Declarations by Iran and the U.S. earlier this week make the prospect of peace in the Middle East even more distant, driving crude oil prices higher. Meanwhile, the diesel crack spread in the U.S. topped $100 per barrel for the first time in history.
At the time of writing, Brent crude was trading at $91.33 per barrel, with West Texas Intermediate at $85.08 per barrel, after Iran said it would adopt a “fully offensive” strategy in the war with the United States, as negotiations have consistently failed to achieve an end to the hostilities.
The statement followed a refusal by the United States on Monday to extend a ceasefire that was agreed in June but did not last even a full month. “Iranian entities must be prepared to escalate tensions in the Strait of Hormuz and wider region, as Iran will be ready to make decisions and take action on difficult decisions,” an unnamed senior Tehran official told Reuters.
President Trump, meanwhile, threatened to bomb Gulf ally Oman if it finalized its deal with Iran for the joint management of the Strait of Hormuz, adding further uncertainty to an already uncertain situation.
While the rhetoric between the U.S. and Iran hardens, the crack spread for diesel in U.S. refineries surged above $100 per barrel illustrating a deepening supply crunch for the fuel resulting from the Middle Eastern war. The crunch is global, with the International Energy Agency reporting earlier this month that global refinery run rates stood at 80.9 million barrels daily, down by 5 million bpd on the year.
Diesel production as been hit especially hard as refiners ramped up gasoline and jet fuel production earlier in the summer in response to peak travel season. Yet the crunch was made a lot worse by Ukrainian drone attacks on Russian refineries as the country is a top-three exporter of fuels. In response to the attacks that caused fuel shortages, Russia banned diesel exports until the end of the year.
By Irina Slav for Oilprice.com
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