Vitol CEO: Global Fuel Markets Are "Tight and Inflexible"
Global fuel markets are very tight and inflexible, despite the higher flows out of the Persian Gulf in recent weeks, Russell Hardy, chief executive of the world's biggest independent oil trader, Vitol Group, said on Tuesday. "It's pretty, pretty tight and inflexible out there as far as the market is concerned," Hardy told the Asia Pacific Petroleum Conference by S&P Global Energy in Singapore…
Vitol CEO Russell Hardy declared on Tuesday that global fuel markets are extremely tight and inflexible, despite recent increases in shipments from the Persian Gulf. Hardy spoke at the Asia Pacific Petroleum Conference in Singapore, highlighting the market's tightness and lack of flexibility. In terms of refined product inventories, Hardy mentioned that they are still rising, as reported by Bloomberg.
He further explained that the company's refineries are insufficient to offset these increases and they continue to deplete the global surplus. Hardy's remarks emphasize that the real strain in the oil markets lies in the downstream sector. While there has been a surge in flows from the Strait of Hormuz, only one million barrels per day (bpd) out of ten million bpd outbound flows are refined products, with the rest being crude.
The reason for this disparity lies in the limited refinery capacity in the Middle East, which is impacted by Iranian attacks on refineries and the trickle of fuel moving through Hormuz. Additionally, refinery capacity in Russia is severely limited due to frequent Ukrainian drone strikes on Russian refineries, and Russia has imposed a ban on diesel exports until at least the end of September.
Furthermore, U.S. refineries have been operating at full capacity this summer, having postponed maintenance. At the end of August, the overall refinery utilization rate in the U.S. was 98%, peaking at 103.5% in the Midwest and 99.8% in the Rockies, according to the EIA's weekly petroleum status report. These high rates are unsustainable as maintenance should ideally be carried out promptly.
The re-escalation in the Middle East and the Russian ban on diesel exports have led to record-high middle distillate crack margins this month. Analysts, including ING's commodities strategists Warren Patterson and Ewa Manthey, noted in a recent note that the global refining system lacks any slack to compensate for the disruptions currently being experienced.
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