Record Tightness in U.S. and European Fuel Markets Amid Hormuz Escalation

Fuel markets in the United States and Europe have tightened sharply as tanker attacks in the Strait of Hormuz and the collapse of a U.S.–Iran truce revived concerns about Persian-Gulf fuel flows. The disruption coincides with a plunge in Russian exports after Ukrainian strikes on Russian refineries, pushing gasoline, diesel and jet-fuel prices higher than crude oil and adding pressure to consumers and central banks.

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The immediate trigger is a spate of ship attacks in the waterway, including two United Arab Emirates-flagged tankers struck while transiting Hormuz. The loss of Gulf crude has forced refiners—already operating with reduced capacity after earlier supply cuts—to curtail processing rates, especially in Asia. Seasonal refinery maintenance in the U.S. and Europe, a heat wave that may force European plants to lower crude-processing, and the closure of several refineries in both regions over the past few years further limit available product. Together, these factors have erased the modest supply growth that previously balanced rising oil-products demand.

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• The “3-2-1 crack” margin, a proxy for U.S. gasoline-and-diesel profitability, has surged to a record level despite refineries running hard.

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• European diesel refining margins reached their highest point since at least 2011.

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• Analysts note that oil-products demand continues to outpace supply growth, leaving little room for new refinery projects in the current environment.

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The United Arab Emirates confirmed that two of its tankers were hit while transiting the Strait of Hormuz, underscoring the heightened shipping risk that is curtailing fuel deliveries from the region.

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• “The re-ignition of war in the Persian Gulf casts a great big question mark over third-quarter Persian Gulf runs,” — Eugene Lindell, head of refined products, FGE NexantECA

Bloomberg

• “Oil products demand continues to grow steadily, outstripping supply growth,” — Jonathan Lamb, analyst, Wood & Co.

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• “If you look at refinery utilization over the last few months, some regions have seen lower utilization, because they didn’t have the crude,” — Jonathan Lamb, analyst, Wood & Co.

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• “Refiners were not able to add incremental volumes.” — Jonathan Lamb, analyst, Wood & Co.

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