Diesel complex holds 10-year highs as US export capacity questions mount; Q1 2027 cracks the clear trade

• August ICE GO cracks have risen over the last week while Aug/Sep spreads have held flat, yet both sit at the very top of their 10-year ranges. It is a similar story for August HO cracks and Aug/Sep HO spreads.
• The relative “weakness” has clearly been more pronounced in HO than ICE GO, as evidenced by the declines in the August HOGO, though even this sits at the top of its 10-year range. US diesel stocks have been building for the last six weeks on increased yields, reduced demand and reduced exports, but the overall stock picture remains extremely low.
• The August USGC diesel differential has also been gaining as PADD 3 stocks decline, with the extra pull from Latin America in the absence of Russian diesel set to be significant.
• Extreme RVO levels remain a positive for US diesel exports, but not enough to overcome the combined strength of the HOGO, TC14 freight rates and the USGC differential: the USGC MR arb to Europe stays shut until the HOGO comes off further. Even Yanbu LR2 ULSD arbs are flirting with closure, a flow in any case under threat from Houthi attacks.
• It is very difficult not to form a bullish view on ICE GO spreads from here, with the caveat of possible SPR releases on diesel and crude, set against a real global shortage of refining capacity. RBHO and GOFOs are already doing all they can to maximise diesel yield over gasoline and fuel oil, and it is unclear how much more the US has to give in exports.
• With a large global turnaround period approaching from September, building sufficient diesel stocks ahead of Q1 2027 seems highly unlikely. There is a pretty clear trade on Q1 cracks and structure.

About the Author
James Noel-Beswick | Head of Commodities, Sparta Commodities
James is Head of Commodities at Sparta, leading the distillates vertical and covering the full oil barrel. He held analyst roles at BP and Shell before joining Sparta, and his market commentary is regularly cited by Reuters, Bloomberg, Financial Times, New York Times, the Wall Street Journal, and BBC News.
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