Karl Miller has provided me with another excellent report on the diesel/aviation fuel crisis that is confronting the world. On paper, the United States should be the world’s safety valve in this fuel crisis. American refineries make far more diesel than Americans burn. But every one of those barrels is already spoken for. Between rising domestic demand, heavy export commitments and refineries running near their limit, the U.S. is drawing down its own stocks, not sitting on a surplus. As Miller argues in a new assessment, America has no spare diesel to offer a world that has lost 1.6 million barrels a day of diesel exports. Until finished-fuel supply recovers, the gap will be closed by higher prices, less economic activity, or both.
A physical shortage, not just a price spike
Miller’s central point is that this crisis is about missing barrels, not just expensive ones. He estimates that 2-3 million barrels a day of refined products disappeared from global supply by early September. If that persists, 60-90 million barrels have to be replaced, rationed or drawn from inventories every month.
Diesel is at the center of it. World consumption of diesel and gasoil runs about 29.4 million barrels a day, and diesel runs the trucks, harvesters, mines and backup generators of the global economy. Miller calculates that Gulf and Russian diesel exports in August were 1.6 million barrels a day below February levels. That isn’t a one-time loss that a few emergency cargoes can cover. Importers need a replacement cargo every day, in the right grade, delivered to the right terminal before their tanks run down.
The American numbers
That makes the U.S. the obvious supplier of last resort. Distillate production averaged about 5.2 million barrels a day in the four weeks through September 11, with refineries running at 96.8% of capacity. Domestic consumption, measured by EIA’s product-supplied figure, has typically run 3.4-3.7 million barrels a day.
That looks like a surplus of well over a million barrels a day. But it is already committed. The U.S. exported about 1.61 million barrels a day of distillate in the week ending September 11, after a record 1.935 million in early August. EIA says the export surge followed the loss of large amounts of distillate supply from the Middle East, Russia and China.
Miller’s calculation for the week ending September 18 shows where that leaves the country. Refiners produced 5.159 million barrels a day and the U.S. imported 85,000. Against that, domestic use was 3.975 million, rising with seasonal demand, and exports were 1.331 million. That left a shortfall of about 62,000 barrels a day, covered by drawing down stocks. The U.S. is not running a surplus. It is running a small deficit while exporting a quarter of its output.
The margin is already gone. Refinery utilization reached 98% in late August, the highest since 2018. Miller notes that every additional 100,000 barrels a day of exports must now come from new production, lower domestic consumption, or a bigger inventory draw.
Stocks are thin, and in the wrong place
Commercial distillate stocks were 107.9 million barrels on September 11, about 30 days of cover and 12% below the five-year average. EIA forecasts that they will fall below 100 million barrels in September and stay below the five-year low through the end of 2026 and most of 2027.
The national figure hides a regional problem. At the end of August, East Coast diesel stocks were 33% below a year earlier, and the Lower Atlantic, which supplies the Southeast, was down about 40%. The surplus sits on the Gulf Coast, and pipelines to the East Coast are close to full. The Jones Act waiver, in force since March and extended through November 15, has helped: Gulf-to-East Coast distillate shipments reached a record 220,000 barrels a day in April. But the waiver doesn’t change the incentive to export. With global crack spreads near record highs, Gulf refiners earn more shipping diesel abroad than to Florida or New York.
This is why Miller warns against restricting U.S. diesel exports. An export ban would keep fuel at home but deepen someone else’s shortage. It would not produce a single additional barrel of global diesel.
The tanker squeeze: it costs more fuel to move the fuel
Even replacement barrels arrive more slowly. Miller calculates that rerouting a 1.6 million barrel-a-day flow onto voyages ten days longer ties up 16 million extra barrels in transit. And if a tanker’s round trip lengthens from 30 to 45 days, the same fleet delivers only two-thirds as much fuel; keeping deliveries level would take 50% more ships. A cargo offshore, he writes, is not diesel at the truck rack.
The tanker market is where that arithmetic turns into cost. The wars have not shrunk the world’s fleet. They have lengthened its voyages. Oil shipping is measured in ton-miles, barrels multiplied by distance, and every detour this year has added miles: tankers swapping cargoes off Oman, ships sailing around Africa, Asian refiners reaching all the way to the Americas for replacement crude, and a large shadow fleet hauling sanctioned Russian and Iranian oil on slow, roundabout routes. Each longer voyage keeps a ship at sea and out of the pool available to everyone else. The fleet is the same size; the number of ships anyone can actually hire has collapsed.
Owners are charging accordingly. Supertankers carrying Gulf crude to China are now earning more than $1 million a day, nearly 30 times their ten-year average, according to shipbroker Gibson, whose research director calls the rates unsustainable and warns they will destroy demand if they persist. In mid-September, Clarksons put average earnings for the whole supertanker fleet at a record $451,000 a day, with Suezmax earnings also at a record $343,000. About 15% of the world’s supertankers were waiting off Oman, doing nothing useful. Trafigura’s chief economist said it has never been this expensive to move oil. In some regions, brokers report there are almost no ships left to charter.
