Global Refined Product Squeeze Worsens on Supply Disruptions

Global refined oil product markets are poised for further tightening as seasonal demand peaks collide with restricted supply. The squeeze is intensifying because refinery throughput remains significantly below last year's levels, leaving little spare capacity to buffer against ongoing disruptions in key producing regions.

According to the International Energy Agency, August global refinery throughput was 4.2 million barrels per day lower year-on-year, despite a monthly increase of 960,000 bpd. This structural deficit is compounded by geopolitical conflicts that have severely disrupted the flow of diesel and other critical products, creating a supply environment with minimal short-term flexibility.

Regional Supply Deficits Persist

Supply disruptions in Russia and the Middle East are the primary drivers of the global product shortage. Russian refinery activity is projected to fall by approximately 1.2 million bpd in the third quarter due to attacks on energy infrastructure. Concurrently, Middle Eastern refinery output is expected to decline by 1.7 million bpd amid regional tensions, reducing both crude deliveries and product exports.

While higher output in the United States and China has partially offset these losses, the net effect remains a contraction in global availability. US crude processing hit a seven-year high, and China’s refined product exports reached a 2.5-year high as domestic restrictions eased. However, these gains are insufficient to counterbalance the substantial losses from Russian and Middle Eastern facilities.

Margins Surge Amid Product Shortages

Refining margins have climbed well above historical averages, driven by a global shortage of readily available refined products. Diesel margins in Europe and the Mediterranean are currently four to five times their historical norms, reaching record levels. Gasoline margins are also elevated, though less dramatically, while complex refineries are earning two to four times normal margins due to the scarcity of finished goods.

Janiv Shah of Rystad Energy notes that the surge is concentrated in diesel and jet fuel, reflecting the severity of the supply gap. The situation is exacerbated by low distillate inventories in the US and Europe, which leaves little buffer against further outages. The diminished ability to convert crude into specific products where needed is creating localized shortages and price spikes.

Trade Flows Face Structural Pressure

International product trade is under mounting pressure, with net diesel and gasoil exports from Gulf countries and Russia falling by 1.6 million bpd in August compared to February. These two regions account for roughly 45% of global seaborne trade, meaning their reduced output has a disproportionate impact on global supply chains. Constrained flows through the Strait of Hormuz and the Red Sea further restrict delivery capabilities.

Andres Cala of Montel highlights that product markets have tightened significantly more than crude markets, leading to export bans and localized shortages. The fundamental issue is not just lower oil volumes but the reduced capacity to produce specific refined products in the regions that require them. As seasonal maintenance begins in Europe, refiners have limited room to increase runs, cementing the outlook for a continued global squeeze.