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What is the story about?
Refined product supply, rather than a shortage of crude oil, is emerging as the key challenge for global energy markets, according to Richard Redoglia, CEO of Matrix Global.
Redoglia said the current oil market is being shaped by constraints in refining capacity, particularly in Russia and the Persian Gulf. While global crude production capacity remains higher than demand, disruptions to refineries have tightened supplies of products such as diesel.
"The issue that we're faced with in the world right now is not so much an issue with crude supply, but with product supply," Redoglia said.
He pointed to a significant difference between crude availability and refining capacity. Global crude demand is currently around 103 million-105 million barrels per day, while crude liquids capacity is estimated at 110 million-113 million barrels per day.
However, global refining capacity is around 105 million barrels per day, leaving much less room to absorb disruptions.
He added, “The problem is we are seeing a curtailment of crude refined capacity out of the Persian Gulf of around 1.2 million barrels a day. Interesting, where the greater capacity constraint is coming from refineries is out of Russia, and there we are seeing almost 2 million barrels a day of refined capacity, and therein lies the problem because an oil trader in that region is going to pay whatever he can to get a barrel of crude to refine in his refinery.”
Redoglia, expects crude oil prices to fall below $70 per barrel within a year, or by around September 2027.
The disruption has been particularly significant for diesel and other refined products. He said the loss of refinery capacity has pushed refiners to pay more for crude as they compete for barrels needed to maintain product supplies.
Redoglia also highlighted the impact of refinery disruptions linked to the Russia-Ukraine war, saying more than 2 million barrels per day of refining capacity has been stopped following attacks on refineries.
This has contributed to a sharp increase in refinery margins. According to Redoglia, the value of a barrel of distillate after refining is currently more than $100, compared with the usual premium of around $15-$30 over the price of crude.
Redoglia also discussed the possibility of the US restricting diesel exports. He said such a move could have a significant impact on fuel markets outside the US.
The US is a major diesel supplier to South America as well as European markets. A ban on exports would leave more diesel within the US, potentially pushing domestic prices lower, while reducing availability in overseas markets.
"If they ban diesel exports, which I am against, I don't think that Trump should do that," Redoglia said. He added that such a move could result in a significant increase in refined product prices in other parts of the world.
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Redoglia said the current oil market is being shaped by constraints in refining capacity, particularly in Russia and the Persian Gulf. While global crude production capacity remains higher than demand, disruptions to refineries have tightened supplies of products such as diesel.
"The issue that we're faced with in the world right now is not so much an issue with crude supply, but with product supply," Redoglia said.
He pointed to a significant difference between crude availability and refining capacity. Global crude demand is currently around 103 million-105 million barrels per day, while crude liquids capacity is estimated at 110 million-113 million barrels per day.
However, global refining capacity is around 105 million barrels per day, leaving much less room to absorb disruptions.
He added, “The problem is we are seeing a curtailment of crude refined capacity out of the Persian Gulf of around 1.2 million barrels a day. Interesting, where the greater capacity constraint is coming from refineries is out of Russia, and there we are seeing almost 2 million barrels a day of refined capacity, and therein lies the problem because an oil trader in that region is going to pay whatever he can to get a barrel of crude to refine in his refinery.”
Redoglia, expects crude oil prices to fall below $70 per barrel within a year, or by around September 2027.
The disruption has been particularly significant for diesel and other refined products. He said the loss of refinery capacity has pushed refiners to pay more for crude as they compete for barrels needed to maintain product supplies.
Redoglia also highlighted the impact of refinery disruptions linked to the Russia-Ukraine war, saying more than 2 million barrels per day of refining capacity has been stopped following attacks on refineries.
This has contributed to a sharp increase in refinery margins. According to Redoglia, the value of a barrel of distillate after refining is currently more than $100, compared with the usual premium of around $15-$30 over the price of crude.
Redoglia also discussed the possibility of the US restricting diesel exports. He said such a move could have a significant impact on fuel markets outside the US.
The US is a major diesel supplier to South America as well as European markets. A ban on exports would leave more diesel within the US, potentially pushing domestic prices lower, while reducing availability in overseas markets.
"If they ban diesel exports, which I am against, I don't think that Trump should do that," Redoglia said. He added that such a move could result in a significant increase in refined product prices in other parts of the world.
Watch accompanying video for more
Follow our live blog for more stock market updates
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