Fuel Crisis: Refineries Lag Behind Returning Crude Supply — NRG-IA

The world once again has more oil available, but it is not producing enough gasoline, diesel, and jet fuel. Crude barrels have returned to the seas faster than refineries have resumed operations, and this gap is now reflected in fuel prices. Global oil supply rose by 4.1 million barrels per day (bpd) in June to reach 98.8 million bpd, following the partial resumption of shipments through the Strait of Hormuz. However, production remained 9.4 million bpd below pre-war levels. At the same time, the volume of crude processed in refineries was approximately 6 million bpd lower than in June 2025. This gap has created an unusual market: crude prices can temporarily fall while fuel prices remain high. Storage tanks can receive crude, but gasoline and diesel do not materialize until the raw material is transported to a refinery, processed, stored, and distributed. Crude Has Returned Faster Than Refined Products In June, Gulf oil exports surged amid a period of relative de-escalation and the partial resumption of shipping traffic. Vessels that had been waiting in the area began transporting accumulated inventory from storage to refineries in Asia and other regions. Refined products did not see the same recovery. Exports of refined products and liquefied petroleum gas (LPG) from the Gulf remained at less than half of their pre-war levels. In contrast, crude flows had reached nearly three-quarters of their pre-conflict levels. Several export refineries in the Middle East have not fully resumed operations, leaving international market supplies of gasoline, diesel, and kerosene limited. Some of the oil returning to the market was drawn from strategic reserves or floating storage. While these volumes temporarily eased pressure on crude prices, they cannot replace lost industrial capacity. In March, member states of the International Energy Agency (IEA) approved the release of 400 million barrels from emergency reserves, the largest such intervention in the organization's history. While the measure increased available oil supplies, every released barrel must still be refined before it can power a car, truck, or plane. Refining Becomes the Weakest Link A refinery cannot be started, repaired, or replaced quickly. These facilities operate continuously, feature highly complex equipment, and are configured for specific crude grades and product yields. A single barrel yields gasoline, diesel, jet fuel, fuel oil, and petrochemical feedstocks. These proportions cannot be adjusted indefinitely overnight. A market can have ample gasoline but face a severe diesel shortage, even if overall crude volumes appear satisfactory. Global refining activity rose by 1.5 million bpd in June but remained well below last year's levels. The IEA estimates that global crude runs will fall by an average of 2.4 million bpd in 2026, before a potential recovery in 2027. Gulf refineries continue to operate below normal capacity, Russian facilities are hampered by attacks, and Asian plants have processed reduced volumes. Consequently, multiple regional issues have hit the same link in the energy supply chain simultaneously. Diesel Under the Greatest Pressure This tension is highly visible in the spread between fuel and crude prices. In Europe, the diesel crack spread exceeded a record $60 per barrel. European gasoline traded at around $41 per barrel over crude, the widest gap since the summer of 2022. These figures do not just represent refining margins; they signal how much the market is willing to pay for any additional available fuel. Diesel carries greater economic weight than a simple comparison with gasoline suggests. It powers road freight, agricultural machinery, construction, heavy industry, and numerous backup power systems. A diesel shortage quickly feeds into transport costs and, subsequently, consumer goods prices. The timing is challenging for the Northern Hemisphere. Agriculture is heading into harvest season, construction activity is high, and summer travel is boosting consumption just as the market faces tighter volumes. Attacks on Russian Refineries Knock Out Fuel Supplies Russia is one of the world's leading diesel exporters. Ukrainian attacks on refineries and logistical infrastructure have curtailed domestic processing, causing shortages, price spikes, and queues at filling stations. Moscow banned exports of gasoline, diesel, and jet fuel, except for deliveries under intergovernmental agreements. Russian exports of diesel and related products had already fallen toward a low of around 400,000 bpd, with volumes in the early days of July dropping even further. The fallout has extended beyond Russia's borders. Gasoline shipments to Central Asia and Afghanistan fell by 34% in June, while jet fuel deliveries plunged by over 92% compared to the previous month. Tajikistan and Kyrgyzstan have begun seeking alternative supply sources. Buyers who previously relied on Russia must now source diesel from the US, India, or the Middle East.…