Shell, Exxon Warn Global Fuel Stocks Running Dangerously Low as Refining Capacity Drops 10%
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Shell, ExxonMobil and Chevron warn that global fuel stocks are running dangerously low and that retail fuel prices will remain elevated regardless of crude oil movements. The warnings come as ongoing wars in the Middle East and Ukraine, along with export curbs by China and Russia, have slashed global refining capacity by as much as 10%. The physical market for diesel and gasoline is tightening even as crude futures dip on hopes for peace talks, executives said.
Global Refining Squeeze
Ongoing wars in the Middle East and Ukraine, combined with China's caps on fuel exports and Russia's ban on diesel exports, have cut global refining capacity by up to 10%, according to Bloomberg. The Middle East, a major exporter of refined products, has seen Persian Gulf refineries unable to ship product due to the six-month U.S. and Israeli campaign against Iran. Rystad Energy and Energy Aspects warned as early as April that fuel inventories were tightening. The export disruption has now spread from the Strait of Hormuz to the Red Sea.
Executive Warnings
Exxon CFO Neil Hansen said the constraint in the energy system is refining, something the market is not fully focused on. CEO Darren Woods added he had never seen available capacity relative to demand so low, and it will take the industry time to recover. Shell CEO Wael Sawan said price signals show a shortage of diesel and gasoline, requiring reoptimization at refineries. Rabobank strategist Joe DeLaura highlighted a diesel supply crunch, calling diesel ‘the everything the industrial economy runs on.’
Market Disconnect
Crude futures dipped last week after President Donald Trump announced peace talks, but physical markets for refined products remain tight. Most market observers have focused on futures even as the gap with physical prices widened due to export disruptions. The result is that pump prices are set to stay higher regardless of where crude oil prices go, the companies warned.
What's Next
The U.S. and Israeli military campaign against Iran is entering its sixth month, with no clear end in sight. It remains unclear whether additional refining capacity can be brought online quickly enough to ease the fuel supply crunch before winter demand peaks.
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Shell, Exxon Warn Global Fuel Stocks Running Dangerously Low as Refining Capacity Drops 10%
