Storage tanks at a pipeline facility in Avenel, NJ (Mark Kauzlerich/Bloomberg)
key takeaways:
- Fuel markets in the US and Europe fell sharply as concerns over fuel supplies grew due to renewed conflict in the Middle East and tanker attacks in the Strait of Hormuz.
- Fuel prices have risen faster than crude as Gulf crude disruptions, lower Russian exports and limited refining capacity have constrained global supplies.
- The breakdown of the US-Iran ceasefire and upcoming refinery maintenance could put further pressure on supplies as refineries prepare for seasonal shutdowns and shipping remains a risk.
Fuel markets in the US and Europe are seeing record lows as tensions rise in the Middle East, threatening more trouble for consumers already troubled by high prices at the pump.
The tanker attack in the Strait of Hormuz and the involvement of the Iran-backed Houthis are reviving concerns about the flow of fuel from the region, on which the West was heavily dependent before the conflict. They coincide with a decline in Russian exports as Ukraine targets the country’s refineries.
Prices for gasoline, diesel and jet fuel are rising faster than crude oil amid the Iran conflict, fueling inflation and hurting consumers and central banks. Global fuel supplies were already tight before the war, and when crude oil stopped flowing from the Persian Gulf, especially to Asia, refiners were forced to cut processing rates.
Now, the breakdown of the US-Iran ceasefire threatens supply as refineries prepare to take capacity offline for seasonal maintenance. The United Arab Emirates said two of its tankers were attacked while transiting the Strait of Hormuz, following a series of attacks on ships in the waterway since last week.
“If you look at refinery utilization over the last few months, some areas have seen lower utilization because they didn’t have crude,” said Wood & Co. analyst Jonathan Lamb. “Refiners were not able to add incremental volumes.”
In Europe, the profits oil refiners make on diesel this week reached their highest level since at least 2011. In the US, a measure of refining margins known as the 3-2-1 crack, which estimates turning crude into gasoline and diesel, rose to a record despite refineries running tough.
The heat wave across Europe could also force some plants to reduce crude oil processing. Also, over the past few years, many refineries in the US and Europe have closed.
