The world isn’t running out of oil. It’s running out of places to turn it into diesel.
Crude is actually cheaper than it was in 2022, with Brent around $99 a barrel versus roughly $123 at that year’s peak. Yet diesel just hit an all-time record.
Of the $2.25 jump in U.S. diesel prices since February, just 68 cents came from crude. The refining margin alone added an estimated $1.71, with other components offsetting part of the increase.
The wars didn’t take out the oil fields, they took out the refineries.
Damage and disruption in the Middle East and Russia, plus China holding back its own refiners, have knocked roughly 5 million barrels a day of refining capacity offline.
The Gulf hit is the big one, with around three times more diesel supply lost there than in Russia.
That’s after Gulf states spent a decade building giant refineries and overtaking North America as the world’s top diesel exporter.
Meanwhile the West went the other way.
Western oil companies haven’t built a major new refinery in decades, more than a dozen have closed across the U.S. and Europe since 2015, and Britain went from 9 refineries at the start of the century to just 4.
U.S. refineries have been running in the high 90s, leaving very little room to push harder, while restarting old plants or building new ones takes years.
The usual emergency fix won’t help much either. America’s Strategic Petroleum Reserve holds crude, not diesel.
And some available capacity is stuck for political reasons too. A Lukoil refinery in Romania remains idle while its proposed sale to Carlyle crawls through Washington approvals.
For decades the energy security question was who controls the oil.
Turns out it’s who can actually refine it.
Sources: WSJ, Agricultural Economics, OilPrice, Business Standard / Writer: Julie
