In Europe, the US and Asia, giant plants are making money by doing what they’ve always done: converting crude oil into vital fuels and selling them at a profit.
What’s different today is the scale of the threat to global supplies: Relentless attacks on Russia’s energy infrastructure, outages at key plants in Asia and Africa and permanent closures across Europe and the US have removed millions of barrels of diesel and gasoline from the world market.
On top of these real-world impacts are traders’ fears of what’s yet to come: imminent US sanctions on Lukoil PJSC and Rosneft PJSC and fresh European Union curbs on fuels made from Russian crude threaten already squeezed supply-chains.
The result is ongoing pressure on costs at the pump despite a fall in global oil prices — something that’s unlikely to sit well with a US administration that sees “affordable energy” as essential.
“Global refinery margins are astronomical,” said Eugene Lindell, head of refined products at consultancy FGE NexantECA. “The signal you’re giving the global refining system, no matter where the refinery is located, is to just run flat out.”
In the US, Europe and Asia, margins are the highest they’ve been at this time of year since at least 2018, according to fair value data compiled by Bloomberg. The profits are so good that refiners’ stock prices are also surging: Processors including Valero Energy Corp and Turkiye Petrol Rafinerileri AS have seen stellar rises, while Orlen SA gained more than 100% year-to-date.
While expectations of a glut are dragging on crude prices, disruption to the global refining system is limiting how much oil can be turned into products like gasoline, diesel and jet fuel. While that benefits the processors still running, it also means the slump in headline oil prices isn’t being felt at the pump.
A constant stream of attacks on Russia’s refineries — just this month, Ukraine claimed strikes on the Saratov, Orsk and Volgograd plants — is hampering fuel production. Last month, Russia’s huge oil product exports were on course to hit a multi-year low, and that was before drone attacks damaged key loading facilities in the port city of Tuapse.
Product supplies are being further squeezed by outages elsewhere. In Kuwait, the giant 615,000 barrel-a-day Al-Zour refinery recently had only one of its three crude processing units operating, while a key gasoline-production unit at Nigeria’s huge Dangote refinery is reportedly scheduled to halt for about 50 days of maintenance in coming weeks, having only recently begun restarting.
Meanwhile, US crude runs in recent weeks have been more than a million barrels a day lower than the same time last year, a huge drop from the peak summer demand months, when processing was at its highest seasonal level since 2019. The country has seen multiple refinery closures in recent years, as has western Europe, further pressuring fuel supplies.
“Global refining activity has been challenged by a series of unplanned outages in October, further constraining product markets and pushing margins even higher,” the International Energy Agency said Thursday. Increased profits have prompted the watchdog to raise its estimates for runs at margin-sensitive refining assets in Europe and Asia this month and next.
In the US, the upshot is a rise in the average price of diesel since President Trump took office, and little change in the cost of gasoline, which on Thursday stood at $3.08 a gallon. Benchmark crude futures have meanwhile come off about 20% since his second inauguration, amid forecasts of a large surplus.
Supercharging these ongoing real-world supply pressures are traders’ fears over what’s on the horizon.
“The current strength in refining margins is at least partially being driven by uncertainty around the upcoming US sanctions on Rosneft and Lukoil, as well as the EU’s January prohibitions on Russian products,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group.
FGE’s Lindell estimates Lukoil and Rosneft’s combined Russia oil product exports are more than 800,000 barrels a day. The global seaborne trade in oil products is about 22mn barrels a day, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker.
Any major disruption to those exports would be a shock to the global fuels market, though the extent to which those barrels would really disappear is unclear. Russia has shown that it often manages to work around sanctions.
There are also questions about what comes next for refineries outside Russia in which Lukoil is involved, including Bulgaria’s Burgas facility, the Netherlands’ Zeeland plant and Romania’s Petrotel.
Then there are the EU restrictions, coming into force January 21, which restrict the delivery of petroleum products made from Russian crude into the bloc. Precisely how these will end up impacting Europe’s diesel supplies from India and Turkey — both of which have also been key importers of Russian crude — remains to be seen.
“The sanctions against Rosneft and Lukoil, on top of the recent sanctions package out of the EU, tightened the noose around Russia’s neck,” said Carolyn Kissane, an associate dean at the Center for Global Affairs at New York University, where she teaches about energy and climate change. “At the same time, you’re seeing more attacks driven by Ukraine against Russian infrastructure, which is a hit to the products market.”
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