All eyes are on a US diesel export ban!

Deep Dive Summary:

• USGC MR diesel arbs open into Europe whilst WCI ULSD LR2 arbs point firmly West.
• The October HOGO swap moves into negative territory whilst the October GO e/w widens by over $65 /mt.
• Will the US actually impose a diesel export ban?
• Despite the previous week actually seeing diesel and jet pricing decline, in the case of diesel, this cannot hold!

(October’s Singapore diesel spread and crack)

Last week’s commentary argued: “One consequence of a narrower GO e/w has been to reorient WCI ULSD LR2s firmly eastward over westward. In any normal market that would presage a coming ceiling on Singapore pricing.

Yet with the Middle Eastern escalations careening from dire to catastrophic, and Hormuz traffic still running nowhere close to pre-war norms, it would take a brave soul indeed to stand in front of this rally and short. As we noted last week, the path of least resistance remains higher.”

With hindsight, we should have trusted the first half of that analysis. October Singapore diesel cracks and Oct/Nov spreads have both declined reasonably dramatically over the past week, though both remain well above their seasonal maximums.

My colleague Carrie Ho sets out why. The Saudi East-West pipeline is heard to be reopening soon, with Aramco reportedly working to restore around half of its capacity within days and the full line in about six weeks.

Iran has spoken of reopening the Strait of Hormuz, albeit under conditions, which some read as tensions abating. South Korean refiners have been selling plenty of distillate cargoes, and Chinese sellers have been heard offering for the first half of October.

Aramco has also promised some Asian refiners their crude soon; with feedstock assured, they will keep maximising distillate output. Rumours, contradicted in places, suggest China may export as much clean product in October as in September.

Thailand has offered 50ppm into the low-sulphur pool. Indonesia, meanwhile, has been absent from the gasoil market for months, with Pertamina saying it should be self-sufficient and even exporting high-sulphur gasoil by November.

(October’s GO e/w)

Following spreads and cracks moving lower, the October GO e/w has widened by over $65/mt in a week.

(Sikka LR2s: Diesel)

That is enough to point WCI ULSD LR2s firmly West to Europe over East to Singapore, with newbuilt crude tankers reportedly being pressed into service to haul Indian diesel west.

Yet with all eyes on the US, where retail diesel recently topped $6/gal for the first time and a diesel export ban looks possible, it is hard not to stay bullish on Singapore diesel spreads and cracks from here.

(October’s Singapore kerosene spread and crack)

(October’s Singapore regrade)

Jet has fared worse. October Singapore kerosene cracks and Oct/Nov spreads have fallen for much the same reasons, and the decline in the October regrade shows the pain is sharper for jet than for diesel.

(Rotterdam: Jet)

(October’s NWE Jet CIF differential, spread and crack)

Every Asian-loading LR2 jet arb into Europe is open, joined by the USGC MR route. The downturn in European jet pricing should therefore continue until winter kerosene demand lifts the Singapore regrade, with Japan drawing for heating and year-end building for travel.

(Los Angeles: Jet)

The same weakness has opened East Asian MR jet arbs into the USWC, and the downturn in LA jet premia should continue.

(Los Angeles MR diesel and jet premia)

Interestingly, East Asian (apart from Singapore loaders) and USGC MR diesel arbs are also open into the USWC.

(Los Angeles: Diesel)

(EIA via Sparta)

With PADD 5 diesel stocks rising, LA diesel premia may find a cap in the medium term.

(October’s ICE GO spread and crack)

Washington’s influence, more than arbs into ARA, is now setting the price of European diesel. So much of the global market hangs on the latest pronouncement from the US administration, on events in the AG conflict and on Russian refinery runs that fundamentals have become almost secondary.

Last week we wrote: “We remain long the Oct/Nov ICE gasoil spread at $80/mt, now targeting a retest of $92/mt with a stop at $70/mt.” That call has not played out. The Oct/Nov ICE gasoil spread has declined over the week, largely on the back of increasing diesel arbs from the US and India.

The October ICE gasoil crack, by contrast, has continued to gain, reflecting the still perilous position of global diesel stocks. With market participants this week warning that the shortage is likely to last into 2027 as storage tanks drain.

Both the crack and the spread have also been lifted over the past 36 to 48 hours by heightened talk of a US diesel export ban.

On Tuesday that talk became something firmer: President Trump said he had called for a ban, and Treasury Secretary Bessent is examining whether a full or partial one is feasible.

(October’s HO spread and crack)

The same prospect explains the week’s declines in Oct/Nov HO spreads and October HO cracks.

(October’s HOGO swap, USGC diesel differential and TC14 freight rate)

A ban would trap diesel inside the US, and the October HOGO swap has fallen dramatically in response, trading at negative numbers for parts of the past 24 hours.

That weakness has opened every transatlantic MR arb into Europe, USAC loaders included, with Houston to Rotterdam showing over $50/mt and Barcelona over $70.00/mt for October arrivals.

Yanbu LR2 diesel cargoes are open into Europe too, provided the Houthis’ recent escalation, including a claimed attack on the Saudi capital, does not intervene.

Add a softening Mediterranean, where our broker contacts report an Italian major’s sales down 5–10% y/y and premiums falling sharply, and some will reach for a bearish view on ICE gasoil from here.

We do not. The US supplied over a third of Europe’s diesel imports in August and close to 30% so far in 2026. Should the export ban come to fruition, that supply disappears at a stroke, and the only credible call is bullish on ICE gasoil cracks and spreads.

The caveats are real: nothing is formally decided, Senate Republicans are split, and White House advisers may argue that a ban would raise global prices rather than lower domestic ones. But with the midterms on 3 November, any decision is likely to come quickly.