#998 Crude Oil Is Flowing Out Of West Asia But Not Refined Products Like Diesel

The Core Report

The episode opens with West Asia energy flows, noting that Gulf crude is moving again while refined products like diesel remain scarce, pushing global diesel and jet-fuel premiums higher. It then shifts to Indian markets, where

Key takeaways

• Gulf oil flows excluding Iran crossed 81% of pre-war levels in September, but refined-product flows through the Strait of Hormuz were only about 11% of overall flows versus about 20% before the war.
• Goldman Sachs forecast global diesel and jet-fuel crack spreads to average above $40 per barrel in 2027, more than twice the usual level of around $20, even as Brent is expected to stabilize near $80.

Main topics

• West Asia crude flows and refined-product shortages
• Indian equity markets, rupee, and RBI policy expectations

Notable quotes

consumers don't buy crude oil, they buy gasoline, jet fuel, and diesel

Conclusion

The episode offers a useful macro-to-micro read on India's current bus

Transcript preview

Speaker 4 (0:02) Good morning. It's Wednesday, the 7th of October, and this is Govind Raj at Sriraj Broadcasting and streaming weekdays from Mumbai. India's financial capital are top stories and themes. Crude oil is flowing out of West Asia, but not refined products like diesel. Markets continue recovery as oil prices fall. India sees record auto sales in September across most categories. Our GCC is consolidating back into IT services companies in India. And power demand is rocketing as country's second summer kicks in. Speaker 1 (0:44) This is a coral port with Govind Raj Aithiraj. Speaker 4 (0:50) Gulf oil flows, excluding Iran, crossed 81 % of pre-war levels in September, according to data. But on the other hand, while ships are ferrying almost as much crude oil out of the Strait of Hormuz as they were before the Iran war, they are barely moving any barrels of diesel, the fuel that powers a lot of mobility, particularly commercial. In the US, the national average for a gallon of diesel has hit a record of $6.5 a gallon last month. And in states like California, diesel has touched a record high of $8.4 a gallon. Now, not much of this appears to matter to the policymakers in Washington, but it's worth noting. Andy Lippo, president of Lippo Oil Associates in Houston, told the Wall Street Journal that consumers don't buy crude oil, they buy gasoline, jet fuel, and diesel. As a result of missile and drone strikes in the Middle East, several large refineries have been damaged, and the world finds itself short of refined products. Now, India, of course, does not have a refining problem and the crude problem is getting addressed. India has more than 260 million tons of crude refining capacity, but the cost of transport of crude is rising. So the paper or terminal price that we refer to here and the contracted price can differ much more than usual. The Wall Street Journal said that cargos of oil products like gasoline and diesel came to about 1.3 million barrels a day, accounting for only 11 % of overall flows. The rest was unrefined crude oil. And before the war, refined products were about 20 % of the oil cargo passing through the strait. Meanwhile, Goldman Sachs has forecast that global diesel and jet fuel crack spreads. The premium refined products command over crude will average above $40 per barrel in 2027, which is more than twice the usual level of around $20. And this is despite Goldman expecting Brent to stabilize at approximately $80 a barrel as the crude flows through the state of Hormuz hopefully normalize. But the overall price trend for crude seems to be positive, at least for right now, thanks to which Brent crude futures were at about $98.60 on Tuesday afternoon. So that's below $100 a barrel, thanks to which markets in India were strong ahead of a potential interest rate hike too. The benchmark indices were up. The Sensex was up 685 points to 73,067 and the Nifty 50 was up 220 points to 22,776. The broader market saw the nifty mid-cap and small-cap rising 1 % and 1.5 % each. Meanwhile, as Indian markets limp ahead, NVIDIA Corporation is on the verge of becoming the first company with a $6 trillion market capitalization, much more than all of India, as investors have rushed back into the chip stock. NVIDIA had earlier given a very strong revenue outlook and announced the biggest buyback in history. The rupee has meanwhile declined to its weakest level in over two months on Tuesday, thanks to... all the FPI or the foreign portfolio investors selling, even as traders now look at the Reserve Bank of India's monetary policy decision today, that's Wednesday, where a hike is anticipated according to Reuters polls. The rupee ended the session as 96 rupees 42 paise on Tuesday evening. Gold prices were up slightly on Tuesday as expectations of a Federal Reserve interest rate hike have now come down. And gold is at about $4,152 per ounce. The World Bank on Tuesday raised its growth forecast for India, saying strength in industry and services will help the economy weather a weaker monsoon and elevated energy prices. The economy will mostly grow 7.1 % in the year ending March 2027, which is half a percentage point more than what the bank had earlier forecast. The projection is in its latest South Asia development update and is above the Reserve Bank of India's 6.7 % estimate, which could also be upgraded or updated today. Meanwhile, a note from CareAge Ratings has said that fresh spreads for scheduled commercial banks in India has widened 27 basis points month-on-month to 2.94 % in August 2026, the highest since November 2025. Now, the fall in fresh deposit rates reflects a change in the mix of deposits banks have raised. The note says that the $133 billion mobilized under the foreign currency non-resident bank swap window replaced costly rupee wholesale funding and deposit growth reached a 15-year high of 17.8 % end of August. The rise in lending rates came from private banks where fresh lending rates rose about 10 basis points to 9.19%. All of this, that's the funding benefit, is unlikely to extend because the swap window closed on the 31st of August and system liquidity has fallen back to about 490,000 crore rupees as of September 30th. Speaker 4 (5:23) The signs of a truncated monsoon and a second summer are already showing on power demand as temperatures rise across the country. Several Indian states are seeking additional power allocations from the government to avoid outages as weak hydropower output and maintenance at some plants have reduced electricity supply during the night, a Reuters report is saying. States like Rajasthan and Gujarat, which lead the renewable energy list, have sought additional supplies along with other states like Maharashtra, Tamil Nadu, Andhra Pradesh, West Bengal, Uttar Pradesh, Chhattisgarh and Delhi, the officials told Reuters. Meanwhile, the average market clearing price in the day ahead market or DAM at the Indian Energy Exchange stood at 7.3 rupees per unit in September 26, which is a 100 % year on year jump on the back of high demand, the exchange said on Tuesday, according to reports quoted in the Business Standard. Strong power demand also led to a 281 % increase in buy bids in the day ahead market, thanks to or rather resulting in higher market prices. Similarly, the average market clearing price in the real-time market or RTM at Rs. 6.90 per unit was a 108 % jump year on year. And this was for the month of September. Speaker 4 (6:38) Car sales for the month of September were up 32%, while overall auto sales were up 32%. Moreover, almost all categories except tractors have seen record numbers for the month of September. Two-wheelers were up 33%. The Federation of Automobile Dealers Associations has said that September was the best ever