Fuel prices, particularly for gasoline and diesel, are staying high even as crude oil prices have fallen. This disconnect is due to a shortage in global refining capacity, a problem that has intensified after four months of war. The American Automobile Association reported that regular unleaded gasoline averaged $3.88 a gallon in the US as of July 10, marking the third-highest price for this time of year, while diesel prices were the second-most expensive on record.
The global refining system is processing 8.4 million fewer barrels of crude per day than before the war, leading to a 10% reduction in fuel production, according to Natasha Kaneva, head of global commodities research at JPMorgan. This constraint is exacerbated by supply chain disruptions, attacks on Middle Eastern refineries, and recent Ukrainian actions against Russian energy facilities. Refineries also face challenges from extreme temperatures that disrupt distillation processes.
Adding to the demand, some European governments are looking to rebuild strategic reserves, which further tightens the market. US stockpiles of distillates, primarily diesel, are near all-time seasonal lows and are declining. Both ExxonMobil Holdings Corp. and Chevron Corp. have warned that high fuel prices are likely to persist because the wars in Russia and the Middle East have left global refining capacity critically short. The focus has shifted from crude supply to the refining system's ability to process it.
