ULSD diesel at $4.04/gal has rallied 28% from the June low as renewed US-Iran fighting in the Strait of Hormuz reintroduced geopolitical risk premium. The forward curve is backwardated through Q4, reflecting supply tightness while pricing in eventual normalization. US distillate inventories at ~108.2M bbl rose 4.4% WoW but remain well below the 5-year average, with combined fuel stocks projected at their lowest since 2000. The diesel crack spread surged above $91/bbl — a record — as refiners maximize jet fuel output (+24% vs 5yr avg) at the expense of distillate yields. Three California refinery closures have permanently removed domestic capacity, and Ukrainian drone strikes on Russian refineries continue to curb global diesel exports. The procurement call: maintain defensive positioning with layered hedges. Near-term price direction hinges on Iran/Strait of Hormuz developments — any escalation above current levels pushes ULSD toward $4.50-5.00/gal.
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