Global Refining Crunch Pushes Diesel to Records as Lost Middle East Barrels Bite
US diesel has broken above 6.50 dollars a gallon and European fuel prices are at records after Middle Eastern refinery outages and Russian export curbs removed product supply faster than spare capacity elsewhere can replace it, with Washington now debating a diesel export ban.
US retail diesel broke another record last week, topping 6.50 dollars per gallon, while European pump prices are at record levels and shortages are looming. The Wall Street Journal, citing International Energy Agency figures, reported that the volume of diesel output lost in the Middle East is three times the volume lost from Russia. Russia has extended its ban on diesel exports through the end of October while keeping restrictions on non-producers and on gasoline exports in place until January 2027, as Ukrainian drone strikes continue to hit refineries. Europe is the most exposed region because it has closed significant refining capacity and now depends on imported crude and refined product.
Kpler estimates that roughly 8.5 million barrels per day of oil production has been lost over the course of the conflict, with refinery runs cut sharply so that less gasoline and diesel is produced from the crude that remains available. Kpler analyst Matt Smith told CNBC that oil prices have risen roughly 30 dollars per barrel since early August and that gasoline is not easing even though summer driving demand normally fades at this point in the year. He put the loss from a month-long outage of Saudi Arabia's East-West pipeline at 100 million to 120 million barrels that could not be exported through Yanbu. Brent fell about 3 percent to 102.72 dollars a barrel and WTI to 100.47 dollars on reports that Saudi Arabia was finding alternative ways to move crude while the pipeline stays damaged.
Shipping remains the binding constraint. Only three commercial vessels transited the Strait of Hormuz on the Wednesday before publication, compared with 12 on Tuesday and a ten-day average of 17, according to ship-tracking data cited by Reuters. Saudi Arabia has increased loadings inside the Persian Gulf and moved some of those barrels through Hormuz, while independent Chinese refiners in Shandong have cut run rates as Iranian barrels disappear and crude moved above 100 dollars. Chinese refiners remain primarily focused on supplying their domestic market, so product exports have risen only modestly despite spare capacity.
Policy risk is now adding to physical risk. Representative Tim Burchett has tabled a bill to ban US diesel exports and Senate Majority Leader John Thune has backed the proposal, although Energy Secretary Chris Wright and Interior Secretary Doug Burgum oppose it. The Wall Street Journal has warned that if Washington bans exports, China and India may follow, which would deepen the shortage elsewhere. Lukoil's 50,000 barrel per day Petrotel refinery in Romania has been idle since US sanctions took effect, and a Carlyle acquisition of the assets has stalled in an inter-agency review, leaving capacity offline that could otherwise ease the fuel squeeze.