Highlights

  • December heating Oil Futures climbed about 9 cents to near $4.2244 a gallon after Tuesday's brief dip below $4.
  • Diesel trades about $90 a barrel above WTI, versus roughly $23 for gasoline, with Supply constrained.
  • US distillate stocks fell 3.6 million barrels to 99.3 million, leaving them about 13% below the five-year average.
  • Valero reported third-quarter Net Income of $6.8 billion on a $39.24-a-barrel refining margin, up from $13.14.

Crude has sunk; diesel has not followed as far. December ULSD, the contract still known as heating oil, was indicated at about $4.2244 a gallon at Wednesday's close, up roughly 9 cents, after Tuesday's settlement of $4.1309 and a brief dip below $4. Wednesday's bounce tracked crude, but the defining feature of the market this autumn is the premium that middle distillates command over the barrel they are made from. For Valero (NYSE:VLO) and Ampol (ASX:ALD), that spread matters more than the crude price itself.

A Product Market Far Tighter Than Crude

Measured against WTI, diesel remains exceptionally expensive, with ULSD futures worth roughly $90 a barrel more on late-Wednesday prices. The US Gulf Coast ULSD crack averaged $28.62 a barrel in January before the conflict and $110.97 in the week to 25 September. That explains why heating oil has fallen less than crude in relative terms: the contract hit its lowest since early August, yet it remains about 70% above a year ago.

Inventories underline the tightness: distillate stocks fell 3.6 million barrels in the week to 30 October.

Why Diesel Is Scarce

The Gulf is a major exporter of refined products, not just crude: in early October up to 3 million barrels a day of Middle Eastern refining capacity was offline and the region's diesel exports ran at about a quarter of pre-conflict levels, even as crude exports largely recovered. Russia is a second pressure point, with refining capacity reportedly down roughly 30% since late October following Ukrainian drone strikes, including on the Kirishi refinery.

Policy has tempered but not resolved the shortage. In October, International Energy Agency members pledged to speed releases of 100 million barrels of crude and 20 million barrels of diesel, and Washington outlined plans to ease sanctions on Russian energy exports. Seasonality matters too: residential use in the Northeast accounts for about 80% of US heating oil demand, so a cold December there could tighten New York Harbor supply quickly while a mild one would ease it.

US Refineries Are Already Running Hard

The supply response from US plants has largely been used up. Refinery crude inputs were about 16.6 million barrels a day in October, with similar runs expected in November and a rise in December after autumn maintenance. December inputs should still sit slightly below a year earlier because of lost capacity, including the closure of Valero's Benicia refinery in early 2026, so any unplanned outage could matter more than usual.

Valero, Marathon and Ampol

For US refiners, the diesel crack rather than the crude price drives earnings. Valero's third-quarter refining Margin reached $39.24 per barrel of throughput and Gulf Coast refining income alone was $5.25 billion. Marathon Petroleum ran its plants at 100% crude utilisation and produced 1.21 million barrels a day of distillates, up from 1.10 million, at a refining and Marketing margin of $45.70 a barrel.

The risk is the reverse of the opportunity. If Russian or Gulf product exports recover, or a diplomatic breakthrough eases shipping, diesel cracks could compress faster than crude falls.

Australia imports most of its diesel, which makes Ampol a useful lens on Asian distillate markets. Its Lytton refiner margin rose to US$23.92 a barrel in the third quarter from US$10.64 a year earlier, though refinery output fell 9.2% on reliability work and brought-forward maintenance. High regional cracks lift refining earnings, but supply security and wholesale pricing matter as much as the margin.

What to Watch Next

The EIA's November outlook raised its 2027 retail diesel forecast by 12% to $5.03 a gallon and expects crack spreads to stay elevated through most of 2027, with unplanned outages a key risk. The next test is the weekly report on Thursday 12 November, followed by Northeast weather forecasts, Russian refinery and export data and any progress in Iran talks. The December contract expires at the end of November.