Those premium rates make the shortage worse, not just more expensive, in four ways.
First, freight is added to every replacement barrel. Shipping, historically a small fraction of a cargo’s delivered cost, now takes a larger share than it ever has, according to Vortexa. In mid-September, the freight on a supertanker of U.S. Gulf crude to China hit a record $37.5 million, about $19 a barrel before the oil is refined. An importer replacing lost Gulf or Russian diesel pays the Gulf Coast price plus freight on that scale, which is why Miller warns that destination costs add another burden on top of his wholesale price ranges. Poorer importing countries hit the limit of what they can finance first.
Second, barrels that exist stop moving. When freight eats the margin, long-distance trades become uneconomic and don’t happen. That matters most for crude. With the Gulf’s medium and heavy sour grades cut off, refiners in Asia and Europe have turned to light, sweet substitutes from the Americas, the North Sea and West Africa, which sit far from where they’re needed. When the freight makes a distant cargo unprofitable, the refinery doesn’t buy it, runs less crude, and makes less diesel and jet fuel. Meanwhile refiners bid up whatever sweet crude is close at hand, raising the feedstock cost of the diesel that does get made.
Third, the workarounds use up even more ships, and the crude market is pulling ships away from diesel. Asian refiners are chartering smaller Aframax tankers instead of supertankers to bring in U.S. crude, and Atlantic cargoes are being split between two Suezmax ships where one supertanker used to do the job. More vessels per barrel tightens the market further. Worse, the tankers that carry diesel are defecting to crude. The LR2, the largest clean-product tanker, is an Aframax with coated tanks: it can carry either diesel or crude, but an ordinary Aframax can’t carry diesel. On September 11, the Baltic Exchange assessed an 80,000-ton crude cargo in the Mediterranean at about $115,000 a day, three times the $38,000 for an equivalent clean-product cargo. Owners have followed the money: by late April, more than half of the coated LR2 fleet was hauling crude. TORM, a major product-tanker owner, says usable clean capacity is down about 5% even though the fleet has grown. The world is losing diesel-carrying capacity in the middle of a diesel shortage.
Fourth, the fuel that runs the ships is itself going short. Squeezed refiners are converting more heavy fuel oil into higher-value diesel and jet, which leaves less bunker fuel for the tanker fleet and pushes shipping rates up again. It costs more fuel to move the fuel.
Freight also decides where America’s export barrels go. U.S. Gulf Coast diesel goes to whichever buyer pays the most after shipping, which is one more reason cargoes sail for Europe and Latin America while the U.S. East Coast stays short. The tanker shortage didn’t cause the fuel crisis. But it takes a tight market and turns it into a broken one.
Jet fuel faces a similar problem. Europe produces about 1.1 million barrels a day of jet fuel but uses 1.6 million, importing the rest. Losing 200,000 barrels a day of those imports leaves 6 million barrels to cover each month. Airports can be forced to cut flights long before global jet fuel stocks run low.
Diesel prices will not follow crude down
On September 22, Gulf Coast diesel traded at $209.66 a barrel, or $4.99 a gallon, against WTI crude at $96.41. That’s a gap of about $113 a barrel, which tells you the shortage is in refining and delivery, not crude. Miller’s forecast for the next 90 days, assuming the strain continues, is $190-240 a barrel for Gulf Coast diesel and $165-215 for jet fuel. Another major supply shock would push diesel to $230-300. Only a real recovery in supply brings it down to $125-165.
He also warns against reading too much into falling prices. Prices can drop because supply recovers, or because truckers, farmers and airlines cut back. The second is demand destruction, not recovery.
Reopening Hormuz won’t end it
The longer-term risk is that people assume the crisis ends when the Strait of Hormuz reopens. Miller argues that an open strait won’t repair a well, restart a compressor, or pay a contractor. In his central engineering stress case, even after safe access begins, about 11.8 million barrels a day of Gulf export capacity is still unavailable after a year, and restoration costs $380-870 billion over five years. The pace is set by damaged wells, shared processing plants, specialist crews and cash, not by shipping announcements.
Even when supply and demand balance again, inventories still have to be rebuilt. At a sustained surplus of half a million barrels a day, refilling 30 million barrels of stocks takes another two months.
Bottom line
America makes far more diesel than it uses, and it is already using all of it. Between domestic demand, export commitments and refineries running near their limit, the U.S. has no spare barrels to offer a world that has lost 1.6 million barrels a day of diesel exports. Until finished fuel supply recovers, the adjustment will come through higher prices, reduced economic activity, or both.
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Excellent article Larry. A trucker strike is on the horizon