Key facts
- Refining margins for gasoline and diesel have reached record highs, outpacing crude oil price spikes.
- Global supply of refined products is tightening due to geopolitical conflicts and low inventories.
- Russia's ban on diesel exports and Ukrainian drone attacks on refineries have impacted supply.
- U.S. commercial oil stocks are below the five-year average, and Strategic Petroleum Reserve levels are at multi-decade lows.
- Delays in crude deliveries to Asia are expected due to risks in the Strait of Hormuz and Bab el-Mandeb.
Refined fuel markets are experiencing a significant tightening, with record refining margins driven by supply disruptions from geopolitical conflicts in the Middle East and Ukraine, rather than crude oil prices. This situation is straining global fuel availability and impacting economic growth forecasts.
Less than a month ago, analysts warned of a crude oil glut as tanker traffic recovered. However, a U.S.-Iran ceasefire collapsed, leading to renewed conflict and Houthi attacks on tankers in the Red Sea and Bab el-Mandeb Strait. Brent crude surpassed $100 per barrel amid these developments, causing tankers to reroute, increasing costs and transit times.
Further supply disruptions stem from Ukrainian drone strikes on the Novorossiysk port, forcing Kazakhstan to suspend most oil exports. The Strait of Hormuz has seen significantly reduced oil volumes, and the Bab el-Mandeb Strait is now nearly blocked. These combined issues, along with Russian refinery attacks and export restrictions, have created a grim global oil supply picture.
Refining capacity remains limited, preventing crude supply increases from immediately translating into more diesel and gasoline. This has led to record global refining margins, with European diesel margins exceeding $60 per barrel and gasoline trading at a four-year premium. U.S. commercial oil stocks are also below the five-year average.
The price spikes and supply constraints are hurting demand. European diesel consumption fell by 5.7% in May, and Chinese diesel and gasoline demand also declined. While the International Energy Agency notes substantial government-controlled stocks, a continued drawdown of commercial inventories raises concerns about oil security.
Consequently, the World Bank has revised its global economic growth outlook to 1.3% for the year, down from 2.9% last year, with the ongoing energy supply chain disruptions posing a significant risk of recession.