RBN Energy’s Jason Lindquist notes that it is not only the disruption in the Strait of Hormuz that is affecting global petroleum product prices, including gasoline and diesel. The bombing of Russian refineries is also having an effect. First off, I support Ukraine in doing what they have to do to slow and counter the war of aggression against them. Russia is to blame for the war and thus for the disruptions due to damage to their refineries. Unfortunately, it seems we are all paying for it – again. Lindquist thinks that the loss of output from Russia’s refineries may actually be a bigger influence on petroleum product prices than the Iran war.
As noted in the graph below,
the crack spread, the price difference between crude oil and refined products,
has grown. U.S. refineries are operating at full capacity and reaping the
benefits of higher prices for outputs and lower prices for inputs.
Ukraine has hit nearly every
major refinery, several of them multiple times. Linquist notes that crude runs
have fallen:
“…from more than 5 MMb/d through much of 2025 and into
early 2026 to 4.4 MMb/d in May, 4.2 MMb/d in June and around 3.8 MMb/d in July
— a 25+-year low and only about 50% of capacity. That has pushed seaborne
product exports (blue bars and left axis) down from about 2.3 MMb/d in January
2025 to about half that amount in July.”
He also notes that Ukraine’s
drone targeting has gotten really good.
“Attacks are increasingly hitting crude distillation
units (CDUs), fluid catalytic crackers (FCCs), hydrocrackers, reformers,
hydrotreaters, storage and export logistics. That reduces both total throughput
and clean-product yields, making gasoline, diesel and jet availability more
constrained than crude production alone would imply.”
Russia had been the world’s
second-largest exporter of diesel fuel behind the U.S. That has changed quite a
bit in recent months. Russian diesel exports have fallen dramatically in recent
months from about 1 million barrels per day early in 2026 to just 204,000
barrels per day in July. That means about 800,000 barrels of these products
have been effectively taken off the market. The graph below also shows that
Russia has increased imports of diesel (I believe from India) from 5,000
barrels per day to 39,000 barrels per day.
Russian gasoline exports
peaked in 2023 and 2024 at 200,000 barrels per day but averaged over the last
several years about 100,000 barrels per day. They were exporting 105,000
barrels per day of gasoline in March, but by July the output dropped to just
21,000 barrels per day. Russia began importing gasoline at higher rates also,
importing 90,000 barrels per day in July, up from 10,000 barrels per day in
March and just 2,000 barrels per day in January.
As can readily be seen in the
graph below, efforts to decrease Russia’s crude oil exports failed, as they had
remained remarkably steady in spite of sanctions. In fact, as a result of the
refinery strikes, Russia has put more crude oil on the world market since it
cannot refine as much into products. This has resulted in about 1million extra
barrels per day of crude on the world market, with the bulk of it going to
India and China. This has helped mitigate the Strait of Hormuz disruptions. He
notes that it appears that this will continue to be the case.
Global refinery capacity is
expected to grow 2026-2030, especially with capacity additions in Asia and
Africa. I recently wrote about increased petroleum product exports from
Nigeria’s Dangote refinery, which began operations in 2024.
He notes that Russian
refinery capacity will remain crippled as long as the war is on and even if the
war ends and eventually sanctions are phased down, it will still take months to
return to the global market, meaning it will continue to put upward pressure on
gasoline and diesel prices.
“Russian refining capacity is a long-term issue but it’s
important to note that some recovery could come fairly quickly if the Ukraine
war were to stop any time soon. (Conversely, the condition of Russia’s
refineries could become more dire the longer the war lingers.) If the war ended
and the refinery attacks stopped, Russia could probably bring back 500+ Mb/d of
refining capacity within a month or two and more than 1 MMb/d within six
months, taking runs back to 4.5 MMb/d. If sanctions stayed in place, that could
be about where things would level off, since Russia would still have trouble
getting certain equipment and catalysts and would face limits on shipping and
product exports. If sanctions were lifted (likely in stages) as part of a
future deal, runs could keep rising toward 5-5.5 MMb/d over the following year
or two. The first part of the rebound could happen fairly quickly, but the last
few hundred thousand barrels per day would take much longer.”
References:
Rock
Bottom – Declining Russian Refinery Output Pushing Global Products Prices
Higher, Shifting Trade Flows. Jason Lindquist. August 19, 2026. RBN Energy. Rock Bottom – Declining Russian
Refinery Output Pushing Global Products Prices Higher, Shifting Trade Flows |
RBN Energy
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