Refining Crunch, Not Crude Oil Shortage, Driving Energy Prices Higher

Oil industry analyst Tom Kloza says that the real squeeze on energy markets is not a shortage of crude oil, but rather a refining capacity crunch. Kloza made this point at the American Coalition for Ethanol annual conference last week.

Kloza noted that many observers are fixated on the Strait of Hormuz, while overlooking a broader problem: damaged refineries in Russia, the Persian Gulf, and the Red Sea. He likened the impact of these drone attacks to the introduction of the Gatling gun.

The analyst pointed out that crude oil prices have been relatively moderate over the last 25 years, averaging around the current price level. However, gasoline and diesel prices have skyrocketed, with most countries paying around $140 for gasoline and $180 for diesel, which could reach $200 a barrel in the near future.

Kloza also mentioned that China's electric vehicle sales are rising rapidly, with 62% of last month's vehicle sales being electric. This has led to reduced crude imports from the 11.5-12 million barrels per day seen earlier to around 8-8.5 million, leaving product markets tight.

The analyst expects wild price swings and possible near-term softness in diesel due to unprecedented premiums. However, he still sees a 'very, very scary picture' of $5-$7 diesel over the next six months. Kloza also believes that this market is ideal for ethanol blends, given their octane and price advantage compared to gasoline.