Publications: Notes at the Margin

The Diesel Puzzle (September 21, 2026)

 

Diesel global supply and demand are tenuously balanced. A simple analysis suggests prices are too high. However, dynamic markets are complicated, and commodity markets are subject to precautionary stock building, a.k.a., hoarding. This is particularly true for markets that consumers view as essential—in this case, distillate (diesel, heating oil, and gasoil) markets.

 

US terminal operators' failure to build stocks has made the current situation especially precarious. These firms are “middlemen.” They buy from refiners and distribute to firms that deliver to end users. Their distillate inventories have ranged from 14 to 60 million barrels over the last 20 years. Today, they stand at 15 million barrels when they should be higher. However, terminal operators do not acquire stocks when markets are in steep backwardation. Rather, they wait until the last minute to buy what they need. In 2022, they followed this pattern, sending spot prices up by $1 per gallon between September and November. Retail prices rose as well. Markets today seem poised to repeat this experience.

 

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