the shortage of diesel and jet fuel after the Iran war
Oil tankers are moving through the Strait of Hormuz again, but shipments of diesel and jet fuel from the Middle East are still a fraction of what they were before the war. Fuel, not crude, is what is short, and that favours the companies that turn crude into fuel over the rest of the energy sector.
What changed
We raised our expected return for Valero Energy, Marathon Petroleum and Phillips 66 against the rest of the energy sector.
| Symbol | Without it | With it | Change |
|---|---|---|---|
| Valero EnergyVLO | 7.65% | 7.95% | +0.31pp |
| Marathon PetroleumMPC | 7.58% | 7.88% | +0.29pp |
| Phillips 66PSX | 7.31% | 7.53% | +0.22pp |
Each stock as it stands now, and without this story. Figures are annual expected returns (arithmetic means). They are not a forecast or a promise.
Since the Iran war closed the Strait of Hormuz in February, the world has been short of oil. By the end of September that was only half true. Tanker tracking showed crude moving through the strait at its prewar pace again, while shipments of diesel, jet fuel and gasoline from the Gulf were still under a fifth of what they had been. The International Energy Agency now expects the region's flows to recover fully only next year.
The difference matters because crude and fuel are not the same market. Crude can be bought elsewhere and sailed around a blockade; the refineries that turned Gulf crude into diesel for Europe and Asia cannot be replaced in a season. So the shortage has moved downstream. The price of diesel over the crude it is made from reached a record this summer, about five times its usual level, and physical North Sea crude for prompt delivery trades far above the futures price, a sign of how tight the near-term market is.
The companies paid on that gap are refiners. Valero, Marathon Petroleum and Phillips 66 run some of the largest refineries in the world on the US Gulf Coast, buy crude that is no longer scarce, and sell fuel that is. Oil producers, gas companies and pipelines are paid on crude and gas prices instead, which have eased as crude flows returned. Analysts have already raised their forecasts for the refiners' earnings next year sharply, and the shares sit near record highs, so much of this is in the price. What the latest numbers add is that the fuel shortage looks likely to outlast the crude one, and that tilts the outlook toward refiners a little further.
VLO, one year simulated
Valero beside ExxonMobil shows the two halves of the industry: one paid on fuel, the other mostly on crude.
What to watch: the three refiners report their third quarter in late October, and what they say about margins in 2027 matters more than the quarter itself. A recovery in fuel shipments through Hormuz, or new refineries in Asia and the Middle East coming back to full output, would close the gap faster than expected.