I realize everyone is fixated on the renewal of US attacks on Iran. Iran has just completed its second wave of attacks on US military targets in Bahrain, Kuwait and Jordan. I will write about this tomorrow. Today I want to focus on the true state of the diesel supply in the United States and the implications that holds with respect to the war with Iran. I am indebted to a reader — a gent named Bryan — and Karl Miller for the following analysis. I have condensed and summarized their arguments.
I have said on various podcasts that America has a diesel shortage. Distillate inventories are scraping levels not seen in decades, pump prices for diesel keep climbing, and the trucking, farming, and industrial sectors that run on middle distillates are feeling it. But a careful reader — i.e., Bryan –who worked through the Energy Information Administration’s own weekly data, the Strategic Petroleum Reserve transaction record, and the refiners’ second-quarter results came back with an uncomfortable question — and a veteran energy-market analyst — the talented Karl Miller — who reviewed the same picture pushed it further still. Between them they describe something more consequential than a shortage: an American refining system that is not starved of fuel so much as positioned astride a global scarcity, capturing its rent while the domestic consumer pays its price.
The numbers don’t describe a production failure
Start with what a genuine domestic shortage would look like: falling production, rising demand, and inventories drained to cover the gap. The data show almost the opposite.
Using the four-week average immediately before the war as a baseline and comparing it with EIA data through August 21, US distillate production actually rose — from roughly 4.83 to 5.22 million barrels per day. Domestic product supplied, the proxy for consumption, fell — from about 4.20 to 3.80 million barrels per day. Yet inventories kept draining. The reconciling variable is exports. Distillate exports climbed from around 1.10 to 1.80 million barrels per day; jet-fuel exports nearly doubled, from about 222,000 to 405,000. Net of everything, the United States is now shipping abroad on the order of 700,000 to 900,000 additional barrels per day of diesel and jet compared with the pre-war baseline — even as it burns less diesel at home.
If output is up and domestic consumption is down, the inventory draw cannot be a production problem. A substantial share of the product is simply leaving the country. That single observation reframes the entire story.
The crude feedstock is there
The obvious rejoinder is that refiners are being starved of crude — the Persian Gulf supply lost to the Hormuz disruption. The import data complicate that. Canadian crude, the backbone of the U.S. heavy-sour diet, is essentially unchanged, running near four million barrels per day before and after the war’s onset. Venezuelan crude has surged — from roughly 171,000 to about 637,000 barrels per day, nearly half a million barrels of additional heavy feedstock. And the widely cited “8 percent Persian Gulf” figure appears to describe 8 percent of U.S. crude imports , not 8 percent of total crude supply or refinery throughput — a much smaller hole in the national balance than the framing implies.
There are real regional and quality caveats: a California refinery cannot conjure Western Canadian Select overnight, and individual plant configurations matter enormously. But at the national level, the evidence that American refiners have been fundamentally deprived of crude is thin.
The Strategic Petroleum Reserve reinforces the point rather than undercutting it. The reserve fell from roughly 415 million barrels to about 290 million — a dramatic draw. But these were largely exchanges , not permanent sales: recipients are contractually obligated to return the crude with premium barrels on top, with repayments beginning in November 2026 and running through 2028. Over time the SPR should take back more than it lent. The recipients spanned the majors — Marathon, ExxonMobil, Shell, Phillips 66, BP — but also the big commodity traders: Trafigura, Macquarie, Vitol, Mercuria, Gunvor. And some of those barrels never stayed home; cargoes moved to Europe, Turkey, and Asia. The Department of Energy described the operation as stabilizing global supply. That is a legitimate policy choice — but it is a very different thing from drawing down the reserve because American refiners were running dry.
