Middle East War Triggers New Global Refining Boom
Hormuz Tanker Traffic Remains Subdued Despite Reports of Peace Talks What I Cover Tsvetana Paraskova is an energy and commodities journalist who has contributed to Oilprice.com for nearly a decade, covering global energy markets, commodities,… For the second time this decade, a war has upended global oil markets and sent oil prices and refining margins to multi-year highs, benefitting the world’s biggest oil companies and top refiners.
The war in Iran has tightened fuel supply as crude oil has struggled to move through the Strait of Hormuz, triggering reduced refining throughput in Asia and a temporary Chinese ban on exports.
The fuel markets tightened even more than the crude market to send refining margins to record highs.
And the biggest refiners benefited from the new refining boom, with Big Oil reporting their highest second-quarter earnings since the previous outbreak of a war, the Russian invasion of Ukraine in 2022.
The bumper earnings were driven not only by the jump in oil prices between April and June—the contribution of the refining and trading divisions was also fundamental for fueling the high profits.
Despite the slump in crude prices and the extreme volatility in the past five months, the refined product market continues to tighten with refining margins at record highs because the supply of petroleum products is much tighter than crude supply.
Refining margins held at record highs even as crude oil prices soared to $100 per barrel and above.
That’s because global gasoline, diesel, and jet fuel supply is tightening and has been tightening for months amid a combination of factors, most stemming from the wars in Iran and Ukraine.
Last month, refining margins for gasoline and dieseljumped to new record highsamid on-and-off escalation in the Middle East, Russia’s ban on diesel exports, and crumbling global fuel inventories.
In a rare statement last month, Fatih Birol, the executive director of the International Energy Agency (IEA),saidthat “There is no room for complacency on oil security amid the escalation in hostilities and a continued drawdown of available commercial inventories.” While assuring markets that IEA countries still hold more than 1 billion barrels of government-controlled stocks, Birol said that “Refinery activity and product supplies have not picked up as much as crude deliveries, meaning that markets for refined oil products, including diesel and gasoline, are considerably tighter than those for crude.” As a result of the tight fuel markets and soaring refining margins, the world’s biggest international oil companies reported their strongest earnings for the second quarter since at least 2022.
They also expect refining to continue providing high earnings in the short term amid distorted fuel markets with restricted supply and refining capacity.
Shell, for example,more than doubledits second-quarter earnings from a year earlier, as higher oil and gas prices, record refinery utilization, and strong trading boosted pro.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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