'Oil market is a hot mess,' says analyst as supply shock keeps prices near $100: Chart of the Day

Oil prices remain close to $100 per barrel (BZ=F), with no indication of a resolution in the Middle East. That has raised speculation that the Trump administration may be tempted to impose an export fuel ban ahead of the mid-term elections to force fuel prices lower. "I think the odds of a diesel export ban announcement before midterms is high," wrote Liz Thomas, chief market strategist at SoFi, on X this week, noting diesel prices have been accelerating higher. The average price of gasoline on Thursday sat at $4.43 per gallon. The national average price of diesel is at a record high of $6.39 per gallon, according to AAA. In California, prices have jumped by more than $1 per gallon in a month, to above $8.34 per gallon. GasBuddy Head of Petroleum Analysis Patrick De Haan noted on X that "diesel could hit $6.60/gal in a few days, surpassing the inflation-adjusted peak seen in 2022." Read more: How oil price shocks ripple through your wallet, from gas to groceries Other analysts were blunt in their characterization of the market. "The Oil market is a hot mess," Charlie McElligott of Nomura Securities wrote on Tuesday, noting global rising bond yields show the market is "Waking Up" to an energy shock 2.0. The difference between this one and the earlier supply shock during the Iran-US war in the spring is that market participants see this oil shortage as more severe. Strategists point to China refilling its reserves that it emptied during the war, agitating the "Achilles Heel" of the Trump administration ahead of the midterm elections. "The 'Shortage Shock' now is almost certain to force POTUS' hand," with a fuel export ban in order to lower fuel prices domestically, McElligott said. The move, he said, could serve as a "nuke to the global economy" as the rest of the world struggles to fill the gap of imports from the US. West Texas Intermediate jumped earlier in the week, narrowing the spread with Brent crude, as traders bid up US contracts, shown in Yahoo Finance's AlphaSpace data. Oil futures on Wednesday, September 16 year-to-date chart On Tuesday, Senate Majority Leader John Thune suggested he was "open to exploring" an export ban for diesel fuel, as prices remain at record highs above $6 per gallon. But an export ban would likely backfire, say strategists. "If we were to ban exports, refineries in the USA would not want to produce extra distillate since they could not sell it," said Andy Lipow, president of Lipow Oil Associates. That means refineries would produce less gasoline, jet fuel, lube oils, and asphalt. "Shortages would develop in those product categories, and I would expect higher prices at the pump," added Lipow.

Oil prices remain close to $100 per barrel (BZ=F), with no indication of a resolution in the Middle East. That has raised speculation that the Trump administration may be tempted to impose an export fuel ban ahead of the mid-term elections to force fuel prices lower. "I think the odds of a diesel export ban announcement before midterms is high," wrote Liz Thomas, chief market strategist at SoFi, on X this week, noting diesel prices have been accelerating higher. The average price of gasoline on Thursday sat at $4.43 per gallon. The national average price of diesel is at a record high of $6.39 per gallon, according to AAA. In California, prices have jumped by more than $1 per gallon in a month, to above $8.34 per gallon. GasBuddy Head of Petroleum Analysis Patrick De Haan noted on X that "diesel could hit $6.60/gal in a few days, surpassing the inflation-adjusted peak seen in 2022." Other analysts were blunt in their characterization of the market. "The Oil market is a hot mess," wrote Charlie McElligott of Nomura Securities on Tuesday, noting global rising bond yields show the market is "Waking Up" to an energy shock 2.0. The difference between this one and the earlier supply shock during the Iran-US war in the spring is that market participants see this oil shortage as more severe. Strategists point to China refilling its reserves that it emptied during the war, agitating the "Achilles Heel" of the Trump administration ahead of the mid-term elections. "The 'Shortage Shock' now is almost certain to force POTUS' hand," with a fuel export ban in order to lower fuel prices domestically, said McElligott. The move, he said, could serve as a "nuke to the global economy" as the rest of the world struggles to fill the gap of imports from the US. West Texas Intermediate jumped earlier in the week, narrowing the spread with Brent crude, as traders bid up US contracts, shown in Yahoo Finance's AlphaSpace data. Oil futures on Wednesday, September 16 year-to-date chart On Tuesday, Senate Majority Leader John Thune suggested he was "open to exploring" an export ban for diesel fuel, as prices remain at record highs above $6 per gallon. But an export ban would likely backfire, say strategists. "If we were to ban exports, refineries in the USA would not want to produce extra distillate since they could not sell it," said Andy Lipow, president of Lipow Oil Associates. That means refineries would produce less gasoline, jet fuel, lube oils, and asphalt. "Shortages would develop in those product categories, and I would expect higher prices at the pump," added Lipow.

Oil markets appear to have reached the inflection point that many analysts had predicted weeks ago as the Middle East conflict re-escalated with no diplomatic push in sight and global inventories continue to slump. Oil prices are back above $100 per barrel, lifting diesel and gasoline prices, including in the United States. The Trump Administration is looking to downplay the price spikes it sees as only temporary. Prices would "drop like a rock" when the Iran war ends, U.S. President Donald Trump said, but he appears to have acknowledged that there may be no respite before the mid-term elections in early November. Meanwhile, the record-high diesel prices and the highest gasoline prices for this time of year on record could do damage to the economy and consumer spending. On Tuesday evening, the U.S. average diesel price hit $6.301 per gallon while gasoline prices jumped to an average of $4.355 per gallon, according to GasBuddy data. "Diesel could hit $6.60/gal in a few days, surpassing the inflation-adjusted peak seen in 2022," said Patrick De Haan, Head of Petroleum Analysis at GasBuddy. Related: Russia Extends Diesel Export Ban Through October At the end of last week, diesel prices in the U.S. topped $6 per gallon for the first time ever. There is no path in sight toward significant declines in the short term, oil industry executives say, after warning for weeks the market is heading for a fuel crunch. Chevron CEO Mike Wirth said on Friday that the market buffers have now been "played out" and oil prices could rise further over the coming months. "It's harder to envision a scenario where prices soften and quickly," Wirth said, as carried by Reuters. "I think the risks remain to the upside over the next few months." "I wish I could tell you that I saw some reason why things would ease, but it's difficult right now to see that happen," Wirth said at an event in Texas, cited by the Wall Street Journal. The diesel markets are roiled by the wars in Iran and Ukraine, which stifle product supply out of the Middle East and Russia, while Chinese fuel exports have yet to meaningfully rebound following months of restrictions to protect domestic supply. In the coming months, the markets will have to face the re-escalation in the Middle East and the shutdown of a key Saudi oil pipeline that helps the Kingdom bypass the Strait of Hormuz with depleted buffers amid rapidly drawing inventories. Global observed oil inventories plunged by a further 95 million barrels in August, bringing cumulative draws since February to 507 million barrels, or 2.8 million bpd on average, the IEA said last week in its monthly report for September.