Consumers Feel Pinch at Pump as Russia Drives Oil Refining Boom

0e076bv71uwr546e33w1wy)5_media_dl_5.png Fair value data compiled by Bloo

Article content

(Bloomberg) — It’s a great time to be an oil refiner — but a less great time to be filling up at the pump.

Article content

In Europe, the US and Asia, giant plants are making money by doing what they’ve always done: converting crude oil into vital fuels and selling them at a profit. 

Article content

Article content

What’s different today is the scale of the threat to global supplies: Relentless attacks on Russia’s energy infrastructure, outages at key plants in Asia and Africa and permanent closures across Europe and the US have removed millions of barrels of diesel and gasoline from the world market.

Article content

Article content

On top of these real-world impacts are traders’ fears of what’s yet to come: imminent US sanctions on Lukoil PJSC and Rosneft PJSC and fresh European Union curbs on fuels made from Russian crude threaten already squeezed supply-chains. 

Article content

Article content

The result is ongoing pressure on costs at the pump despite a fall in global oil prices — something that’s unlikely to sit well with a US administration that sees “affordable energy” as essential.

Article content

“Global refinery margins are astronomical,” said Eugene Lindell, head of refined products at consultancy FGE NexantECA. “The signal you’re giving the global refining system, no matter where the refinery is located, is to just run flat out.” 

Article content

In the US, Europe and Asia, margins are the highest they’ve been at this time of year since at least 2018, according to fair value data compiled by Bloomberg. The profits are so good that refiners’ stock prices are also surging: processors including Valero Energy Corp. and Turkiye Petrol Rafinerileri AS have seen stellar rises, while Orlen SA gained more than 100% year-to-date.

Article content

While expectations of a glut are dragging on crude prices, disruption to the global refining system is limiting how much oil can be turned into products like gasoline, diesel and jet fuel. While that benefits the processors still running, it also means the slump in headline oil prices isn’t being felt at the pump.

Article content

Article content

READ: Russia’s Sliding Oil Flows and Prices Strain Putin’s War Chest

Article content

A constant stream of attacks on Russia’s refineries — just this month, Ukraine claimed strikes on the Saratov, Orsk and Volgograd plants — is hampering fuel production. Last month, Russia’s huge oil product exports were on course to hit a multi-year low, and that was before drone attacks damaged key loading facilities in the port city of Tuapse.

Article content

Product supplies are being further squeezed by outages elsewhere. In Kuwait, the giant 615,000 barrel-a-day Al-Zour refinery recently had only one of its three crude processing units operating, while a key gasoline-production unit at Nigeria’s huge Dangote refinery is reportedly scheduled to halt for about 50 days of maintenance in coming weeks, having only recently begun restarting.

Article content

Meanwhile, US crude runs in recent weeks have been more than a million barrels a day lower than the same time last year, a huge drop from the peak summer demand months, when processing was at its highest seasonal level since 2019. The country has seen multiple refinery closures in recent years, as has western Europe, further pressuring fuel supplies.