Exxon, Shell and Chevron are warning that the real bottleneck in energy markets is refined fuel, not crude, even as oil futures ease. Wars in the Middle East and Ukraine, plus export curbs from China and Russia, have cut global refining capacity by as much as 10%, and refiners are already running near their limits ahead of autumn maintenance season.
Exxon, Shell and Chevron say pump prices will stay elevated regardless of where crude oil trades, arguing the squeeze has shifted from the wellhead to the refinery. Big Oil now joins analysts who had flagged the physical fuel market rather than futures charts.
WTI crude eased 0.81% to $79.69 a barrel, and Brent crude fell 4.73% to $83.77, retreating from last week's peak after President Donald Trump's latest declaration on peace talks. Futures and physical markets are telling different stories, though, and that gap is widest in refined products.
Refining capacity down as much as 10%
Bloomberg reported that wars in the Middle East and Ukraine, China's caps on fuel exports and Russia's ban on diesel exports have slashed global refining capacity by as much as 10%. As early as April, Energy Aspects and Rystad Energy warned that fuel inventories were getting squeezed because the Middle East is a major exporter of refined products as well as crude. More analysts are now sounding the alarm as the war enters its sixth month.
Refineries already running near their limits
Exxon's Gulf Coast refineries have been running at a 95% utilization rate, Chevron's at 97%, and Shell's topped 100%, clocking in at 102% over the second quarter. That rate cannot be sustained for long without raising the risk of adverse consequences, meaning refiners will eventually cut runs and output.
According to Exxon's chief financial officer Neil Hansen: "The constraint pain point in the energy system is refining", he told Bloomberg last week, adding that this is perhaps something the market isn't fully focused on.
Chevron's chief financial officer Eimear Bonner told Bloomberg that geopolitical uncertainty has tightened markets and eroded the shock absorbers that had cushioned volatility. That dynamic is why crack spreads and U.S. refinery runs are both running at record highs, and maintenance season typically begins in September and runs through October, meaning processing rates will come down. Refiners have in the past postponed maintenance to capture stronger demand, but doing so now may be unwise.
Executives sound the alarm on diesel
Rabobank senior energy strategist Joe DeLaura told the Wall Street Journal that Persian Gulf refineries cannot move product out, calling diesel the fuel the industrial economy runs on. Shell's chief executive Wael Sawan told CNBC that price signals now show the market is short on diesel and gasoline, requiring refiners to reoptimize.
Exxon's chief executive said last month that available refining capacity relative to demand has never been this low, adding that the industry will need time to recover. Early in the war, some analysts predicted oil prices could reach $200 a barrel. That never happened, as Trump's alternating escalation and de-escalation announcements kept futures in check, while physical fuel supply out of the Middle East has tightened regardless.
Source: Oilprice.com
Trading involves risk.
Risk Disclaimer
