Record U.S. Refinery Runs Fail to Ease Global Fuel Crunch

U.S. refineries are producing the most gasoline and diesel since before the pandemic lockdowns, refining margins are running at record highs, but the world is still short on fuels. And it would take a while—and maybe a peace deal in the Middle East—before the situation changes.Fuel shortages are the more important oil crisis because it is fuels that the world consumes, not unrefined crude oil. Yet ever since the U.S. and Israel launched their first strikes on Iran at the end of February, it is crude oil prices that have been hogging headlines. Now, attention is turning to fuels, because fuels supply is running low—and no amount of social media posts by President Trump and media reports about ample crude supply can change that.According to the latest data from the Energy Information Administration, U.S. refineries churned out an average 17 million barrels of fuels last week. This was the highest since September 2019, Bloomberg reported, as refiners made the most of the record-high crack spread. The ratio between the price of crude oil and the main products made from it has reached the highest on record, hitting $70 per barrel earlier this month. However, record U.S. refinery runs and equally record exports are not enough to fill the gap. What’s worse, they would lower U.S. crude oil stocks, which are already quite uncomfortably low. “Super-sized refining margins continue to encourage refiners to run as hard as possible, resulting in a solid draw to crude inventories,” Kpler’s director of commodity research, Matt Smith, said, as quoted by Bloomberg.The problem appears to be multifold. The most obvious reason, of course, is the crude and fuel export crunch caused by the war in the Persian Gulf. What a lot of observers may have forgotten is that the Gulf states were not only major exporters of crude—they also exported quite a lot of refined products. Meanwhile, European countries have been shutting down refineries, and with them, fuel production capacity. The same has been happening elsewhere in the West as well.Separately, China’s government has a strict fuel export quota policy, which restricts refiners in production decisions. This factor was pointed out by Kpler in a recent analysis of the global refining industry as not less important than Russia’s drop in refinery output because of the Ukrainian drone attacks, which even led to a diesel export ban. That ban added insult to injury in diesel, which is especially tight. Indeed, earlier this month, the Financial Times reported that the world is facing a diesel supply crunch, which would push prices even higher and make the fuel unaffordable for poorer nations in Southeast Asia, Africa, and Latin America.Since then, some refineries in Russia—which was the world’s second-biggest fuel exporter after the U.S.—have restarted operations, but the ban is not going anywhere yet as Moscow prioritizes domestic supply security. China is not changing its policies with regard to fuel exports, not at current crude oil prices. The prospect of peace between the United States and Iran remains as elusive as it was a month ago. The U.S. and Iran have resumed strikes on each other’s assets, with a drone attack on a U.S.-owned floating storage oil tanker in the Egyptian port of Damietta, suggesting the war could still expand geographically.What this means is this may well be only the beginning of a substantial fuel crunch on a global scale that comes at a rather bad time, when countries in the northern hemisphere begin preparations for winter, which notably include stocking up on diesel, to make heating oil for peak demand season.By Irina Slav for Oilprice.comMore Top Reads From Oilprice.comIran Rejects Oman’s Proposal to Evenly Divide Hormuz ControlUK Regulator Targets Data Center Land Grab on the Power GridRefined Fuels, Not Crude, Are Driving the Oil Market Crunch