Diesel Bypasses Gasoline to Emerge as Summer’s Hot Fuel Trade
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In the middle of the U.S. summer driving season, diesel is knocking gasoline off its perch as the hot fuel bet and has become one bright spot in an oil market bracing for a glut this year.
U.S. diesel stockpiles are sitting at the lowest levels since 1996 for this time of year, turning money managers the most seasonally bullish on the fuel since 2018.
Meanwhile, bullish bets on gasoline are at an eight-year seasonal low, and commodity trading advisers have been bearish on the fuel for most of the summer.
The counter-cyclical trend is injecting much-needed strength into a bogged down oil market. How long diesel’s reign will last remains to be seen, though there’s a growing consensus among traders and analysts that persistent undersupply — and therefore, higher prices — will render the fuel a hot trade into at least late next year.
“It feels like a vicious cycle,” said Samantha Hartke, Americas head of market analysis at Vortexa. “If stocks aren’t up in a few months, you’re setting up for a tight winter, which then rolls into next year with turnaround season in the spring of 2026.”
The number of diesel contracts changing hands exceeded 300,000 lots throughout roughly 15 trading days so far in 2025, the most in any year on record, according to exchange data compiled by Bloomberg.
Wide-ranging near-term factors converged and are keeping U.S. diesel inventories low even as demand lags. Early summer wildfires in Canada and sanctions against Venezuela — both countries are major producers of heavy, sour crude — led fuel refiners to use a higher proportion of light crude oil in their operations, yielding less diesel. Narrow refining margins in late 2024 drove refiners to decrease runs, and diesel inventories weren’t restocked before a cold winter raised heating demand and further depleted fuel supplies in the first quarter.
Refiners also made a record share of jet fuel in 2024 and have continued to ramp up production this year, in part at the expense of diesel. And shifts in government incentives have lowered production of renewable alternatives to diesel, propping up demand for the fossil fuel.
Collectively, these factors have pushed diesel futures up 7% since the start of the year. For the time being, investors are wagering the rally still has legs.
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In the European market, a fresh round of sanctions announced July 18 against Russian energy exports are set to exacerbate an existing diesel supply crunch in the region. Nearly 15% of European diesel imports arrive from countries targeted by the measures, such as India and Turkey, that purchase crude from Moscow. Gasoil timespreads initially strengthened on the development in a sign of a further tightening supply outlook that could bleed into global balances. Spreads later eased on clarification that the restrictions won’t take effect until January.
A diesel bias was also visible among CTAs, which tend to exaggerate existing market trends. The robot traders are sitting at 82% long in the fuel — compared with 18% in gasoline — as of July 21, data from Bridgeton Research Group shows. Algo positioning in timespreads, which can be more reflective of fundamental sentiment than flat price, according to the group, have flirted with a “maximum short” posturing in gasoline for the better part of June.
The fate of the “long diesel” trade depends on whether stockpiles continue to hold near the lowest level since 1996 seasonally through July, when inventories historically start to build. A few upside risks such as a flare-up in the Middle East or an especially devastating hurricane season, ensure that bulls stay engaged in the coming months.
Beyond that, the outlook is mixed.
“We see this margin environment as a dislocation and not a structural change in any way,” Citi analyst Vikram Bagri wrote in a research note, citing the prospects of heavy and medium crude supply normalizing and refiners ramping up utilization rates.
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Other analysts point to fundamental shifts within the refinery complex that may prove supportive to diesel prices in the long run. Refinery closures including in the U.S. and Europe are set to reduce net capacity by 75,000 barrels per day this year, based on BloombergNEF estimates. The Energy Information Administration, meanwhile, projects U.S. diesel demand to grow 1.4% this year from 2024 while gasoline demand contracts, making it more favorable for investors to place forward-looking wagers on diesel.
“This is a long-term shift based around refining capacity and product ratios,” said Joe DeLaura, global energy strategist at Rabobank. “A refinery cannot make diesel without first making gasoline, and it takes capital and time to retool that process.”
Written by Mia Gindis and Nathan Risser