The scarcity rent
What the domestic-shortage framing obscures is the refining margin, and the margin is the whole story. The diesel crack spread — the refiner’s gross margin over crude — has done something in 2026 it had never done before, and it keeps setting new records. It first topped $102 a barrel on August 17, the first triple-digit print in history; then, as the U.S.-Iran war reignited over the weekend of August 30 — a US strike on Larak Island inside the Strait of Hormuz, an Iranian missile-and-drone response against US bases, and a fresh Trump threat against Iran’s main crude-export terminal at Kharg Island — it pushed to a new all-time high above $106 on September 1. Normal is $20 to $40. Crucially, this is not a crude-price story. Even as the renewed strikes lifted Brent back above $91 and WTI into the mid-$80s, diesel’s premium over crude widened rather than compressed: since the pre-war baseline of late February, ultra-low-sulfur diesel is up roughly 71 percent while Brent is up only about 26 percent. It is a refining story: with several million barrels a day of global refining capacity knocked offline — Ukrainian strikes on Russian refineries, Middle East damage, a Russian diesel-export ban, lost Hormuz product flows — the world cannot turn enough crude into middle distillates, and the marginal barrel of diesel is being auctioned. Retail diesel now sits near its wartime high, around $5.63 a gallon, and domestic distillate inventories are at the lowest seasonal level on record. Independent trade analysts have reached the identical diagnosis the correspondents did: the world is not short of crude in the traditional sense; it is short of the capacity to refine crude into diesel and jet.
The refiners’ results show who is collecting on that. Second-quarter net income roughly quadrupled across the sector — Marathon from about $1.2 billion to $5.1 billion, Valero from about $714 million to $3.7 billion, Phillips 66 from about $900 million to $3.8 billion, Exxon’s products segment from about $1.37 billion to $5.47 billion — with per-barrel refining margins doubling or better and Exxon posting record second-quarter diesel output. The mechanism is elegant and entirely legal: buy discounted heavy-sour Canadian and Venezuelan crude, run it through sophisticated coking and hydrocracking, and sell the finished distillate into a world market where scarcity margins are enormous. The renewed Hormuz threat only sharpens the position: when Middle East medium and heavy sour is curtailed, complex Gulf Coast refiners optimized for sour feed bid up the alternatives, firming US and Canadian heavy-sour differentials — Mars traded at a premium to WTI at the spring peak, its strongest since 2020, and Western Canadian Select’s discount narrowed to multi-month highs — so the barrels at the heart of this trade become more valuable, not less, each time the strait is threatened. That is not the profile of a refining shortage. It is the profile of an extremely valuable refining position. A rough gross product-over-crude value on just the increase in diesel and jet exports lands near $85 million a day — on the order of $31 billion annualized — which, whatever one deducts for the real costs of running a refinery, is a fair measure of the incentive in play.
The reframe: swing supplier, not shortage victim
Put the pieces together and the picture inverts. The world genuinely is short of diesel and jet. The United States is not fundamentally short of either crude or refining capability. Its highly utilized refining system has instead become the principal balancing supplier to a starved global product market — running hard, exporting into foreign bids, and consequently draining its own inventories, while American consumers pay prices set by the global scarcity. The consumer bears much of the cost of the shortage; the refining sector captures much of the scarcity rent. Saying “America has a diesel shortage” collapses that distinction. America does not have a diesel- production problem. America is participating in a global diesel shortage — as its arbitrageur of last resort.
The geopolitical layer
There is a strategic dimension the reader was careful not to overstate, and it deserves the same caution here. The United States has sharply increased its access to Venezuelan heavy crude at precisely the moment Chinese access to Venezuelan supply and investment has been curtailed — giving Washington another large heavy-sour source for Gulf Coast refineries while denying a Chinese customer one of its established suppliers. On Venezuela the displacement of Chinese and Russian interests looks fairly explicit. On Hormuz it does not: the disruption clearly disadvantages China, given its dependence on Gulf and Iranian crude, but the evidence does not establish that denying China energy was the purpose of the confrontation. The larger pattern is nonetheless striking — roughly four million barrels a day of Canadian crude, a rising Venezuelan heavy stream, the most sophisticated refining complex in the world, an SPR deployed as an international market-stabilization instrument, and US product exports increasingly backfilling supply lost from the Middle East and Russia. That combination places the United States in an unusually powerful position between global crude supply and the world’s demand for usable transportation fuel. No conspiracy is required to produce it; markets, military events, and refinery economics can assemble an extraordinary outcome with no one designing the whole.
