Kpler’s Matt Smith expects oil prices to keep grinding higher, with six and a half months of Middle East supply losses now working their way through gasoline and diesel prices.
Smith told CNBC Thursday that oil prices have risen roughly $30 per barrel since early August. Gasoline would normally be falling at this point in the year as summer driving demand fades. It isn’t.
Kpler estimates roughly 8.5 million barrels per day of oil production has been lost over the course of the conflict. Refinery runs have also been cut sharply, reducing the amount of gasoline and diesel produced from the crude that remains available.
“That’s where the pain point is,” Smith said.
Brent fell about 3% Thursday to $102.72 per barrel and WTI dropped to $100.47 after reports that Saudi Arabia was finding alternative ways to move crude while its East-West pipeline remains damaged.
Smith put the potential loss from a possible month-long East-West pipeline outage at 100 million to 120 million barrels that could not be exported through Yanbu. Saudi Arabia has increased loadings inside the Persian Gulf and moved some of those barrels through Hormuz, where ship traffic remains severely constrained.
Only three commercial vessels transited Hormuz Wednesday, compared with 12 Tuesday and a 10-day average of 17, according to ship-tracking data cited by Reuters.
Diesel has fewer escape routes.
Smith said the Middle East normally exports about 3 million bpd of refined products. Russia, the world’s second-largest diesel exporter behind the United States, is simultaneously losing refinery output to Ukrainian drone strikes and restricting fuel exports.
China has spare refining capacity, but Smith said Chinese refiners pulled back when crude moved above $100 and remain primarily focused on supplying their domestic market. Product exports have increased only modestly.
U.S. diesel prices are already above $6 per gallon, raising costs for trucking, agriculture, construction and manufacturing.
Smith expects crude to keep grinding higher without a de-escalation. Diesel, he said, “doesn’t get fixed very easily.”
By Julianne Geiger for Oilprice.com
