Global refining crunch to keep fuel prices high into 2027

A global shortage of refining capacity threatens to keep fuel prices high well into 2027, despite the potential reopening of the Strait of Hormuz and the return of millions of stranded barrels of crude, according to industry experts. Damage to refineries in the Gulf and Russia, combined with limited spare capacity elsewhere, has left insufficient infrastructure to convert crude into the fuels needed, resulting in a mismatch between crude and refined product prices.

Nikhil Agarwal, managing director of Globestar Energy, predicts a significant decline in refining capacity in the first quarter of 2027 due to the loss of key operations such as Bapco, Qatar's GTL plant, and Russian refineries. He expects crude prices to drop sharply if the strait reopens, while fuel markets remain constrained. Mahmoud Nabil, head of trading at Rabdan Petroleum Trading in Abu Dhabi, anticipates that refining margins and fuel prices will remain elevated.

The strain is evident in Gulf fuel exports, with jet fuel supplies falling dramatically since the war began, from supplying up to 32% of the world's jet fuel to a mere 3.7% in April. Liquefied petroleum gas exports through Hormuz have dropped about 80% in March, forcing Asian buyers to seek alternative sources, such as the US. Russian refineries have also suffered damage from Ukrainian drone strikes, causing product runs to drop by around 35%.

These supply disruptions are driving fuel prices higher, with gasoline, diesel, and jet fuel trading at $130-$170 a barrel, with the US Gulf Coast diesel crack exceeding $100 a barrel in August.