Refining Capacity Conundrum Hits Global Energy Markets
The global energy market is facing a significant challenge due to constraints in refining capacity rather than a shortage of crude oil. According to Richard Redoglia, CEO of Matrix Global, the current market is being shaped by disruptions to refineries in Russia and the Persian Gulf.
Redefolia pointed out that while global crude production capacity remains higher than demand, with 103 million-105 million barrels per day being consumed against a capacity of 110 million-113 million barrels per day, refining capacity is significantly lower at around 105 million barrels per day. This leaves little room for absorbing disruptions.
The curtailment of refined capacity out of the Persian Gulf amounts to around 1.2 million barrels a day, while refineries in Russia have seen almost 2 million barrels a day of refining capacity stop due to attacks on refineries linked to the Russia-Ukraine war. This has led to a sharp increase in refinery margins, with the value of a barrel of distillate after refining currently above $100 compared to the usual premium of around $15-$30 over the price of crude.
Redefolia also highlighted the possibility of the US restricting diesel exports, which could have a significant impact on fuel markets outside the US. The US is a major supplier of diesel to South America and European markets, and a ban on exports would leave more diesel within the US, potentially pushing domestic prices lower while reducing availability in overseas markets.