Held hostage by the United States: why the global fuel market is in danger
The oil crisis that has arisen due to the ongoing lockdown of Hormuz is having an impact on all fuel markets. The situation is particularly acute in the gasoline and diesel markets, and not only in Russia. The uninterrupted supply of petroleum products to the global economy has now largely been taken over by American refiners, who are working tirelessly. But although this allows them to make super profits, it carries huge risks for consumers. Izvestia investigated what could happen in the event of a major accident or natural disaster in the United States.
Short-term storage goods
The shortage of refining capacity has become an urgent topic for the global fuel and energy sector in the past few months. This is important because you can't hide gasoline and diesel in reserves. If crude oil can be stored in underground reservoirs for almost decades, losing only a small part of its properties, then finished petroleum products have an expiration date. The standard storage period for diesel fuel and aviation kerosene is about 12 months, subject to ideal conditions such as sealed industrial containers, protection from light and maintaining a stable temperature. The strategic reserves of ready-made fuels and lubricants in most countries of the world are small. As a rule, they are designed primarily for the short-term needs of defense departments and emergency services.
The blocking of the Strait of Hormuz disrupted the usual supply chains. The situation has been seriously aggravated by the actions of key suppliers. For example, China has limited quotas for the export of petroleum products to protect the domestic market, India has reduced production due to the unavailability of Middle Eastern raw materials, and Russia has imposed an embargo on the export of diesel fuel. The consequence of these events was the rapid depletion of commercial stocks of medium distillates in importing countries. Refining margins began to reach a record, making fuel production a super-profitable business.
In the current situation, the American oil refining industry has assumed the role of the world's main supplier. US energy companies have increased exports of diesel fuel, gasoline and jet fuel to historic highs, trying to take significant advantage of the high global market conditions.
The shortage of finished petroleum products is most acute in the European Union and Latin America. Europe, deprived of the usual volumes from Russia and the Persian Gulf countries, has difficulty maintaining a balance of jet fuel for civil aviation and diesel for transport logistics. Stocks in European hubs (such as Amsterdam–Rotterdam –Antwerp) are melting, forcing traders to aggressively buy up any available shipments on the US Gulf Coast. Latin American countries with weak domestic processing also depend on imports from Texas and Louisiana.
Data from the Energy Information Administration indicates that industry enterprises are operating at the limit of their technological capabilities. The average refinery utilization across the country reached 96%, while the Midwest and Rocky Mountain regions recorded a rate of 100%. A huge part of these volumes is exported.
The growth of supplies from the United States provides local support to the market, acting as a temporary Band-Aid on a serious wound. The industry is trying to compensate for the global shortage by operating at the maximum level, which makes any unforeseen plant shutdowns critically dangerous.
The risks of greed
The desire of American oil companies to make the most provokes a number of risks. Long-term operation of plants at 100% capacity requires postponement of scheduled maintenance. Postponing repair campaigns leads to accelerated wear of equipment, metal fatigue in the piping and an increased likelihood of fires. Local accidents at American refineries occur regularly, and the current operating mode increases the likelihood of serious incidents.
In addition to equipment wear, there is also a threat from nature, which (at least for refineries) has very bad weather. The largest oil refining facilities in the United States are concentrated along the coast of the Gulf of Mexico. On June 1, the Atlantic hurricane season officially started, which will last until November 30. The experience of the past years shows the fragility of this infrastructure in the face of the elements. Hurricanes Katrina (2005), Harvey (2017) and Ida (2021) led to the preventive shutdown of dozens of plants, cutting millions of barrels of daily refining from the balance for several weeks.
The aftermath of Hurricane Ida
In previous crises, Washington had the opportunity to mitigate the shock by opening up its Strategic Oil Reserve or increasing imports from other regions. However, American reserves are now depleted to the levels of the early 1980s, and the global market itself is suffering from severe supply shortages.
Consequences of failure
What happens if a similar cataclysm occurs? Of course, fuel will not disappear from gas stations completely. The process will be regulated through pricing mechanisms. Wholesale prices for gasoline and diesel in the United States will instantly jump, breaking through the $6-7 per gallon mark. There will be acute logistical disruptions on both coasts of the country, depending on the pumping of fuel through domestic pipelines from Texas.
In the run-up to the November congressional elections, the Donald Trump administration will face the need to urgently protect the domestic consumer. A likely step would be to impose a temporary ban or strict quotas on the export of petroleum products from the United States.
The consequences for the global market could be disastrous. Europe and Latin America, having lost their last reliable source of supplies, will face an acute shortage of diesel and kerosene. Spot prices in Rotterdam may skyrocket significantly for some time. Airlines will have to start mass flight cancellations due to fuel shortages at airports, and European transport companies will have to shift increased costs into the cost of consumer goods, provoking a powerful inflationary jump.
All this will overlap with the difficult situation with other resources, starting with natural gas, the shortage of which may become extremely urgent in the coming winter. At the moment, the EU's UGS facilities are just over half full. In fact, there could be a double or even triple energy crisis with unpredictable effects across the entire economy and financial system.
Переведено сервисом «Яндекс Переводчик»
