Oil prices rise amid Middle East supply and refining concerns

Global energy markets are facing a potential fuel supply crisis as oil prices rise due to geopolitical tensions and refining disruptions. Concerns regarding shipping routes in the Middle East, specifically the Strait of Hormuz, have intensified fears of supply constraints, driving up crude oil benchmarks like Brent and WTI.

The crisis is extending beyond crude oil to refined products. The diesel crack spread, a key measure of refining profitability, reached a record $102 per barrel. This surge reflects a shortage in the ability to convert crude into gasoline, jet fuel, and diesel.

Several factors are contributing to this instability:

- Middle East disruptions: Refineries in the region have faced attacks, and shipping through the Strait of Hormuz remains complicated by standoffs between Iran and the United States. - Russian refining capacity: Drone attacks from Ukraine have taken approximately 40% of Russia’s refining capacity offline, leading Moscow to ban gas and diesel exports through January 2027. - Chinese export limits: To prevent domestic shortages, China has limited its own fuel exports.

As a result, the US Gulf Coast has become a critical player in the global fuel market as other major refining hubs face distress.