What’s in store for US diesel and jet?

View Full Transcript

Jeff Mower:

Hello, and welcome to the Oil Markets Podcast by S&P Global Commodity Insights. Today, we'll be discussing recent diesel and jet fuel market trends and the near-term outlook for those refined products.

I am Jeff Mower, Director of Americas Oil News, and I'm joined today by senior distillates price reporters, Aaron Tucker and Ben Peyton. Welcome, everyone.

So US diesel prices have rallied this summer as strong export demand has helped to tighten inventories while jet fuel prices have remained stable in comparison. The outlook for both diesel and jet fuel has been complicated by US trade negotiations with tariffs putting demand in question.

There are also some risk to supply as well considering that we are, for one reason, in the middle of hurricane season. But let's dig into the details. Aaron, let's start with diesel. We had this big rally recently in US diesel prices. And prices are still strong last I've seen. Why don't you walk us through that? What exactly was driving that diesel strength?

Aaron Tucker:

Yeah, absolutely. I think the biggest factor off the rip has been the supply side really. Just back in July, we had diesel inventories across the US hit their lowest level since 2014. Now, that's not diesel and gas oil specifically, that is ultra-low sulfur diesel. And because of that, you really saw prices across the US start to come up. So the West Coast has been fairly stable. But as we know, that's a bit of an island, but you really saw those effects most amplified on the Gulf Coast and particularly the Atlantic Coast. There was actually a shortage in the Atlantic Coast, particularly in New York Harbor where we saw our differentials there shoot up over 10 cents a gallon within the span of a week.

And a lot of that was just from Colonial Pipeline. They didn't have enough liftings. The pipe got allocated. And they didn't have enough imports coming in from the east coast of Canada, particularly Irving, right? So we saw it there. And then with the Gulf Coast, it's been just an export story, right? There's a record amount of Gulf Coast Diesel that went across the pond into Northwest Europe. The latest CAS data showed, I believe it was just over 43 million barrels, which is the highest on record. Previous to that, you have to look to July 22. And so, again, this is kind of a recurring story that we've seen time and time again through the summer.

Jeff Mower:

Now, I'm curious. Yeah, on that Atlantic Coast front. Was it tight in part because of the European tightness? In other words, would the Atlantic Coast typically bring over some imports from Northwest Europe?

Aaron Tucker:

Yeah, so the way that trade flow typically works is we'll send diesel across the Atlantic into Northwest Europe for their summer driving season, right? Most Americans typically forget internal combustion engines that run on diesel only make up about 3% of the car market here. But if you look over to Europe, it's about 30% of the car market. So they need a lot more diesel just for driving around in the summer. And then, the reason why that flow works so well is because, typically, the European refiners are long gasoline. And so once the ship unloads diesel in Amsterdam, Rotterdam, Antwerp, right? The ARA hub, they'll send it back across the Atlantic into the US, particularly PADD 1, right? But with gasoline.

Jeff Mower:

Actually, and I've also heard... I mean, I know it doesn't make up a large part of demand, but I've spoken with analysts before about hydropower. When you have a drought, right? When you have low water, low runs through hydropower plants, sometimes you need to bring in diesel for diesel generators. And I've always been told that like, "Yeah. Well, that's not a lot." But if you're tight, you're tight, right? It can tighten it even further.

Aaron Tucker:

Exactly. Yep. Yep. I haven't heard of situations like that happening this summer, but I know it has happened in the past. And it wouldn't surprise me at all if they are using some diesel for power generation. Actually, interestingly enough, there was some of that happening at the beginning of the summer in the Northeast US actually. Because during that heat wave, apparently there was power prices got really expensive, and so people that had the option to run diesel generators were doing so. And again, that probably helped tighten up some of the Atlantic Coast market as well. And that's another reason why we saw that shortage on the Atlantic Coast earlier this year.

Jeff Mower:

Yeah, truly important. It really highlights the importance of those Atlantic Coast stocks. I know every time we report on the weekly EIA data, we always kind of zone in on that, but it makes sense. That's the delivery point for the NYMEX basis, the ULSD, and the gasoline contract. So we're always keeping an eye on those Atlantic Coast inventories. Then in contrast, how has jet performed lately?

Benjamin Peyton:

Jet fuel demand has risen year-on-year significantly. In 2025, we actually saw that the Transportation Security Administration had their highest daily throughput number at over 3 million on June 22nd. And we've seen that the fundamentals for jet fuel in the US have also risen to meet that increased demand. The stocks are elevated year-on-year by almost a million barrels and the production numbers are elevated almost 55,000 barrels per day.

And we've actually seen this year over the summer, in June, we had the highest weekly production numbers ever recorded in the EIA history for jet fuel output. So jet fuel demand has continued to remain resilient. It's been a strong summer travel season. And we've seen that fundamentals have tracked with that this year.

