Consumers can expect fuel prices at the pump to remain high into next year due to disruptions to Russian oil supplies and as refineries struggle to meet demand recovering from the pandemic, consultancy Wood Mackenzie said.
The pressure should ease in the second half of next year when several new large refineries including in the Middle East are expected to start up, Wood Mackenzie said in a report.
For now, record gasoline and diesel prices in the U.S., Europe and elsewhere have cooled global oil demand by around 1 MMbbl/d, roughly 1% of global demand, according to Wood Mackenzie analyst Alan Gelder.
"The system looks very, very tight until a slug of new [refining] capacity comes on," Gelder told Reuters.
Profits that refineries make from distilling crude oil into fuel such as gasoline and diesel are at record highs of around $30 per barrel, Wood Mackenzie said.
Western sanctions on Russian oil following its invasion of Ukraine in February have led to lower Russian crude production and refinery output and severely disrupted oil flows around the world, pushing oil prices higher.
The consultancy expects crude prices to average around $100 per barrel next year compared with $110 this year. Benchmark Brent crude prices are currently near $120 a barrel.
Next year, average global refining margins are expected to top their five-year average range, albeit "nowhere near as punchy as 2022," Gelder said.
The refining sector is operating at maximum where possible, and prioritizing diesel in particular, but supply remains insufficient to meet demand as economies continue to recover from the COVID-19 pandemic, Gelder said.
The strain is particularly felt in the diesel and gasoil market which remains undersupplied by around 800,000 bbl/d, according to Wood Mackenzie figures.
The fuel price spike has squeezed household budgets as the cost of travel skyrockets in many parts of the world.
Wood Mackenzie expects around 2.5 MMbbl/d of new refining capacity to be brought online over the next three quarters, including the new 400,000 bbl/d Jizan refinery in Saudi Arabia, Dangote's 650,000 bbl/d oil refinery in Nigeria, the 615,000 bbl/d al-Zour refinery in Kuwait, and a number of sites in China.
Recommended Reading
GeoPark, Vitol Sign Offtake Deal for Llanos 34 Block
2024-05-12 - Under the agreement, GeoPark will sell and deliver to Vitol a minimum of 20,000 bbl/d of oil from the Llanos 34 Block in Colombia, which GeoPark holds 45% working interest.
Magnolia Bolts-on 27,000 Acres in South Texas’ Giddings Field
2024-05-09 - Magnolia Oil & Gas said it paid $125 million to a private operator to acquire the acreage, which has minimal production.
Tetra Tech Acquires Convergence Controls & Engineering
2024-05-09 - Tetra Tech is acquiring Convergence Controls & Engineering to expand its digital water and energy offerings.
Kinetik Launches Delaware Basin M&A Valued at $1.3B
2024-05-09 - Kinetik Holdings will buy Durango Permian infrastructure for $765 million, excluding contingency payments, and sell its interests in the Gulf Coast Express pipeline to AcrLight Capital Partners for $540 million.
New Fortress Energy Acquires 1.6 GW Capacity Reserve Contract
2024-03-20 - New Fortress Energy now has over 2.2 gigawatts of contracted power at Barcarena, Brazil, after acquiring a contract from Ceiba Energy.