Middle East Conflict Threatens Global Fuel Output Recovery

The ongoing US-Iran war has disrupted crude supply, threatening Asian fuel output recovery and keeping global fuel stocks tight. This could prolong higher prices unless China fills the gap.

Asian refiners were counting on steadier oil supply to lead a recovery in global fuel production this quarter. However, attacks between the US and Iran have throttled Gulf crude exports through the Strait of Hormuz, where a fifth of the world's oil previously passed before the war.

Russia has also banned diesel exports due to Ukrainian drone attacks on its refineries, further bolstering gasoline, diesel, and jet fuel prices. Refiners in Asia excluding China are running at 93% to 95% of pre-war levels, while China has the most room to ramp up output and is less dependent on imported crude.

US and European refiners are expected to maximise third-quarter output to capitalise on record margins but have little room to increase production. In the US, the crude-to-fuel products spread used as the benchmark for US refiner profitability rose to a record of close to $70 a barrel late last week.