Global fuel markets are very tight and inflexible, despite the higher flows out of the Persian Gulf in recent weeks, Russell Hardy, chief executive of the world’s biggest independent oil trader, Vitol Group, said on Tuesday.
“It’s pretty, pretty tight and inflexible out there as far as the market is concerned,” Hardy told the Asia Pacific Petroleum Conference by S&P Global Energy in Singapore today, referring to the fuel market.
Globally, refined product inventories are “still drawing,” Hardy said, as carried by Bloomberg.
“We’re still not running enough refining capacity to prevent those draws, and we keep eating into the surplus that exists around the world,” Vitol’s top executive added.
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The real stress in the oil markets is in the downstream, analysts say.
Despite the uptick in flows from the Strait of Hormuz, only 1 million barrels per day (bpd) out of an estimated 10 million bpd outbound flows are refined products, the rest is crude.
Refinery capacity is constrained in the Middle East, due to Iranian strikes on refineries and the trickle of fuel flows through Hormuz.
Moreover, refinery capacity in Russia is also severely restricted by nearly-daily Ukrainian drone strikes at Russian refineries, while Russia has banned diesel exports until at least the end of September.
Refineries in the United States have been running at maximum capacity this summer, having delayed maintenance. At the end of August, the total refinery utilization rate across the U.S. was 98%, with peaks of 103.5% in the Midwest and 99.8% in the Rockies, the EIA’s weekly petroleum status report for the week to August 28 showed.
These high rates are unsustainable as maintenance should be done at the facilities at some point, sooner rather than later.
The re-escalation in the Middle East and the Russian ban on diesel exports have pushed middle distillate cracks to record highs this month.
“The global refining system has little slack to make up for the disruptions we are currently seeing,” ING’s commodities strategists Warren Patterson and Ewa Manthey wrote in a note last week.
By Tsvetana Paraskova for Oilprice.com
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