The sharper thesis: where do the barrels actually go?
Karl Miller, who reviewed the reader’s work, accepted the export mechanism as the correct diagnosis — indeed, he noted his own prior work had long identified refined-product exports, not a production collapse, as the central driver of the domestic inventory draw. But he pressed to a more pointed conclusion about destination and purpose . In his assessment, a meaningful portion of the additional American diesel, jet, and kerosene is being routed to Israel and to broader US military requirements through opaque commercial and logistical channels that obscure the ultimate consignee and evade public scrutiny.
The key, in his telling, is Rotterdam and the wider Amsterdam-Rotterdam-Antwerp hub — a storage, blending, and transshipment complex, not necessarily a final destination. Conventional analysis sees a cargo discharged at Rotterdam and books it as an ordinary commercial export to Europe. His data indicate that an important share of these flows is most probably redirected onward to meet Israeli and US military needs. The refiners and traders still capture their margins, he allows — but “exports for profit” describes only the visible financial layer, not the ultimate destination or strategic purpose of the barrels. Proving the full chain, he concedes, would require onward bills of lading, terminal withdrawals, tanker movements, Defense Logistics Agency contracts, and consignee records that are simply not disclosed. That opacity, he argues, is precisely the point.
His summary of the whole system is the tightest statement of the thesis: the global crisis originated in the loss of tradable middle-distillate supply and refining margin; the United States suffered no national collapse in crude availability or refinery output; its highly utilized system became the world’s principal balancing supplier; and record export pull is transmitting global scarcity into falling domestic inventories, higher replacement costs, and squeezed regional margins. Heavy-sour re-sourcing and SPR exchanges kept the refineries running — but they did nothing to restore the missing global product-balancing capacity.
The two layers of the argument
The case comes in two layers, and it helps to see them separately, because they draw on different kinds of evidence.
The first is the macro thesis presented by Bryan, and it rests on the public record. That this is a global refining shortage rather than an American crude shortage; that the US is acting as the balancing supplier of last resort; that record cracks are driving record refiner margins while draining domestic stocks — all of it is corroborated by independent trade and market analysis, EIA inventory data at multi-decade lows, and the refiners’ own filings. Here the correspondents and the mainstream data say the same thing.
The second is Karl Miller’s inference about where the barrels ultimately go, reasoned from the visible evidence toward a conclusion the visible evidence does not itself spell out. He begins from documented facts: the United States is a major — by some accounts the sole — supplier of military-grade JP-8 jet fuel to Israel’s air force; Israel-bound fuel chains have a long-established pattern of AIS gaps and ship-to-ship transfers that break the tracking; and Rotterdam and the wider ARA hub function as a storage, blending, and transshipment complex rather than a final destination. Onto those he lays his own proprietary data, and from the combination he concludes that a meaningful share of the additional US distillate discharged at Rotterdam is routed onward to Israel and to broader US military requirements — the commercial margin the traders capture being only the visible layer of a flow whose ultimate destination and purpose are deliberately obscured. The final links in the chain — onward bills of lading, terminal withdrawals, tanker movements, DLA contracts, consignee records — are not publicly disclosed, so the conclusion stands as an inference read from the pattern rather than a documented transaction record; in his reading, that very opacity is the point.
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I did my usual Tuesday chat with the Winers… This was two hours before the US launched its new attacks on Iran:
Nima and I were discussing the US renewed attack on Iran when news came that Iran was retaliating:
Mario asked me, “Will Trump use nukes?”
Ryan Dawson and I breakdown today’s violence in the Persian Gulf with Sulaiman:
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America’s Diesel Paradox: A Shortage It Is Supplying, Not Suffering
Aggregated summary from an independent source. Read the original at Sonar21.