Lü Qiyuan’s ‘whistling arrow’ has sounded; U.S. oil reserves are running dry—will global inflation rebound?

The problem lies in the refined oil segment—specifically, the refining stage. Crude oil is a raw material, but what actually powers trucks, tractors, excavators, and the entire logistics system is diesel. A strategist at Rabobank put it bluntly: crude oil is merely a raw material; diesel is everything for industrial economic operations—agriculture, construction, and mining all depend on diesel-powered machinery. And current diesel inventories, according to ExxonMobil’s CFO, are at the lowest level relative to demand he has ever seen in his career. European diesel prices have doubled compared to a year ago. In the U.S., the diesel crack spread has surged past $100 per barrel—a level never before observed. What does diesel shortage mean for ordinary people? It means higher prices on supermarket shelves. Every freight truck runs on diesel; every cold-chain transport vehicle runs on diesel; every agricultural machine runs on diesel. As early as May, the UN’s Food and Agriculture Organization (FAO) issued a warning: if shipping through the Strait of Hormuz remains disrupted, the world could face a food price crisis over the next six to twelve months. Indeed, the food price index for April rose for the third consecutive month. These figures collectively point to one straightforward reality: the global refined oil buffer is being drained. And at this moment, the East made a move. Data from China’s General Administration of Customs shows that in April, China’s crude oil imports declined by 20% year-on-year to 38.5 million tons—the lowest level since July 2022. Data from ship-tracking firm Kpler corroborates this: maritime crude oil imports in April fell to 8.03 million barrels per day—the lowest in four years. Meanwhile, refined product exports are also tightening. In April, gasoline and jet fuel exports dropped to approximately 3.1 million tons—the lowest in a decade—and were one-third lower than March’s figure. Taken together, these two moves reveal a clear logic: for the past two decades, China has been the world’s largest producer and supplier of petrochemical products—plastics, fertilizers, chemical fibers, solvents—fundamental raw materials for industry and agriculture, widely exported from China to the rest of the world. This export flow objectively suppressed global prices. There is an economic consensus that, had China not continuously supplied low-cost industrial goods to the world, Western inflation would have spiraled out of control during the quantitative easing years. Now, this supply is contracting. The petrochemical supply chain works like this: naphtha is cracked from crude oil; naphtha is then converted into ethylene and propylene, which in turn become plastic pellets, synthetic fibers, and fertilizer feedstocks—starting points for manufacturing. Once supply tightens at this foundational stage, price pressures cascade down the chain step-by-step. What sits at the very end? Plastic bags in supermarkets, synthetic-fiber fabrics in clothing, fertilizers in fields, and packaging materials in factories. Japan has already felt the impact. From late February to March, due to naphtha shortages, at least six of Japan’s twelve ethylene plants operated at reduced capacity—accounting for 64% of total national ethylene production capacity. Cracking unit load factors at Japan’s three major petrochemical hubs—Chiba, Yokkaichi, and Mizushima—plummeted from over 90% to 60–70%. According to Japan’s Ministry of Economy, Trade and Industry (METI), if the Strait of Hormuz blockade persists beyond three months, Japan’s annual ethylene production loss could reach 1.2 million tons. The petrochemical shortage is not cyclical—it is structural.

Inflation heats up across the board! U.S. September CPI rose 3.7% year-on-year, core CPI rose 2.6% year-on-year—both exceeding expectations; October rate-hike expectations surge.

U.S. inflation data heated up across the board, triggering a sharp rise in rate-hike expectations and putting pressure on financial markets. On Wednesday, the U.S. Bureau of Labor Statistics released data showing that the Consumer Price Index (CPI) rose 3.7% year-on-year in September—higher than the market expectation of 3.6% and up from the prior reading of 3.4%. Core CPI rose 2.6% year-on-year—also exceeding expectations of 2.5% and up from the previous 2.4%. This marks the fastest pace of U.S. consumer price growth in five months, indicating that inflationary pressures are proving more persistent than previously anticipated by markets. On a monthly basis, the September CPI rose 0.6% month-on-month—matching expectations but accelerating notably from the prior 0.4%. Core CPI rose 0.3% month-on-month—above the expected 0.2% and unchanged from the prior month. Following the release, financial markets reacted swiftly: the U.S. dollar index spiked nearly 30 points; the yield on the 10-year Treasury note rose in tandem; and futures on all three major U.S. stock indices turned negative. Spot gold prices dropped roughly $30 in short order. Traders significantly increased their bets on a Federal Reserve rate hike in October—the probability surged to 50%. They now also anticipate three additional cumulative hikes by the end of 2027. This report is the final CPI release ahead of the Fed’s upcoming interest-rate decision meeting on October 27–28, and its results will directly influence policymakers’ assessment of the appropriate path for rates. Additionally, Federal Reserve Governor Kevin Warsh is scheduled to deliver remarks Thursday evening (New York time) at the International Monetary Fund’s conference in Bangkok—markets will closely monitor his latest comments. Energy and services jointly drive broad-based inflation surprise From the component breakdown, energy prices were the primary driver behind the September CPI overshoot, with both goods and services prices accelerating in the month. On a monthly basis, CPI rose 0.6%, matching expectations but rising sharply from the prior 0.4%; core CPI rose 0.3%, exceeding the expected 0.2% and holding steady versus the prior month. Within core inflation components, service prices were the key factor pushing up core CPI, with their monthly increase jumping notably in September.

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