U.S. diesel prices have broken $6.50 per gallon, a new record, as lost Middle Eastern and Russian fuel supply collides with refining capacity that cannot keep pace. Washington is weighing a diesel export ban to ease prices at home, while Europe remains most exposed to the shortage.
U.S. diesel prices broke another record last week, topping $6.50 per gallon. In Europe, fuel prices are soaring, and shortages are looming over already struggling economies. There is not enough refining capacity in the world to make up for the loss of Middle Eastern and Russian barrels, and no quick fix is available.
Russia said it would extend its diesel export ban until the end of October, as Ukrainian drone attacks on refineries continued. The latest strike came Sunday, targeting one of Russia's largest refineries. However, the Wall Street Journal reported that the amount of diesel output lost in the Middle East was three times as high as lost Russian supply, citing International Energy Agency figures.
Washington debates an export ban
Rep. Tim Burchett tabled a bill for a U.S. diesel export ban last week, and Senate Majority Leader John Thune has backed the proposal. Energy Secretary Chris Wright and Interior Secretary Doug Burgum oppose the idea, warning it would backfire. A ban could ease prices at home, but it would push prices higher elsewhere, worsening an already grave fuel shortage.
Refining capacity shrank for years
Over the past decade or so, refineries have shut down under pressure from the net-zero movement, mainly in Europe but also in the U.S. under Democratic administrations. According to the Wall Street Journal: "How do you make a small fortune? Take a large fortune and build a refinery." That was Wood Mackenzie senior VP Alan Gelder's description of the poor returns that drove the closures. Middle Eastern petrostates built new refineries as capacity fell elsewhere, but that capacity has now been compromised, partly by strikes on Gulf energy infrastructure, and no one can pick up the slack while U.S. refiners already run at their highest rates.
Lukoil's idle refinery adds pressure
One European refinery, owned by Russia's Lukoil, sits idle after the Trump administration sanctioned the company last November. The Financial Times reported that a deal for Carlyle Group to acquire the business has become bogged down in an inter-agency review, leaving needed capacity offline. The idled Petrotel refinery in Romania can process about 50,000 barrels daily, a small volume that still matters in the current crunch.
If Washington bans diesel exports, China and India may follow, pushing the rest of the world toward deeper shortages. Europe looks most exposed, given its dependence on imported crude oil and refined fuel alongside its shrinking refining base.
Source: Oilprice.com
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