Refinery outages, rather than crude supply, are driving diesel prices higher as global capacity constraints tighten product markets and leave little room to absorb further disruptions, Enverus Intelligence Research said in a note Thursday.
Diesel is trading near $180 per barrel against $85/bbl WTI, giving refiners roughly a $100-a-barrel crack spread, an all-time high that reflects severe product shortages.
About 7 million barrels per day to 8 million b/d of global refining capacity remains offline, limiting the market's ability to supply diesel at the pace required by demand, Enverus said.
The record crack spread shows refiners capturing an unusually large margin as the diesel market increasingly relies on product availability rather than price to balance supply and demand.
Ukrainian strikes have taken roughly 5 million b/d of Russian refining capacity offline, while drone attacks have shut another 2 million b/d of refining capacity in the Middle East.
Russia has also halted diesel exports to protect domestic supplies, while the closure of the Strait of Hormuz has restricted crude access for some refiners, further tightening product markets.
Enverus said the outlook depends on the pace of Ukrainian strikes and Russian refinery repairs, with no reliable timeline for restoring the disrupted capacity. US refiners are already operating near 96% utilization.
The US Department of Energy is working to maintain that high utilization rate, but limited spare capacity leaves the US market vulnerable to additional disruptions, including risks from the hurricane season, according to Enverus.
Low product inventories are also leaving Canadian consumers with little protection against higher diesel prices. Enverus expects prices to continue rising rather than stabilize until refining capacity returns or demand weakens.
The International Energy Agency expects global oil demand to grow by roughly 2 million b/d next year, but Enverus said that outlook depends on the Strait of Hormuz reopening and a durable peace.
China remains a key variable after reducing crude purchases earlier this year before returning to the market, potentially indicating that Beijing expects the disruption to last and is rebuilding inventories.
Trump's social media post about the Keystone pipeline signals stronger interest in Canadian crude and Alberta export options, including the existing Bridger/South Bow route and potential access to Asian markets.
Canadian producers remain cautious about committing to costly Pacific pipeline infrastructure while forward crude prices hover near $75/bbl for next year. Three routes remain in contention: an East Coast line, a Pacific option and the Bridger route.
Enverus said crude prices appear $10/bbl to $15/bbl below levels implied by physical inventories, while 6 million b/d to 8 million b/d of Middle Eastern supply remains shut in. Strong demand could eventually force prices higher as fundamentals tighten.