Global gasoline and diesel markets are signaling fuel supply crunch

LONDON - Global gasoline and diesel markets are signaling an ongoing fuel supply crunch even as crude oil prices remain relatively subdued, raising concerns that the economic impact of the recent Iran conflict may continue despite a ceasefire.

Energy prices surged after the US-Israeli war with Iran disrupted shipping through the Strait of Hormuz, a key route that previously handled about one-fifth of the world's oil supply. Although crude oil prices fell sharply following last month's ceasefire agreement and have only posted modest gains during renewed outbreaks of fighting, fuel prices have remained elevated.

The sustained increase in gasoline and diesel prices suggests inflationary pressures on businesses and consumers could persist, even as oil shipments through the Strait of Hormuz have gradually improved.

Supply concerns intensified this week after Russia imposed a ban on diesel exports following Ukrainian attacks that damaged Russian refining infrastructure and increased the risk of domestic fuel shortages.

At the same time, the gap between fuel and crude oil prices, a key measure of refinery profitability, has widened significantly. Refiners in Europe and the United States continue to face challenges processing abundant crude supplies released from emergency reserves and increased Middle Eastern exports during the US-Iran ceasefire.

Analysts say limited global refining capacity is contributing to the supply imbalance, with higher fuel prices likely to weigh on consumer demand if the trend continues.

Refining margins have climbed sharply across major markets. European diesel refining margins reached a record high this week following Russia's export ban, while gasoline margins rose to their highest levels since the peak of disruptions caused by the Russia-Ukraine war in 2022. In the United States, the benchmark refinery profit margin, known as the 3-2-1 crack spread, also reached a record high on July 8.

Russian diesel and gasoil exports had already been declining before the latest attacks, falling to about 400,000 barrels per day, according to Kpler data, with exports dropping to less than half that level so far in July.

Asian diesel margins have also strengthened as traders anticipate tighter supplies in Western markets, although fuel supplies across Asia remain relatively stable.

Analysts at Energy Aspects said Russia's export restrictions are expected to force major importers, including Brazil, Turkey, and countries in North and West Africa, to seek alternative supplies from the United States, the Middle East, and India. That could leave Europe competing for a smaller pool of available diesel exports.

A prolonged diesel shortage would come at a critical time for farmers across the Northern Hemisphere, who rely heavily on the fuel during the upcoming autumn harvest season.

Gasoline markets are also showing signs of tightening ahead of the region's peak summer driving season. US gasoline inventories fell to their lowest level for early July since 2021 during the week ending July 3, according to the Energy Information Administration.

In Asia, low fuel inventories have helped support gasoline prices despite expectations of higher fuel exports from China.

Overall, oil product inventories across member countries of the Organisation for Economic Co-operation and Development (OECD) remain below their average levels recorded between 2015 and 2019. Although inventories have recovered from lows seen earlier this year, limited stockpiles continue to leave global fuel markets vulnerable to further supply disruptions. -Reporting by Ahmad Ghaddar, Robert Harvey, Trixie Yapp and Mohi Narayan. Editing by Mark Potter/Reuters