Not crude, the real danger now lies elsewhere
LONDON: The global oil refining industry is flashing warning signs. The supply chain for the products that fuel the global economy is under growing stress
LONDON: The global oil refining industry is flashing warning signs. The supply chain for the products that fuel the global economy is under growing stress as conflicts in the Middle East and Russia ripple through energy markets.Benchmark crude prices have retreated sharply from the highs of $118 a barrel reached during the height of the Iran war and are now hovering around $85, suggesting many investors believe the threat of an energy crisis has faded. While crude supplies have partially recovered, the system that converts crude into fuels is still struggling after months of disruption from conflicts in Russia and the Middle East. Gasoline and diesel inventories sit near multi-year lows, refining margins have surged to record levels, and refinery throughput remains severely curtailed across key producing regions.Households and industry consume refined products, not crude, so this is the stress they should be monitoring.WARTIME CASUALTIESRefineries have proven to be tempting targets. In the Middle East, major refineries in Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates remain either partially or entirely offline after the outbreak of the Iran conflict on February 28 triggered the closure of the Strait of Hormuz. China, meanwhile, has sharply reduced refinery runs to compensate for the massive decline in imports during the Iran conflict. Across Asia, refiners have also been forced to reduce operations because of constrained crude supplies.
And Russia's refining sector has been battered by sustained Ukrainian drone attacks, triggering domestic fuel shortages that have forced Moscow to curb diesel exports in a bid to contain soaring local prices.Also read | Ethanol could soon make its way to Indian kitchensTaken together, those disruptions removed roughly 5 million barrels per day of global refining output in the second quarter compared with a year earlier, with refinery runs averaging around 78 million bpd, according to the International Energy Agency. The temporary reopening of Hormuz following the U.S.-Iran ceasefire on June 17 briefly eased some of the pressure. But even though Gulf producers rushed crude exports through the waterway, refined product flows remained far weaker. According to Kpler data, the region exported around 4 million bpd of crude in June, but only 1 million bpd of oil products, totalling a quarter of pre-war levels. Now, the renewed disruption to traffic through Hormuz - due to escalating hostilities between the U.S. and Iran - has once again choked off regional exports, threatening hopes for a recovery in Asian or Middle Eastern refinery activity.Buffers and time are both running short.U.S. RUNNING OUT OF STEAM The U.S. emerged as the world's refinery of last resort in the first half of this year, ramping up exports of crude, gasoline, diesel and aviation fuel to compensate for disruptions elsewhere.But it is now running out of steam.U.S. crude inventories, including commercial stocks and those in the government's emergency reserve, have fallen since the start of the Iran war to their lowest level since 1984.
The BriefWire