Jeff Mower:

Have you seen much of an impact on prices? Like from what you're saying, demand is strong, but it's well supplied in contrast to diesel. So is that keeping a lid on prices?

Benjamin Peyton:

Right. The volatility that we typically see with jet fuel over the last couple of years has not been as severe because the domestic stocks are elevated and meeting that demand for air travel. So we've seen at the Gulf Coast, sometimes the arbitrage has opened up over the summer for exports, and that happens when Gulf Coast prices are in a dip. But for the most part, jet fuel prices have remained much more stable this year than in years past.

Jeff Mower:

Now, what do you think about, and either one of you can answer me here, going forward. Well, let's start with jet. I've seen some analysts talk about how they expect jet demand might wane going forward because of the risk to global demand growth, right? And they're citing the trade negotiations specifically, or even like international travel into the US. Is international travel into the US going to weaken because of recent foreign advisories being placed on the US? You know, Canada, the UK, Germany, a couple other countries, China. What are you hearing out there on that front?

Benjamin Peyton:

Yes, the concern has been around international travel. Domestic travel has remained much stronger than in years past. But the different notices for travel restrictions or advisories, as you mentioned, that has made a dent this year in international travel into the United States. And it could be a concern going forward if relations continue to deteriorate. Or if they improve, it will just have to see how that plays out in the fall.

Jeff Mower:

But domestic travel's strong. And what you makes sense considering... I mean, I've read, just saying, globally. You know? More people in the US just taking local vacations.

Aaron Tucker:

Yeah, I think it's been mostly domestic travel this year, right? I think the domestic TSA numbers are in line, if not, a little bit stronger than they have been in years past.

Jeff Mower:

I haven't flown in a while. Last vacation, I think I drove. It's a long drive, right?

Aaron Tucker:

Yeah. It seems like more people have been doing, at least anecdotally.

Jeff Mower:

Yep.

Aaron Tucker:

It seems like there's more people that are doing a road trip rather than jumping on a plane.

Jeff Mower:

Yep. Yep. Now, how about on the diesel front? I mean, we always have hurricane season every year. And every year, at least last couple years, we've gotten these warnings like, "It's going to be a big year." And we're hearing the same this year. It's going to be a big year for hurricanes. Of course, you never know. It could be a big year, like last year was a big year for hurricanes, but not many storms really reached the refining center in US Gulf.

Aaron Tucker:

Yeah. I mean, if you're talking about the hurricane premium, I mean, that always gets priced in right around May, beginning of June once hurricane season really kicks off, right? But again, the risk doesn't come until around this time of the year, around mid-August into mid-September, right? But it's interesting from the Commodities at Sea data that I've been looking at recently. The Caribbean has actually been pulling a ton of barrels. And market sources will say, "Oh, yeah, some of that's hurricane premium." I think what's really going on, and I've heard this from a couple of traders, is that they like the optionality of having barrels in the Caribbean.

From there, you can skirt the Jones Act if you want to import it into the Atlantic Coast, right? Because that's always a short for diesel. There's the option to send it actually into Central or South America. Of course, Brazil is still competing with those Russian barrels. Brazilian importers can get it from the Caribbean quicker than they could coming out of the Gulf Coast, right? So it shortens that trade route a little bit. And then, you can also still send it transatlantic like we were talking about earlier. So yes, there is some of it that hurricane premium, and that's why you'll see more barrels end up in the Caribbean. But I think a lot of that is just the optionality that traders enjoy by having barrels in the Caribbean.

Jeff Mower:

That's interesting. And you mentioned Brazil, and Brazil for a while has been a big buyer of Russian diesel. But I'm curious if that's going to change. Is Brazil expected to bring in more US diesel maybe under pressure from the Trump administration?

Aaron Tucker:

Yeah. I mean, we've been tracking the story for what? Three years now. It's constantly flipping back and forth between who has the more competitive barrel, whether it's Gulf Coast or it's a Russian barrel, right? As far as the long-term, obviously the US Gulf Coast exporters would prefer to dominate that trade flow, right? But again, the Brazilian importers, they don't care necessarily about the relationship, especially now with... You see Trump is starting to put on this 50% blanket tariff on Brazilian products. Well, that just makes them want to turn their nose up more to the US supply, right?

So for the Brazilian import, it really comes down to just the cheapest barrel. And again, a lot of that is going to depend on your freight cost from each region. And you mentioned looking forward. It's interesting looking at the US market overall because we have had the market structure nearly flip. We've been in backwardation since the start of the year. And just this month, it narrowed to about like a 20th of a cent, and it's really close to flipping into Contango. And I think that's kind of telling of where price might be in the future.

