A record high for diesel prices at $100 collides with the "Double Strait Crisis" and the AI bond issuance frenzy! The "anchor of asset pricing" faces a 5% stress test.

Recent statistics indicate that in the U.S., the profit from refining crude oil into diesel has skyrocketed to over $100 per barrel, hitting a historical high. The global refined oil supply crisis continues to intensify, putting upward pressure on core fuel prices. On Monday, the U.S. diesel crack spread closed above $100 per barrel for the first time, even reaching a record high of over $102 during the day, far exceeding the previous peak of $89 set in the first winter of the Russia-Ukraine conflict in 2022. On Tuesday, it continued to hover around this historical high near $100. For the recent surge in long-term U.S. Treasury yields of 10 years and beyond, driven by the massive debt issuance from American AI tech giants and ongoing concerns over government budget deficits and inflation, the $100 diesel crack spread is likely to "reinforce long-term upward pressure." For the global stock market and other risk assets, persistently high long-term U.S. Treasury yields may continue to subject them to selling pressure. The diesel crack spread, a widely watched indicator in the diesel market, was around $100 per barrel on Tuesday, slightly retreating from its record high of over $102 per barrel. Prior to this year, this metric had never surpassed $89 per barrel; the previous record was set in October 2022, when the world was facing a diesel shortage just before the first winter following the full onset of the Russia-Ukraine war. As shown in the above chart, the profit from diesel refining has reached a historical peakthe diesel crack spread benchmark first closed above $100 per barrel on Monday, indicating that the current global "crude oilrefiningtransportationinventory" system is under simultaneous pressure. The geopolitical situation in the Middle East appears to be spiraling out of control. The U.S.-Iran conflict has left crude oil and refined products stranded within the Strait of Hormuz. Ukraine's attacks on Russian refineries have triggered temporary export bans, while attacks on Libyan refineries and assaults on Saudi facilities by Houthi forces have further squeezed effective supply. Although U.S. diesel exports have hit record levels, domestic inventories have fallen to the lowest level for the same period since 1996. High profits have also tempted refineries to delay maintenance, increasing the risk of unplanned outages under high operational loads, indicating that the current global refined oil supply crisis is essentially a structural bottleneck formed by global middle distillate production capacity, inventory, and shipping security. The geopolitical situation is sliding back from a fragile ceasefire towards full military escalation. The 60-day interim arrangement signed between the U.S. and Iran on June 17 expired on August 17, and Trump has made it clear that he will not extend it, currently having no talks or arranged negotiations with Iran. His stance has shifted from seeking a ceasefire to demanding substantive "surrender" from Iran while opposing a proposal for Oman and Iran to jointly manage the Strait of Hormuz. Iran has proclaimed that the Strait will not reopen until the U.S. lifts the port blockade and oil sanctions, releases frozen assets, and halts military actions. Trump claimed the Strait of Hormuz "has been opened and is functioning normally under U.S. control," but actual shipping remains nearly paralyzed: on Monday, only six commodity ships passed through, below the 10-day average of eleven, and there were no very large crude carriers (VLCCs) or LNG carriers; on the same day, 19 ships passed through the Bab el-Mandeb Strait, also below the 10-day average of 26, and recent Houthi attacks on ships have resulted in six fatalities. Both the U.S. and Iran are currently strongly emphasizing their respective camps' control over the Strait of Hormuz, engaging in fierce verbal clashes and geopolitical games. The energy transport risks in the "two straits" have transformed from potential threats to real and significant logistical constraints, indicating that war insurance, detours, freight rates, and delivery cycle premiums will be long embedded in energy prices. As refining profits peak and inventories drop to 30-year lows, the logic of the diesel crisis REFIRE transaction unfolds. Now, multiple factors have converged to create an almost perfect storm in the oil market, once again driving up the sales prices of diesel and other refined products, potentially bringing an increase in heating costs and intensified inflation impacts for a global winter. Diesel prices surged dramatically in the initial weeks following the outbreak of the U.S.-Iran conflict and have remained high since; the core reason undoubtedly lies in the loss of crude oil supply and the refined products trapped within the two energy chokepoints, the Strait of Hormuz and the Bab el-Mandeb Strait, which continues to pressure the fuel market. Meanwhile, drone assaults by Ukraine on Russian refineries have resulted in supply disruptions, prompting this major global diesel-producing country to temporarily prohibit fuel exports. As buyers scramble to find alternative supplies, global diesel prices have risen further. This round of geopolitical conflicts has shifted the core of the global energy shortage away from "Middle East crude oil supply itself" and toward "available refining capacity and refined products," pushing the crack spread and refining industry profits to historic extreme levels. In terms of comprehensive refining profit indicators, the WTI 3-2-1 crack spread has