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Market Chatter: Global Refining Output Deals Biggest Blow in Years due to Iran, Ukraine Wars

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About 9% of global oil refining capacity has been knocked offline in the last few months amid conflict in Iran and Ukraine, Reuters reported on Thursday, deepening a global energy crisis and slowing any rebound in supply once the Strait of Hormuz eventually reopens.

Damage to refining facilities and disrupted supplies of crude oil feedstocks have combined to cut refinery throughput and production of fuels, making for the worst dent to global refinery operations since the Covid-19 pandemic, the Reuters article said.

Saxo Bank analyst Ole Hansen told Reuters that "current tightness will continue to underpin the refined product market ... Not least considering the damage done to refineries," he said.

Jet fuel has surged in price faster than other refined products, taking it to a record level in March, the article said. Crude prices themselves are at around their highest in four years. Diesel and gasoil are frequently cited as the fuels with the most acute supply shortages.

Around 500 million barrels has been withdrawn from global oil reserves, Reuters reported, citing TotalEnergies (TTE) CEO Patrick Pouyanne in late April. He said the figure could rise to 1 billion barrels even if the conflict ended soon, since supply recovery will take time.

"Even if the war was to end quickly, prices are expected to remain at high levels," he said, according to the article.

In barrel terms, the Iran war had shut down about 3.52 million barrels of oil per day of processing by May 7, the article said, citing industry monitor IIR.

Ras Tanura, the largest in Saudi Arabia has restarted but not fully, with some units still undergoing work, according to Amin Nasser, Saudi Aramco CEO.

Kuwait's Mina Al-Ahmadi and Mina-Abdullah were also struck by drones.

The Russia-Ukraine war has taken about 1.42 million bpd offline, the article said, citing IIR data, with Ukrainian attacks taking about 700,000 bpd of Russian refining capacity offline between January and May at 16 locations.

Reduced availability of crude oil amid the closure of the Strait of Hormuz has reduced refining throughput in Asia and Europe combined by 3.8 million bpd, JPMorgan estimates, according to the article.

Refinery outages linked to the Iran and Russia-Ukraine wars roughly equate to 9% of 100.5 million barrels per day of global refining capacity, IIR said.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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