Oil shock’s bigger problem is at the refinery

Crude supplies could recover faster than refining output. For example, Gulf pipelines can bypass Hormuz for some crude exports, but offer no equivalent escape route for refined fuels. The International Energy Agency (IEA) reckons Middle Eastern processing was 2.9 million barrels per day (bpd) below pre-war levels in the second quarter and will remain 2.2 million bpd lower in the third. Ukrainian attacks have, meanwhile, pushed Russian refining near a two-decade low. Reduced Chinese processing and fuel exports have added to the shortage.

The oil crisis is becoming a tale of two barrels. Brent crude LCOc1, at around , is nearly a third below the it touched at the height of the Iran war. Any peace deal, or a reopening of the Strait of Hormuz, could send it lower still. But prices for the fuels made from it have fallen much less. That leaves consumers with higher costs and refiners with unusually fat margins.