Yeah, it's backed off the past couple of weeks. I know we're recording this in mid-August. And right there at the end of July, it was really close to flipping into Contango. So Jeff, you mentioned the export story, and whether that will continue or not. And from what I've been hearing from the market, it sounds like it is going to continue. Market participants said they expect that flow could continue if the fresh round of European sanctions affects India's refined product exports, which as we know, India has been exporting a lot too to the European Union.

Jeff Mower:

And also, if you don't mind jumping in real quick. India also buys a lot of Russian crude. And so, they're turning out Russian crude into diesel and whatnot. And the EU restrictions are on refined products made from Russian crude, correct? Yeah.

Aaron Tucker:

From Russian Crude. Yes. Yep. So depending on how much of a bite that this fresh round of sanctions have, that Gulf Coast to Northwest Europe diesel flow could definitely continue in the absence of additional barrels coming from India.

Jeff Mower:

Yeah. As we're recording this, right? It's August 12th today. And on the 15th, Trump is due to meet with Putin and discuss the ceasefire, but you know that's a whole other issue. But it is interesting that so far he hasn't really taken further sanctions and action against Russia. His actions have been aimed against the buyers of Russian crude and refined products. The other angle, and I just want to bring this up myself, because I think I'm thinking about kind of on the demand side for, kind of like we talked about with jet.

You know with these trade negotiations, with the tariffs, will that impact jet demand? I wonder if it'll impact diesel demand going forward. Will we see less container traffic or trucking demand? I've seen predictions kind of like earlier in the year on that. But again, we're also predicting... Well, a lot of people were predicting that in the second half of the year we'd be in a recession, and that hasn't really happened yet, right? Doesn't look like the market's pricing that in, but go ahead.

Aaron Tucker:

Yeah. There's a little bit of history that you can kind of look at regarding the tariff situation. So I mentioned the West Coast being relatively quiet at this point in the year. But if you look just at the end of Q2 really, you saw a big rush to import goods from across the Pacific, right? From Asia into the West Coast around May. Once those goods arrive at port, it takes them a while to essentially get dispersed throughout the country, right? And how are they getting dispersed?

Well, it's on a diesel truck that's taking it to its final destination, right? It's that last mile cost is what you call it, right? And so because of that, we saw a fairly sizable uptick in demand that was outside of your typical demand centers for the May timeframe. Obviously, the other big one is the planting season in the Midwest. So there definitely was a noticeable impact. And we've spoken with the analyst about this as well. There was a sizable impact just from essentially a rush of importers bringing goods into the West Coast. And then, from the West Coast-

Jeff Mower:

Yep.

Aaron Tucker:

... [inaudible 00:13:49] to the rest of the country.

Jeff Mower:

And one other angle. I'll just throw this out there, because I have a question on the West Coast for Ben. But one thing I thought was interesting too was just when you look at the connection between diesel and US crude production, as rig counts have fallen, not only because of lower oil prices, but also because of improved efficiencies. I think there's less just diesel demand there for drilling, which I always... Again, think it's going to be an interesting angle. And oil prices are still what? 60-ish, you know?

That could drop even further. I was reading, like our analytics division was saying, "You know what? At $60 a barrel TI, you would expect US production to fall in 2026. At $50, production would fall by something like a million barrels a day." So Ben, on the jet supply side, I'm curious about the West Coast because we have a couple refineries that are closing at the end of this year and the beginning of next year. I take it that's going to... What's the impact there? Are we going to see a surge in imports into the West Coast?

Benjamin Peyton:

Yes.

Jeff Mower:

Because of that.

Benjamin Peyton:

It looks like the US West Coast will become even more dependent on imports going forward to meet their fuel needs. There is the possibility that some supply is drawn in from the Rocky Mountain region and from Nevada. And maybe we see an increase in the local production in the Washington area or even in the Los Angeles area, but it will most likely be more dependent now on imports going forward.

Jeff Mower:

And where do they bring most of those imports from?

Benjamin Peyton:

The largest supplier is South Korea. And we see a consistent flow every month from South Korea bringing into Los Angeles and San Francisco in particular.

Jeff Mower:

Now, how about the... I know sustainable aviation fuel doesn't make up a large part of the supply, but could that demand, like could those refinery closures? And again, I'm talking about what? Phillips 66 and a Valero plant. Could that boost demand for domestic sustainable aviation fuel?

Benjamin Peyton:

It looks like sustainable aviation fuel is starting to grow. It probably will not be enough to offset any loss supply from losing two refineries. But we see sustainable aviation fuel, in particular at the West Coast and sometimes in the Midwest and Chicago, but it's still in early development, and it has not caught on yet as a market where it's actively traded in the spot market yet.

Jeff Mower:

Oh, I see what you mean. It seems like it's bigger in Europe right now, I think. Right?

