Key facts
- Hedge funds have shifted to a net long position in gasoline and diesel, holding 177 million barrels across these fuel contracts.
- U.S. diesel prices have reached over $5.90 per gallon, and gasoline is selling for $4.15 per gallon.
- Diesel crack spreads have hit record highs in both the U.S. and Europe.
- U.S. inventories of diesel and gasoline are at critically low levels.
- Ongoing geopolitical tensions in the Middle East and Russia continue to disrupt fuel exports.
Speculators have reversed their bearish outlook on oil and fuels, with hedge funds now holding a significant net long position in gasoline and diesel contracts, totaling 177 million barrels as of September 1. This shift comes as the United States grapples with a deepening fuel supply squeeze, characterized by record-high diesel crack spreads and critically low inventories.
The tight supply situation is attributed to several factors, including higher U.S. exports, a cautious response from the oil industry to price increases, and a reduced number of refineries compared to previous decades. Existing facilities are struggling to meet demand, particularly for diesel fuel.
Disruptions to diesel exports from the Middle East and Russia have contributed to elevated and volatile middle distillate cracks, with little prospect of immediate recovery. U.S. diesel prices have surged past $5.90 per gallon, while gasoline prices have also climbed significantly over the past year.
The current low inventory levels are partly due to refiners prioritizing jet fuel and diesel production over gasoline during the summer. With refinery maintenance season on the horizon and ongoing geopolitical tensions in the Middle East, the supply constraints are expected to persist, keeping prices elevated.