We begin with this excerpt from Shanaka Anslem Perera, published on Substack on September 20:
Shanaka Anslem Perera
@shanakaanslempereraDiesel reached $6.505 a gallon on 20 September, the highest AAA has recorded before adjusting for inflation. A year ago it was $3.70. Gasoline that same day was $4.48, still 54 cents under its own record from June 2022. Same country, same crude, same week. American commercial crude stocks are 1 per cent above their five year average, so an emergency crude release can reach every refinery exactly as designed and still leave your fuel bill exactly where it is.
The bottleneck is the plant. In the week ending 11th September refineries ran at 96.8 per cent of capacity on 17.3 million barrels a day. Distillate stocks, the category holding diesel and heating oil, sat at 107.9 million barrels, 13 per cent under their five year average, while crude sat above its own. Crude from a salt cavern cannot become diesel in a system with no room left to process it.
America is also selling it abroad. The Energy Information Administration wrote on 9th September that net exports of distillate have been above or near the five year high in every month of 2026 since February, because the world pays more for it than America does. The country with the record diesel price is helping supply the shortage that set it.
Four reference charts for ETFs in the Energy sector follow. Please remember that ETFs are tradable securities that are priced by market forces, not politicians’ opinions. The market may end up right or wrong, but at any given moment it reflects the consensus opinion of the real money agent who is setting the price.
State Street Energy Select Sector SPDR ETF (XLE)
iShares US Oil Equipment & Services ETF (IEZ)
VanEck Uranium and Nuclear ETF (NLR)
Technical note: This ETF does not hold physical barrels of crude oil or traditional energy stocks. Instead, its portfolio consists entirely of West Texas Intermediate (WTI) crude oil futures contracts, over-the-counter (OTC) swap agreements, and a large collateral base of U.S. Treasury Bills and cash equivalents designed to track the daily spot price of oil.
Kotok conclusion
Various markets are suggesting that the oil/energy sector prices are reaching extremes. They may spike up on news, but the futures market is pricing a decline. The oil futures curve is in steep backwardation. The farther out you go, the lower the futures prices. At 3–5 years oil is being priced at about $70 a barrel.
If the steeply downward backwardation curve materializes, inflation pressures will start to subside, and Warsh and the Fed may only need one more hike in rates. That also implies that longer-term bonds are attractive and tax-free munis are, too.
Note that this is not investment advice; it is only my opinion about valuation. Disclosure: in my personal account I own long-term tax-free high-credit-quality munis. I do not own any of the ETFs shown in the charts above in any of the equity accounts I personally manage.
With midterms only weeks away, the political use of the oil price spike takes every form imaginable. I took this photo at a local gas station while filling my own car.
Further Reading/Viewing and Technical Notes
“Why is Diesel so Expensive Right Now?” | Ryan McBeth on Substack
“Qatari Premier Says Gulf States Have to Act Together on Iran” | Bloomberg
“World Oil Transit Chokepoints” | eia.gov
“Implications of WTI Oil Futures In Backwardation Amid the Supply Crunch” | CME Group
“Oil Trading in August 2026: Backwardation, Crack Spreads and Hormuz Risk Explained” | Investing.com
“Contango vs Backwardation: Why USO Can Perform Differently from WTI Crude Oil” | MEXC (September 21, 2026)
“WTI Crude Oil futures hit 16-week high as tensions escalate.” | CME Group (Sept. 10, 2026)
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Any charts provided here are for informational purposes only and should not be relied upon when making any investment decision. As always please remember investing involves risk and possible loss. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts has been obtained from third-party sources believed to be reliable; however, David R. Kotok makes no representations about the accuracy of the information.
