Global refining crunch to keep fuel prices high into 2027

A global shortage of refining capacity is causing petrol, diesel, and jet fuel prices to remain high well into 2027, despite the potential reopening of the Strait of Hormuz and the return of millions of stranded barrels of crude. The destruction of refineries in the Gulf and Russia, along with limited spare capacity elsewhere, has left insufficient infrastructure to produce the necessary fuels, resulting in a notable disparity between crude and refined product prices.

Nikhil Agarwal, managing director of Globestar Energy, anticipates a significant decline in refining capacity at the start of 2027, although he believes crude prices will decrease sharply if the strait reopens. Mahmoud Nabil, head of trading at Rabdan Petroleum Trading in Abu Dhabi, predicts that refining margins and fuel prices will continue to stay elevated.

Gulf states, which previously supplied 32% of the world's jet fuel, now provide only 3.7% of the market, with exports through the Strait of Hormuz and Bab Al Mandeb strait having dropped more than 90% by April. Liquefied petroleum gas prices have also been affected, with exports through Hormuz falling by approximately 80% in March.

Russian refineries have faced damage from Ukrainian drone strikes, reducing global product runs to about 3.5 million barrels per day from 5.5 million bpd. The strain on the global refining system is evident in the current fuel prices, which range from $130-$170 per barrel for gasoline, diesel, and jet fuel.