Kpler Sees Oil Grinding Higher as Diesel Crunch Deepens
Kpler analyst Matt Smith says oil prices are likely to keep rising as supply losses from six and a half months of Middle East disruption feed through into refined fuel markets, especially diesel. He points to roughly 8.5 million barrels per day of lost oil production and reduced refinery runs, which have tightened gasoline and diesel availability even as seasonal gasoline demand usually falls.
Why It Matters
Tight crude and refined product flows from the Middle East, combined with additional constraints on diesel supply from Russia and limited extra exports from China, are lifting fuel costs and raising operational expenses across transportation and industry. Prolonged disruption would sustain pressure on prices and downstream consumers.
Key Facts
- Analyst: Matt Smith, Kpler
- Oil price change since early August: About $30 per barrel increase (per Kpler)
- Estimated lost oil production: Approximately 8.5 million barrels per day
- Potential loss from month-long East-West pipeline outage: 100 million to 120 million barrels that could not be exported through Yanbu
- Brent price (reported): $102.72 per barrel (fell about 3% on Thursday)
Kpler analyst Matt Smith told CNBC that oil markets are still absorbing roughly six and a half months of supply disruption in the Middle East, and that effect is pushing gasoline and diesel prices higher rather than lower as summer demand wanes. Kpler estimates the conflict has removed about 8.5 million barrels per day of oil production, while refinery runs have been sharply curtailed, shrinking the amount of refined fuel produced from the remaining crude. Smith warned the diesel market is particularly strained. The Middle East typically exports about 3 million barrels per day of refined products, yet Russia — normally the world’s second-largest diesel exporter — is losing refinery output to Ukrainian drone strikes and is restricting fuel exports. China has some spare refining capacity but Chinese refiners curtailed activity when crude exceeded $100 per barrel and have largely prioritized their domestic market, resulting in only modest increases in product exports. The physical constraints in shipping routes are compounding the problem. Smith estimated a month-long outage of Saudi Arabia’s East-West pipeline could prevent 100 million to 120 million barrels from being exported through Yanbu. Saudi loadings inside the Persian Gulf have risen and some crude has been routed through the Strait of Hormuz, where ship traffic is sharply limited: ship-tracking data cited by Reuters showed just three commercial transits of Hormuz on Wednesday, compared with 12 the prior day and a 10-day average of 17. Market moves reflected the uncertainty: Brent slid about 3% to $102.72 per barrel and WTI fell to $100.47 after reports that Saudi Arabia was finding alternative ways to move crude around the damaged pipeline. U.S. diesel prices are already trading above $6 per gallon, increasing costs for trucking, agriculture, construction and manufacturing. Smith said crude prices are likely to keep grinding higher absent de-escalation, and that diesel in particular "doesn’t get fixed very easily." (Reporting based on an Oilprice.com excerpt by Julianne Geiger and comments cited from CNBC and Reuters.)
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