Oil Market Split: Bearish Crude vs. Bullish Fuels
By Market Desk
European energy CEOs highlight a stark oil market divergence: bearish crude prices clash with bullish refined fuel trends due to supply threats from Russia and the Middle East.
Europe’s leading energy executives report a fundamental divergence in the global oil market, with a bearish outlook for crude oil prices contrasting sharply with bullish trends for refined products. This significant market split was a central discussion point at the ONS conference in Stavanger, Norway.
Driving Forces Behind the Divergence
Patrick Pouyanne, CEO of TotalEnergies SE, explained that while crude oil cargoes can still navigate the Strait of Hormuz, the elevated shipping costs render it uneconomical for refined products. He emphasized that Ukrainian drone attacks have substantially reduced Russia’s fuel supplies, contributing to this imbalance.
Pouyanne warned that this situation will negatively impact European consumers and sustain high US gasoline prices. Shell Plc CEO Wael Sawan identified a “triple threat” compressing the oil products market, citing Russian refinery attacks and shipping risks in the Persian Gulf and Red Sea.
Key Market Metrics
Benchmark crude currently trades near $90 a barrel in London, a level lower than during the initial phases of the conflict. Conversely, the premium for products like diesel over crude stands at one of its highest levels in more than 15 years.
The cost for a very large crude carrier to transit Hormuz is approximately $20 million. However, for smaller vessels carrying refined products, this additional cost is prohibitive, effectively halting product tanker movements from the region, Pouyanne detailed.
Ukraine’s drone attacks are estimated to have cut Russia’s fuel supplies by 3 million to 3.5 million barrels per day. These supply disruptions exacerbate the market’s current structural issues.
Outlook and Consumer Impact
The Shell CEO stressed the importance of mitigating the impact on customers in the coming months. The persistent geopolitical tensions in the Middle East, particularly affecting shipping routes, continue to fuel uncertainty for refined products.
This ongoing market divergence highlights a complex environment where raw material costs move independently from processed fuel prices, creating challenges for global energy markets and consumers alike.