2027? Read the ‘The Net Net’ below for the third and fourth likely order consequences as we step into the great beyond of deglobalisation!
Seasonal weakness!
As flagged on last Sundays COT segment of the report. The market dropped, based on fresh short positioning. Members of our discord got the COT report summary on Friday evening at 6:30 PM BST as ICE published 3hrs before CFTC and WTI’s COT. So if you are a paid sub, I highly recommend getting your moneys worth and getting that low latency report in our discord. Or the low latency DOE/EIA readings on Wednesdays.
‘‘The read- Swaps increased shorts +4300 contracts against Hedge funds flattening -20k shorts. The most crowded side of this ledger is Other Reportable shorts. In general, I think we are seeing a nice build of new money coming into a market (OI +2%) that has been extremely thin. Directionally we see the build came in on the shorts side from both Swap Dealers and PMs. Therefore, this is no longer a market I want to be long of this week’’. - America inc. - Aug 24th 2026
The reason for referring back to this, is that news of increase shipments out of Hormuz were not really the downside catalyst. There was/still is a wild spread between guesses. In my view, we are in both a seasonal soft period for price and refining (flagged in last reports charts), before a wild scramble to come for demand, coupled with increased shipments. We saw it coming, even without the COT confirmation.
Increased Hormuz runs
From a baseline estimate of 6mb/d shipped to 15mb/d, no one can agree right now how much is going through Hormuz daily. If you ask The White House, there have been several days of 15mb-20mb/d. This stinks of taco meat!
Crackageddon!
The crack spread margins are all that matter now in regard to macro second round effects. The flat price of crude takes a back seat for now. We can see below that refiners are getting paid much larger margins ($50.34 more) to refine Diesel over Petrol.
To ease the gasoline situation, an EPA emergency waiver came in last Tuesday. This waiver effectively lets blenders put more butane into the gasoline pool from September 1st. This means cheap volume and ‘‘hundreds of thousands of barrels a day’’ of gasoline into supply, running through to 15th Sept with +20 days for Texas, Arizona, and California.
This will result in a massive drop in the Gasoline margin on the chart as below (Oct Exp $44.70). And again, this diesel margin $50.34 will move higher, pricing in everything but the kitchen sink. War supply risk, a finished 172mb strategic release and harvest season as it closes through September. Get ready for expensive pumpkin spice lattes! I simply don’t see how Diesel is not going to hit a new 2026 high at the pumps.
China
China’s oil inventories continue to decline, now at 1,172 Mbbls, while rising product exports point to higher refinery runs. Recent ME tenders show stronger crude buying by Chinese majors, securing barrels rather than drawing down inventories amid expectations of prolonged disruptions. News reports during the week stated that a refinery in China is now extracting 700% more efficiency out of Coal by liquefying it into something similar to crude oil. If this continues to be proven, this would mean that China will be returning at much lower buying levels than seen before. It would be reasonable to assume that this new method is a few years away from offsetting a large imports.
