Oil giants warn next energy crunch will be refined fuels, not crude

LAHORE: The world’s major oil companies are warning that the next global energy crunch may not be caused by a shortage of crude oil, but by a growing shortage of refined fuels, including diesel, gasoline and jet fuel.

For much of this year, markets have remained focused on crude oil prices as conflicts in the Middle East and Ukraine threatened global supplies.

However, while benchmark crude prices have fluctuated with geopolitical developments, a different trend has emerged in physical fuel markets, with inventories tightening, refining capacity under pressure and spare processing capacity approaching critically low levels.

The developments raise the prospect that consumers could continue to face elevated fuel prices even if crude oil prices decline.

The warning, initially highlighted by analysts tracking physical fuel markets, is now being echoed by major companies operating the world's refining infrastructure.

“The constraint pain point in the energy system is refining,” Exxon Chief Financial Officer Neil Hansen told Bloomberg, arguing that markets remain overly focused on crude oil while overlooking growing pressure on refined products.

The squeeze has been building for months as conflicts in the Middle East and Ukraine have disrupted fuel trade, while attacks on commercial shipping have complicated exports through the Strait of Hormuz and the Red Sea.

At the same time, China has capped fuel exports and Russia has restricted diesel shipments, removing major sources of supply from international markets.

According to Bloomberg, the disruptions have effectively sidelined as much as 10% of global refining capacity, a significant reduction for an industry that normally operates with limited spare capacity.

The impact is increasingly visible in global fuel production. According to the International Energy Agency (IEA), global refinery throughput averaged around 78 million barrels per day during the second quarter of 2026, about 5 million barrels per day below the same period a year earlier.

Although crude oil production has partially recovered as export flows improved, refining activity has failed to keep pace, leaving markets short of the fuels consumed by households and industries.

Major oil producers say the imbalance is already becoming visible in market conditions.

Exxon Chief Executive Darren Woods said recently that he had "never seen the available capacity relative to demand as low as it is today," warning that rebuilding the industry's refining cushion would take time.

Shell Chief Executive Wael Sawan said market signals clearly indicate shortages of diesel and gasoline, while Chevron Chief Financial Officer Eimear Bonner said geopolitical uncertainty had tightened fuel markets and reduced the "shock absorbers" that previously helped contain volatility.

Saudi Aramco Chief Executive Amin Nasser gave a similarly stark assessment, saying global refineries are operating at near-maximum utilization rates, leaving the system with little buffer against disruptions.

He warned that an unplanned outage at any major refinery could put further pressure on global fuel supplies.

Refinery utilization rates underline the limited spare capacity. Exxon's Gulf Coast refineries are operating at around 95% utilization, while Chevron's network is running at about 97%. Shell reported refinery utilization of 102% in the second quarter.

Such high rates maximize fuel production but cannot be maintained indefinitely without increasing operational risks. The annual maintenance season, which typically begins in September, is expected to further reduce processing rates at a time when inventories are already under pressure.

Diesel has emerged as the biggest concern because of its critical role in the global economy. Unlike gasoline, which is mainly used by passenger vehicles, diesel powers freight transport, agriculture, construction, mining and large parts of the manufacturing sector.

“Crude oil is just the input, but diesel is everything the industrial economy runs on,” Rabobank strategist Joe DeLaura told The Wall Street Journal.

A prolonged diesel shortage could therefore extend well beyond motorists, disrupting supply chains, industrial production and adding to inflationary pressures.

The strain is also reflected in refining margins. Crack spreads — the difference between the value of refined fuels and the crude oil used to produce them — have risen sharply as declining inventories increase the premium on diesel and gasoline.

The emerging problem highlights a crucial distinction in the global energy market: the constraint is no longer simply finding enough crude oil, but having sufficient refining capacity to convert crude into the fuels needed to keep the global economy moving.

Crude prices are likely to continue responding to geopolitical developments. However, unless refining capacity recovers and fuel inventories are rebuilt, physical fuel markets could remain tight in the months ahead.

For consumers, this means relief at the pump may depend less on crude oil prices and more on the world's ability to produce enough refined fuel.