Global refined product squeeze to worsen on supply disruptions and seasonal demand

The global squeeze in refined oil product markets could intensify as seasonal demand rises, refineries enter maintenance and limited spare capacity leaves little room to offset ongoing disruptions.

The squeeze comes as global refinery throughput remains well below last year’s levels, with the International Energy Agency (IEA) reporting that August throughput was 4.2 million barrels per day (bpd) lower year-on-year despite a monthly increase of 960,000 bpd.

Global refinery throughput rose to 81.4 million bpd in August, supported by a seven-year high in US crude processing and a recovery in China. China’s refined product exports also reached a 2.5-year high as domestic demand strengthened and restrictions eased.

However, refinery disruptions in Russia and the Middle East continued to weigh on global product availability.

Russian refinery activity is expected to fall by around 1.2 million bpd year-on-year in the third quarter amid Ukrainian attacks on energy infrastructure, while Middle Eastern refinery activity is expected to decline by around 1.7 million bpd due to regional tensions, according to the IEA.

Higher refinery output elsewhere has partly offset these losses, as refiners have responded to strong product prices and refining margins.

However, high refinery utilization rates, especially in OECD countries, and upcoming seasonal maintenance are expected to leave refiners with limited room to increase runs further amid continued supply disruptions.

Global refinery throughput is expected to average 81.5 million bpd in 2026, down 2.6 million bpd from 2025.

The squeeze is also visible in international product trade. Net diesel/gasoil exports from Gulf countries and Russia were 1.6 million bpd lower in August than in February, while the two regions accounted for around 45% of global seaborne trade in February.

– Product trade faces mounting pressure

Andres Cala, geopolitical energy analyst at Montel, an independent energy data provider, said the conflicts had severely disrupted global refined product supply, particularly diesel, with the impact equivalent to around 4% of global demand.

Refined product markets have much less short-term flexibility than crude markets, he said, with smaller storage buffers in the event of disruptions.

“Product markets have tightened significantly more than crude ones, despite very high capacity utilisation rates, leading to price spikes, localized shortages and export bans,” Cala said, adding that the squeeze comes as demand is set to strengthen seasonally, coinciding with the scheduled refinery maintenance season in Europe.

“Indeed, this shock is not simply that there is less oil on the market, but about the diminished ability to turn into specific products where they are needed,” he said.

– Refining margins surge on product shortages

Janiv Shah, vice president of oil markets analysis at Rystad Energy, said refining margins were substantially above historical averages, with the strength concentrated in diesel and jet fuel.

Diesel margins in Europe and the Mediterranean were around four to five times historical averages and had recently reached record levels, while gasoline margins were also above historical averages but less unusually so, he said. Complex refineries were also earning two to four times normal margins.

Shah said the increase was driven by “a global shortage of readily available refined products.”

Middle Eastern refinery outages and constrained flows through the Strait of Hormuz and the Red Sea have reduced both crude deliveries to refiners and product exports, while Russian refinery damage and export restrictions have removed a major source of diesel from the international market, he said.

“US and European distillate inventories are low, leaving little buffer against outages. Refinery maintenance and earlier permanent closures have also reduced the system’s spare processing capacity,” Shah added.

China and other Asian producers are controlling exports or prioritising domestic markets, while higher freight and insurance costs and longer voyages have increased the delivered price of replacement cargoes, according to Shah.

– Diesel to remain more vulnerable

The market is now moving into autumn and winter, when diesel demand typically strengthens and European and US refineries enter seasonal maintenance.

Cala said gasoline markets were likely to normalize sooner than diesel markets, with the timing depending on how quickly refinery capacity in Russia and the Middle East is restored.

“Diesel is likely to remain the more vulnerable market through the winter because of seasonal demand, low inventories and limited spare refining capacity. China is a key actor as higher international margins encourage refiners to increase product exports, which could provide some relief to Asian and global markets,” Cala said.

However, prolonged high refining margins could add to inflationary pressure and macroeconomic uncertainty.

If disruptions persist, Cala said, the combination of high energy costs, tighter margins and geopolitical turmoil could increase instability and competition for available refined product supply globally.

• Global refinery
• global squeeze in refined oil product markets
• International Energy Agency's (IEA)