also reached an all-time high, about $69.18 per barrel on August 18, surpassing the previous record of approximately $60 in 2022. The EIA (U.S. Energy Information Administration) defines the crack spread itself as the difference between the wholesale price of refined products and crude oil costs; hence, it is closer to refinery marginal profitability than absolute oil prices. However, it is a composite refining profit indicator of "two barrels of gasoline plus one barrel of diesel," and should not be confused with the diesel-specific crack spread that has surpassed $100 per barrel. While U.S. diesel exports have already reached historical highs and are filling some supply gaps, domestic diesel inventories have fallen to the lowest level for the end of August since 1996. Infrastructure issues around the worldsuch as supply disruptions caused by drone attacks in Libya and assaults by Houthi forces on Saudi Arabiaare further exacerbating market tensions. The exceptionally high profits are prompting refiners to delay their scheduled maintenance, significantly increasing the risk of unplanned outages under high operating loads. If an unexpected outage occurs, the processing of diesel and other refined fuels may be disrupted, pushing prices even higher. The "anchor for global asset pricing" is entering a significant pressure test with 5% yields. Diesel is a key input for road freight, agriculture, mining, construction, and winter heating, and its price shock penetrates faster through transportation costs, commodity prices, and inflation expectations than crude oil; for AI data centers, while diesel is not a primary daily energy source, it is an important component of backup power and emergency energy systems, with broader impacts stemming from equipment transport, construction in parks, grid expansion, and utility fuel costs. The benchmark U.S. Treasury yieldthe so-called "anchor for global asset pricing" represented by the 10-year Treasury yieldis accelerating towards 5%. Theoretically, the 10-year Treasury yield corresponds to the risk-free rate indicator r in important valuation models of the stock market, like the DCF valuation model. If no significant changes occur in other metrics (especially in the numerator regarding expected cash flow)for example, the earnings season has left the numerator in a vacuum due to the lack of positive catalystsif the denominator remains high or operates at historical peaks, valuations of tech stocks closely associated with AI, high-yield corporate bonds, and cryptocurrencies could face collapse. The $100 diesel crack spread will undoubtedly exert significant upward pressure on the 10-year and longer U.S. Treasury yields, potentially "reinforcing long-term upward pressure." The current 10-year yield in the U.S. has risen above approximately 4.74%, approaching 5%; the 30-year yield briefly surpassed 5.33%, reaching the highest level since 2007, indicating that the market is simultaneously adjusting long-term inflation compensation and term premiums. Long-term rates in Japan, the UK, and Germany have also risen to multi-year highs, suggesting that this is not solely a yield curve influenced by expectations of the Federal Reserves monetary policy, but rather a repricing of duration triggered by global sovereign debt, energy inflation, and capital supply. For the yield curve of 10-year and longer-term U.S. Treasuries, the most critical structural forces arise from the competition for the global duration bond funding pool driven by "budget deficits + AI debt issuance": the U.S. national debt is approaching $40 trillion, with a projected deficit of about $1.9 to $2.1 trillion for the 2026 fiscal year; meanwhile, AI-related debt issuance has reached nearly 15% of this years total investment-grade bond issuance, with Goldman Sachs stating that mega cloud computing service providers such as Google parent company Alphabet and Amazon (AI Hyperscalers) have issued about $194 billion in bonds this year and are expected to directly finance supply up to about $250 billion by 2026. Looking at the macro level, companies like Alphabet, Amazon, and Meta, among other AI Hyperscalers, have issued nearly $220 billion in bonds since the beginning of this year, more than double the entire annual amount of $108 billion projected for 2025, making this "the highest issuance level for comparable periods or a record issuance pace." It is noteworthy that the forecast for 2025 is itself significantly higher than historical normsdata from Bank of America shows that the five largest Hyperscalers plan to issue $121 billion in U.S. corporate bonds in 2025, while the annual average for the 2020-2024 period was only about $28 billion. In other words, the issuance scale for just the first eight months of 2026 has already significantly exceeded the normal levels of any previous full year, indicating an unprecedented AI debt financing cycle in terms of issuance speed and cumulative volume. Corporate debt supply will not mechanically dictate Treasury yields, but it will compete with the Treasury for the allocation limits of insurance, pension funds, and overseas investors long-term assets, magnifying term premiums and causing the yield curve to steepen into a bear market. Under baseline trading scenarios, as long as logistics in the two straits have not normalized, the diesel crack spread maintains extreme high levels, and fiscal and AI capital expenditures continue to expand, the probability of the 10-year Treasury testing 5% will significantly increase; however, if high oil prices ultimately lead to demand destruction, economic recession, or a rapid ceasefire, growth-down trading could still exert downward pressure on yields.