Key facts
- Kpler expects oil prices to continue rising due to Middle East supply losses and reduced refinery output.
- Oil prices have risen approximately $30 per barrel since early August, according to Kpler.
- Middle East normally exports about 3 million bpd of refined products.
- Russia, the second-largest diesel exporter, is losing refinery output to Ukrainian drone strikes and restricting exports.
- U.S. diesel prices are above $6 per gallon.
- Only three commercial vessels transited Hormuz on Wednesday, down from 17 over a 10-day average.
Oil prices are poised to continue their upward trend as the market grapples with persistent supply disruptions in the Middle East and a deepening crunch in refined products like diesel, according to Kpler analyst Matt Smith.
Smith told CNBC on Thursday that oil prices have climbed approximately $30 per barrel since early August. Typically, gasoline prices would be declining at this time of year as summer driving demand wanes, but they are not. Kpler estimates that around 8.5 million barrels per day of oil production has been lost due to ongoing conflict in the Middle East. Furthermore, refinery operations have been significantly curtailed, reducing the output of gasoline and diesel from available crude.
"That’s where the pain point is," Smith stated, referring to the refined products market. The Strait of Hormuz, a critical chokepoint for global oil and gas shipments, has seen a drastic reduction in traffic. On Wednesday, only three commercial vessels transited the strait, a sharp drop from 12 on Tuesday and a 10-day average of 17, according to ship-tracking data cited by Reuters.
Diesel, in particular, has fewer alternative export routes. The Middle East typically exports about 3 million barrels per day of refined products. Russia, the world's second-largest diesel exporter after the United States, is simultaneously experiencing reduced refinery output due to Ukrainian drone strikes and has imposed restrictions on fuel exports. China, while possessing spare refining capacity, has largely focused on its domestic market, with only modest increases in product exports, especially as crude prices moved above $100 per barrel.
U.S. diesel prices have already surpassed $6 per gallon, increasing costs for sectors such as trucking, agriculture, construction, and manufacturing. Smith anticipates that crude oil prices will continue to rise unless there is a de-escalation of tensions, noting that the diesel supply issue "doesn’t get fixed very easily."