Key Takeaways
- Global crude oil supplies are strained due to conflicts in the Middle East and Ukraine.
- Refining capacity is limited, leading to higher diesel prices in Europe and the US.
- Shortages are exacerbated by bans on Russian petroleum products and attacks on refineries.
Diesel prices are setting new records, reaching an average of $6.52 per gallon in the United States, according to the AAA automobile association. In France, diesel hit a record average of 2.41 euros per liter (around $10.40 a gallon) on Sunday, reflecting the global energy crisis.
The current world energy crisis is largely a crisis in petroleum products, refined from crude oil, according to Nobel Prize-winning economist Paul Krugman. The proximate cause is a global shortage of refining capacity, as French officials estimate the global market is missing about 10 million barrels of crude oil per day.
The disruption is global, with Europe particularly exposed as it is a net importer of diesel. Janiv Shah, vice president at the consultancy Rystad Energy, notes that while technically there is some unused capacity, it is difficult to activate quickly.
The shortage is exacerbated by Western nations banning the import of Russian petroleum products and Russia’s own fuel export bans due to Ukrainian attacks on its refineries. Gulf nations, which are major exporters of refined petroleum products, are also affected by Iranian targeting of refineries in the region.
Iran initially blocked the Strait of Hormuz, shutting in around 20 million barrels per day, but Saudi Arabia shifted some exports to the Red Sea. However, Saudi exports via the Red Sea are now down as Yemen’s Houthi rebels have gained control of the Bab al-Mandab Strait.
The International Energy Agency (IEA) estimates that observed global oil stocks are down by around 507 million barrels from before the war. China, in particular, has sharply reduced crude imports and shifted to other energy sources, further impacting the market.
Western nations have banned the import of Russian petroleum products, leaving Russia’s remaining buyers scrambling for supplies, which has pushed up prices. Gulf nations, which are big exporters of refined petroleum products, are also affected by Iranian targeting of refineries in the region.
There are few short-term options to alleviate the situation. Technically, there is some unused capacity on paper, but very little that can be activated quickly, according to industry experts.