Benjamin Peyton:

The regulations in the United States have just not caught up to where Europe is to incentivize enough people to be producing sustainable aviation fuel yet. But you know, it's the West Coast. There's obviously a lot of renewable diesel. And more of an interest there, I believe, to produce renewable fuel. So if it does catch on somewhere, it would be likely the US West Coast first.

Jeff Mower:

Yeah, I saw the final One Big Beautiful Bill, right? Had a final version of the 45Z tax credit. And that plays into this whole outlook here, right? Because it does a few things. It removes the indirect land use change penalty from carbon intensity calculations, right? So basically, that improves the competitiveness of soybean and canola over low carbon intensive alternatives. It also limits tax credits to feedstocks produced in the US, Canada, and Mexico.

And the reason I bring this up is because I think it's interesting that... I read recently that margins for sustainable aviation fuel, so our forecast there for soybean is expected to be positive, right? Because of these changes. But for something like used cooking oil would be negative. You know, because a lot of used cooking oil comes from overseas, comes from China, and elsewhere. So I'm really curious how those renewables... And again, I understand SAF doesn't make up a big part of the barrel, but I know diesel's a bit more. I think from what I'm reading, these new regs would actually push more activity into the renewable diesel market.

Aaron Tucker:

Yep, that's pretty much bang on. I mean, everybody always forgets that it's already a very well-established market on the West Coast, right? The latest data from CARB shows that renewable diesel consumption is over 70% of consumption within the state. But as far as the new regulations go, it's essentially incentivizing those lower CI scores. And it's also a big win for the farmers, right? Because if you have the soybeans that are included, well, now all of a sudden they have another outlet to sell their product, to sell their goods to, right?

There was definitely a negotiation that took place with the 45Z. I mean, we could do a whole podcast on the 45Z, right? But I think it was a win for the farmers, and then it was also a win for the renewable fuels producers that buy their feedstocks from US domestic producers. The renewable producers that have been sourcing, particularly across the Pacific in Asia, it's going to impact them and they're going to have to find some North American sourcing, because I believe it wasn't just US feedstocks, it was both the Mexico and Canada as well.

Jeff Mower:

Yeah, that's true. It is. Yeah. And it's interesting you mentioned that because recently a couple producers like Diamond Green Diesel and FutureFuels, they both idled plants temporarily, and both sighting poor margins, both sighting input prices. I'm pretty sure that Diamond Green Diesel was running a lot of imported used cooking oil. And the expectation, which was understandable at the time, like in the first quarter. It's like you look at UCO prices from China, they're pretty low, and maybe they figure that's a reasonable bet, right?

But those prices have really shot up recently, and demand elsewhere, demand in Europe and elsewhere around the world. But at the same time, you have someone like Montana Renewables, they boosted their renewable diesel output in the second quarter. They're sighting lower costs. I'm not sure what their inputs are, but it's kind of interesting to just compare these different companies and see how they're doing.

Aaron Tucker:

Yeah, there's definitely a big spread on performance based on where they're getting their feedstocks from, and then obviously the capacity that they have to produce at scale.

Jeff Mower:

Anything else we should be looking out for going forward? I guess I can go to either one of you, Ben first.

Benjamin Peyton:

Yeah. I guess we could just say the Los Angeles P 66 Refinery and the Valero Benicia Refinery, which is near San Francisco, just to be clear on that. Another thing to bring up would just be that the Environmental Protection Agency released a proposal in June 13th, which increased more stringent regulations on the amount of biofuels that the US refiners will be using to blend with gasoline and diesel next year and into 2027. And that has increased the price of renewable credits under the Renewable Fuels Standards.

And we've seen that the RVO assessment, which is our Renewable Volume Obligation assessment, that rose to a 21-month-high on June 16th. And since the new EPA proposals, which are designed to increase the amount of biofuels that are made domestically by US refiners, we've seen that that RVO price is up by over 70% year-on-year. And that lends itself to increasing the amount of jet fuel production in the US as opposed to road fuels such as ULSD and gasoline. So it's something to keep an eye on going forward if that helps to support more jet production and puts more pressure on road fuels.

Aaron Tucker:

Yep, definitely. I mean, that's where you see or part of the reason why you see the diesel crack starting to come back down. The diesel crack back in July was up at a year and a half high, but it's starting to come back down as refineries, they were shifting. They shifted very heavily towards diesel production. But at the same time, you had this rising RVO cost. And so now the incentive is, okay, maybe we're not being as profitable with diesel now, now that the cracks come down. Let's start gearing our production towards jet.

Jeff Mower:

All right. Well, thanks very much Ben and Aaron for joining me. And thank you to our listeners for tuning in. This Oil Markets episode was produced by Maite Perez in Mexico City.