U.S. Refiners Face New Crude Squeeze as Canada Cuts Oil Sands Output

U.S. oil refineries have been operating at maximum capacity to replace lost fuel supplies from the Middle East. Recently, a potential new "crude squeeze" emerged due to maintenance activities in Canada's oil sands, causing a predicted drop in September production by 300,000 barrels daily, according to Rystad Energy. This comes amid the lowest storage levels in a year, leading Canadian oil producers to send significantly less heavy crude to U.S. refineries next month.

Major oil sands operators will all cut production for maintenance, with pipeline operators indicating they expect reduced demand in September. While Venezuela's oil exports have increased slightly, the boost has been slow, and Venezuela's production has yet to pick up meaningfully. July exports to the United States averaged 786,000 barrels daily, the highest since early 2019, but this is still insufficient to make up for the Canadian shortfall.

Global fuel supply remains constrained, particularly in diesel, driving refining margins to record highs. As the Middle East war continues and sanctions on Iran tighten, the situation appears poised for further fuel shortages, potentially exacerbating inflation and economic growth concerns.