Global refining capacity, rather than crude oil supply, has become the biggest energy security risk as geopolitical tensions disrupt fuel markets, Kpler said in a Friday update.
Kpler said governments have traditionally focused on securing crude supplies, but recent events show refining capacity now poses the greater challenge because it determines how quickly crude can reach consumers as gasoline, diesel and jet fuel.
Although markets repeatedly expected diplomacy to ease tensions with Iran, tanker traffic through the Strait of Hormuz remains well below pre-February levels as shipowners continue to avoid the route, the note said.
Crude prices have fallen back toward pre-conflict levels after geopolitical risk eased, while weaker Chinese crude imports and releases from the US Strategic Petroleum Reserve returned over 7 million barrels per day to the global market, Kpler strategists said.
Refined fuel markets have not recovered as quickly because Ukrainian drone strikes have reduced Russian refinery operations, while disruptions in the Middle East have further limited exports of gasoline, diesel and gasoil.
Kpler said governments have ample tools to respond to crude supply disruptions but far fewer options when refining capacity tightens, allowing pressure to build in fuel markets even as crude prices stabilize.
Kpler said fuel markets now point to refining capacity as the main supply constraint, with RBOB gasoline, heating oil and gasoil maintaining historically strong premiums to Brent crude.
Kpler's modeling showed that reopening the Strait of Hormuz would do little to rebuild fuel supplies. Even under an immediate reopening scenario, global gasoline inventories remain historically tight, with days cover staying near 25 days.
Russia has periodically restricted fuel exports after repeated Ukrainian drone attacks disrupted nearly half of its roughly 6.7 million barrels per day of refining capacity, Kpler said.
The note said Middle Eastern product exports are also unlikely to recover quickly because tanker repositioning, inventory rebuilding and restoring confidence in Strait of Hormuz transit will take time.
Kpler also warned that the US could face higher gasoline prices despite weaker crude oil prices. National average gasoline prices remain near $3.80 per gallon, while inventories stand near 210 million barrels, keeping fuel supplies historically tight.
Kpler said gasoline prices could climb above $4 per gallon if inventories continue to tighten through the rest of the summer, even without another sharp increase in crude prices.
The note said future energy security strategies should focus on strengthening refining capacity alongside crude supply, as restoring fuel production and distribution takes far longer than reopening crude shipping routes.