As noted below,
U.S. refinery capacity utilization is running high. I have also
heard that more crude oil is stealthily making it through the Strait of Hormuz
by sneakery and ship-to-ship transfers. The last numbers I heard were
two-thirds of pre-war traffic. U.S. refineries have been delaying regular
maintenance schedules a bit, but maintenance shutdowns will likely happen soon.
I made the graph below from EIA data.
Dicken notes that the diesel crack
spread, the difference between diesel prices and crude oil prices, is at record
highs. This is good for the bottom lines of refineries but not good news for
consumers who buy diesel, and gasoline too. She notes:
“According to the EIA’s Weekly Petroleum Status Report
(WPSR) for the week ended August 21, distillate inventories fell for a fourth
consecutive week, dropping to just above 103 MMbbl. Distillate stocks are on
track for their lowest end-of-month level since April 2005, and are the lowest
they have been in the month of August since 1951.”
Thus, refined products remain in
short supply despite high U.S. refinery utilization rates.
As RBN Energy noted in a post a
few days ago, which I summarized in a post here, there are two reasons: loss of transport
through the Strait of Hormuz and Ukraine’s attacks on Russian refineries. In
fact, they think the loss of Russian refined products is having the biggest
effect on global markets.
The situation in the Middle East
is noted in the graph and quote below:
“Reuters estimates that more than 20% of Middle Eastern
refining capacity has been knocked offline or impaired by physical damage,
while the conflict has dramatically reduced normal flows through the region.
Global refinery runs fell by roughly 5.1 MMb/d year over year in Q2 2026.
Middle Eastern refineries don't simply produce crude-derived products for their
domestic markets. They are important suppliers of refined products to the rest
of the world. And the Strait of Hormuz is typically weighted more toward diesel
than other products as well. When those barrels disappear, Europe and Asia must
find replacement supplies.”
She summarizes the Russian
situation below:
“An estimated 700 Mb/d of Russian refining capacity was
knocked out between January and May across 16 refineries, twice the number hit
for the same period of 2025 and the attacks and impacts have only increased
since then. In fact, estimated Russian refinery throughput dropped below 4
MMb/d in July and so far in August, equal to less than 60% of capacity, the
lowest level in over 20 years.”
“Net exports of gasoline, jet fuel/kerosene and diesel
products by Russia plunged from 1.2 MMb/d in January to less than 100 Mb/d by
July (far right of stacked bars in Figure 3 below). Russian net diesel exports
(green bar segments) crashed from just above 1 MMb/d in January to 160 Mb/d in
July, with net gasoline exports (red bar segments) and jet fuel/kerosene
exports (blue bar segments) even dropping into negative territory (indicating
Russia was a net importer of these products in those months).”
She notes that back in March the
global supply of oil and oil products was very good, which allowed the world to
draw on that excess. It now has to catch up.
Dicken also notes a third factor
putting upward pressure on refined products: RVOs and RINs. I must admit I do
not understand exactly how these biodiesel and renewable diesel incentives
work, so I will just give her final summary:
“The high cracks tell a complex story. Gulf refinery and
shipping disruptions, together with the loss of Russian exports, have created a
real shortage of immediately available diesel-making capacity. Strong March
RVOs and a wider BOHO spread have also raised RIN costs, lifting the U.S.
diesel price and the gross crack through compliance-cost pass-through.”
References:
Basket
Case – The $100/bbl Diesel Crack, or How 2026 Exposed the Fragility of Global
Refining. Liz Dicken. August 27, 2026. Basket
Case – The $100/bbl Diesel Crack, or How 2026 Exposed the Fragility of Global
Refining | RBN Energy
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