Act II, Scene VII of ‘As You Like It’ by William Shakespeare foretold a modern truism that is being acted out at the United Nations. 

We thought there might be a wild ride for oil prices this week, and so it has been so far. The main topic below takes a peek at a possible diesel/heating oil export ban by the US, but the swings it caused in the arbitrage between CME Heating Oil and ICE Gasoil futures, commonly known as HOGO, is quite astonishing. Any export ban will send the value of Gasoil flying above Heat and vice versa if not. Yesterday, from high to low there was a 55.85c/gallon move in price, or $23/barrel equivalent, which has sent shivers through our fraternity and into the zeitgeist of the world’s population beyond. If the US does in fact follow through with such a blow to the global flow of oil, it is only shifting a problem from one side of the geopolitical chessboard to the other. The fundamental issues of two overlapping wars are not being addressed and until they are, pernickety twiddling with the oil micro will nowhere near cure the macro. 

Whatever US spiel is fed to news outlets, those of which who are not currently banned, that a Hormuz/Bab al-Mandeb solution is close seems utterly refuted by Iran. When President Masoud Pezeshkian addressed the UN assembly yesterday, as read on the ‘BBC’, there was little doubt he was taking into account Donald Trump's threat to "annihilate" the Islamic Republic if a deal is not reached. "The resistance of the Iranian people will only increase in the face of sanctions, increased pressure, increased bullying." After seven months of war, Iran will never "bend the knee.”

The other leg in the wars of oil conundrum saw another protagonist take the lectern at the 81st General Assembly. The President of Ukraine, Volodymyr Zelenskyy, used words that offer little chance his country might adhere to pressure from the US to calm its attacks on Russian oil infrastructure. As seen on the ‘United Nations News’, the Ukrainian leader stressed that Kyiv's objective is not Russia's oil industry itself but Moscow's sustaining of the war. “Our target is Russia's ability to finance this war, to drag it out, to make it more brutal and more destructive,” he said.

The full extent of what will emerge from this global gathering of the clans will take weeks to sift and sort, but the fanfare, pomp and circumstance of a probable rolling of a US/China trade deal, will not detract from the precarious position oil supply now faces for the world and that the existing, global threatening wars, are nowhere near done.

To repeat, it is always about products

There is no subtleness, no political craftmanship and no nod and a wink. The current US Administration blithely goes about its business of promising everything will be fine and dandy after the US mid-term elections without fleshing any meat to any bone of promise. It is also not so sure whether Iran have received the memorandum, their understanding is that while any sort of US embargo remains the Islamic State will continue to crimp oil flows as when and where they are able. The trouble is, none of us interested in oil matters can be fully confident whether or not there are actual face-to-face meetings between the warring protagonists or the work of intermediaries. On Tuesday there was a bout of headlines intimating of an uptick in relations and that Iran would consider opening Hormuz. These were quickly put to the sword by officials in Iran leaving our market to consider that whatever the sideline meetings of UN General Assembly might be, they are nothing more than doses of amphetamine short-orderly countered with Valium leaving our market’s populace quivering on the metaphorical sofa of the nearest therapist. 

‘Bonkers’ was used aptly by my colleague yesterday and the deranged continuance has now found manifest in what can only be a desperate grab for votes. The $5,000 promise to all if the Republicans win, always worth a cynical mention, is hollow enough but there is a new consideration on the block, and it is indeed troublesome and more able to be actioned. Last Saturday, the Republican Senator for Iowa, Chuck Grassley implored President Trump for an embargo on diesel exports amid high prices for the fuel. He padded his argument out by commenting on Sunday via social media, “If our government can embargo chips to China, it can embargo diesel to help American farmers and truckers. We need our family farmers who feed and fuel the world to be on the strongest footing possible no matter what’s happening across the globe.” It is almost a preach to the converted political hierarchy, because if Washington cared about the fate of the world’s oil supply it would never have started this ill-conceived war in the first place. So collateral damage is easily forsaken and the US President along with Scott Bessent, the US Secretary of the Treasury are now very much considering the proposal.

According to the IEA, diesel/gasoil, accounts for nearly 30 percent of global demand, and notably, net exports of diesel/gasoil from the Gulf countries averaged 390kbd in August, just over a quarter of pre-war levels. The extent of the fall in diesel exports is made profound by the IEA’s assertion that, combined, net exports of diesel/gasoil exports from the Gulf and Russia in August were 1.6mbd lower than in February, when they accounted for almost 45 percent of global seaborne trade. Little wonder then on how President Volodymr Zelenskyy has felt pressure from Donald Trump over his country’s accelerating success in striking refineries in Russia which are crushing finished fuel exports. If the market were to now endure a moratorium in US supply, it would lose an additional 1.4mbpd of diesel, about 6 percent of the global diesel market minus its own consumption.

The ramifications for the middle of the barrel across the globe are easily foreseen. The US has become something of the swing exporter and to deprive the world, particularly Europe and Asia would add insult to injury to areas under strategic energy threat from the impeded exports from Gulf nations. Some analysts are predicting wild price rises outside of the United States with diesel heading to $300/barrel equivalent which would have disastrous effects for business and industry. Winning votes at home is one thing, but the damage to Uncle Sam’s reputation as a reliable source of fuel will not only undermine its own oil industry but heap more argument in the negative columns that are building against it as an international bad actor. Moreover, a ban on exports could possibly be self-defeating. 

US refineries run with exports in mind; domestic storage is limited for heating oil/diesel and would be easily filled and demand collapse. This attitude is taken up in an opinion piece in ‘Reuters’, “US refiners produced almost 5mbpd of diesel last year, while domestic demand was 3.9mbpd, the consequence [of refiners cutting runs] would be lower production of not only diesel but also of gasoline, jet fuel and other products.” The US might obtain short-term insulation from fuel prices, but not the ensuing soaring inflation across the world or the pandemic demand destruction. Sadly, it is not a stretch to see Washington ignoring such considerations which will be sacrificed at the altar of mid-term votes.

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