Key facts
- Jeff Currie argues that the focus on crude oil prices ($91 Brent) obscures a more severe crisis in refined fuels like diesel.
- Diesel prices have reached approximately $170 per barrel, nearly double the price of Brent crude.
- This price disconnect is attributed to factors including China cutting refinery runs, leading to tighter product supplies.
- The inflation impact is significant, with gasoline prices up 30% and diesel up 46% year-over-year.
- Currie anticipates that historically high refinery margins will eventually lead to increased runs and a correction.
Commodities analyst Jeff Currie asserts that the current focus on crude oil prices, such as Brent crude trading around $91 per barrel, is misleading and masks a more significant energy crisis unfolding in refined products. During an interview, Currie stated that diesel prices have surged to approximately $170 per barrel, nearly double the price of crude. He explained that consumers do not directly use crude oil; instead, they purchase gasoline, diesel, and jet fuel, markets that are currently experiencing considerable tightness.
Currie attributes part of this dislocation to a substantial volume of crude oil being held up in the Strait of Hormuz following increased supplies in late June and early July. Concurrently, China's decision to cut refinery runs has softened crude prices but exacerbated shortages in refined products, effectively moving the problem downstream rather than solving it. He also noted that traditional government strategies of releasing strategic reserves during supply disruptions are unlikely to be effective this time due to the scale and duration of the current issue, coupled with an increasingly tight product market.
The inflationary consequences of this situation are substantial. Gasoline prices have risen approximately 30% compared to a year ago, while diesel prices have increased by 46%. Since diesel is a critical input for trucking, shipping, and industrial operations, these rising costs have broad economic implications. Currie anticipates that the market will eventually correct as refiners, attracted by historically high margins, increase their operational runs. However, until this correction occurs, the current price of crude oil offers a deceptive picture of the energy market that consumers have not experienced for weeks.