Global refining capacity has slipped to about 80 million barrels of fuel a day, down from a typical 86 million for this time of year, as Houthi attacks on Saudi Arabia's oil infrastructure and refinery constraints in Russia and China squeeze fuel supply. Diesel is sitting at a record near $5.90 a gallon, and Americans just paid the highest Labor Day gasoline prices ever recorded.
Refining capacity falls short of demand
A crude oil supply crisis in the Middle East is turning into a broader fuel problem. Matt Smith, an analyst at data platform Kpler, said global refinery capacity is running at around 80 million barrels of fuels a day, down from a more typical 86 million barrels for this time of year. More refineries in the Middle East and Russia are offline, he said, while China is prioritizing its domestic fuel market and has cut demand for crude.
Depleted inventories, as the war with Iran enters its seventh month, compound the problem. Record diesel prices are fanning concerns about inflation as global financial markets face a bond selloff and dollar weakness.
Houthi attacks tighten Saudi supply
Drone and missile attacks launched by the Iran-backed Houthis on refineries and oil infrastructure in Saudi Arabia have aggravated long-brewing problems with Middle Eastern oil-product supply. The Houthis launched fresh attacks on Saudi Arabia's oil infrastructure on Tuesday, continuing a long-running regional dispute. Some Middle Eastern crude cargoes can still transit the Strait of Hormuz, but fuel production in the region has been hampered by the recent strikes.
Refiners cash in as margins hit records
U.S. refiners are running at full tilt and continue to export fuel worldwide, taking advantage of the "crack" spread — the margin refiners earn for turning crude into gasoline, heating oil and diesel — which has climbed to records in recent weeks. Rob Thummel, a portfolio manager at Tortoise Capital, said: "Higher gasoline and diesel prices of course raise concerns of a recession." Shares of Marathon Petroleum, Phillips 66 and Valero Energy all gained Tuesday, contrasting with losses across the broader U.S. stock market, and all three closed at all-time highs.
Oil pushes toward $100 a barrel
Brent oil futures, historically more sensitive to global upheavals, pushed closer to $100 a barrel, while WTI futures remained above $90 a barrel.
Analysts at Eurasia Group said strong demand for crude products and a continued standoff in the Middle East, alongside the Houthi-Saudi confrontation and the Russia-Ukraine war, will likely push oil prices above $100 a barrel. The firm said it sees little chance of a resolution to any of the relevant conflicts.
Source: MarketWatch
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