Kpler Sees Oil Grinding Higher as Diesel Crunch Deepens
Kpler’s Matt Smith expects oil prices to keep grinding higher, with six and a half months of Middle East supply losses now working their way through gasoline and diesel prices. Smith told CNBC Thursday that oil prices have risen roughly $30 per barrel since early August. Gasoline would normally be falling at this point in the year as summer driving demand fades. It isn’t. Kpler estimates roughly…
Kpler’s Matt Smith anticipates oil prices will continue to rise, with the ongoing losses in Middle East supply affecting gasoline and diesel prices. The oil prices have increased by roughly $30 per barrel since early August, according to Smith. Gasoline prices typically decrease at this time of year due to the decline in summer driving demand, but that is not happening.
Kpler estimates that around 8.5 million barrels of oil production have been lost due to the conflict. Refineries are also producing significantly less gasoline and diesel from the remaining crude oil. Smith emphasized that this is where the problem lies. Oil prices have dropped about 3% on Thursday, with Brent reaching $102.72 per barrel and WTI at $100.47 after reports that Saudi Arabia is exploring alternative methods to transport crude oil while its East-West pipeline remains damaged.
Smith estimated the potential loss from a potential month-long East-West pipeline outage between $100 million and $120 million barrels that could not be exported through Yanbu. Saudi Arabia has increased its production inside the Persian Gulf and shipped some of those barrels through Hormuz, where ship traffic is severely restricted.
Only three commercial vessels passed through Hormuz on Wednesday, compared to 12 on Tuesday and a 10-day average of 17, as reported by Reuters. Diesel has limited alternatives for export. Smith mentioned that Middle East normally exports about 3 million barrels of refined products per day. Russia, the world's second-largest diesel exporter after the United States, is concurrently losing refinery output due to Ukrainian drone strikes and curbing fuel exports.
China possesses extra refining capacity, but Smith said that Chinese refiners pulled back when crude prices surpassed $100 and are mainly focusing on supplying their domestic market. Product exports have only increased slightly. U.S. diesel prices are already above $6 per gallon, increasing costs for transportation, agriculture, construction, and manufacturing.
Smith believes crude prices will keep rising without an end to the conflict. Diesel, he said, "doesn’t get fixed very easily."
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