Matt Smith, an analyst at Kpler, predicts that oil prices will continue to rise due to reduced supply in the Middle East and increasing gasoline and diesel costs. Reports indicate that since early August, oil prices have increased by about $30 per barrel. While gasoline prices typically decrease with reduced driving demand in the summer season, this time it is not the case.
Reduction in Oil Production Due to Conflicts
Kpler estimates that around 8.5 million barrels per day of oil production have been lost due to conflicts. Additionally, reduced refining activities have led to lower production of gasoline and diesel from the remaining crude oil. Matt Smith pointed out that the pain point lies here.
Impacts on the Diesel Market and Exports
Brent crude oil prices fell by about 3 percent on Thursday, reaching $102.72 per barrel. Additionally, West Texas Intermediate (WTI) crude oil prices decreased to $100.47. Matt Smith estimates that if the East-West pipeline in Saudi Arabia is potentially shut down for a month, 100 to 120 million barrels of oil will be unable to be exported through Yanbu.
Saudi Arabia has been attempting to increase its loadings in the Gulf and transport some of these barrels through Hormuz. According to ship tracking data, only three commercial vessels passed through Hormuz on Wednesday, compared to 12 on Tuesday and an average of 17 over the past 10 days.
Diesel has fewer escape routes. According to Matt Smith, the Middle East typically exports about 3 million barrels per day of refined products. Russia, the second-largest diesel exporter in the world, is also experiencing reduced refining output due to drone attacks in Ukraine and fuel export restrictions. China has excess refining capacity, but Matt Smith noted that Chinese refineries retreated when crude oil prices rose above $100, primarily focusing on meeting their domestic market needs.
Currently, diesel prices in the United States are over $6 per gallon, increasing transportation, agricultural, construction, and manufacturing costs. Matt Smith predicts that oil prices will continue to rise without a reduction in tensions, and diesel will not easily recover.
