US Gulf Coast ultra-low-sulfur diesel cracks have climbed to their highest level this year — above the peaks of the post-COVID supply squeeze — as export disruptions in the Middle East and Russia tighten the global diesel balance and push US refinery utilization to near-capacity levels, according to Morningstar DBRS.

The rating agency frames the current market as a strong but likely temporary earnings and cash-flow tailwind. High utilization, low inventories, and elevated diesel margins are supporting operating cash flow and EBITDA, though the benefit could fade if geopolitical disruptions ease.

Global diesel supply has tightened since the start of the Iran war. Refinery outages, lower crude runs, and constraints on product exports through the Strait of Hormuz cut Middle East supply, with Saudi Arabian and Kuwaiti diesel exports down roughly 40% year over year in July. Russia extended restrictions on most diesel exports into October. Russia exported more than 780,000 b/d of diesel in 2025, just under 10% of global exports.

US refiners have moved to fill the gap. Distillate production averaged 5.1 million b/d during January-August, the highest since 2019, while utilization sits near capacity in several regions — leaving limited room for further output gains.

PADDs 2 and 4 are running at or near capacity, supported by discounted Canadian crude, strong diesel export demand, and agricultural and rural consumption. Together the two districts hold more than 27% of US refining capacity with an average distillate yield of 32%, DBRS said. On the Gulf Coast, PADD 3 utilization exceeded 98% in September. More than half of US refining capacity is concentrated in PADD 3, where complex refineries serve both export markets and other US regions.

The inventory picture underpins the margin strength. US distillate stocks fell below the 5-year average in April, and the EIA expects inventories to drop below 100 million bbl in September and remain under that level into 2027, according to DBRS. Strong international prices and export demand limit restocking even with refiners running hard.

For refiners, the combination of high utilization, robust distillate demand, and wider crack spreads is lifting operating cash flow and EBITDA and could improve cash flow-to-debt metrics. The credit benefit also depends on capital allocation — whether companies direct excess cash toward deleveraging or other uses. DBRS cautioned that current margins are unusually high and could weaken when geopolitical tensions ease.

Export ban risk

A potential US diesel export restriction complicates the outlook. A Sept. 23 Politico report said the Trump administration was considering limits on diesel exports to increase domestic supply and moderate prices.

Such a move could initially lift US inventories and lower domestic diesel prices, but it could also weaken Gulf Coast refinery economics, DBRS said. Export markets are a critical outlet for the region, and surplus diesel cannot easily be redirected to other US markets because of storage, infrastructure, and transportation constraints.

If margins weaken materially, refiners could adjust product yields, advance planned maintenance, or cut crude runs and utilization. Lower throughput would also reduce gasoline and jet fuel output, potentially tightening those markets.

Crude differentials would feel the effect too. Lower refinery crude demand could weaken WTI relative to Brent. If reduced runs raise US crude inventories while high freight costs and limited vessel availability constrain exports, the Brent-WTI spread could widen, DBRS said.

The watch items: distillate inventories against the 100-million-bbl threshold, the October expiry of Russia's export restrictions, and whether the administration formally pursues diesel export limits.