US-Iran Conflict Escalation Threatens Asian Refiners' August Output Boost Plan, Global Fuel Supply in Jeopardy

BlockBeats News, July 25th, Reuters recently reported that the military conflict between the United States and Iran has escalated again, threatening the already fragile global refinery capacity recovery, with Asian refiners being the hardest hit. Asian refiners, who were originally highly anticipated to drive a global fuel production rebound this quarter, are now stuck due to renewed disruptions in the Strait of Hormuz.

The Yemeni Houthi armed forces have threatened to block Saudi Arabia's crude oil exports through the Red Sea, according to research firm Energy Aspects. This may force over 3 million barrels per day of Saudi crude oil, originally destined for Asia through the Bab el-Mandeb Strait, to take a longer detour.

On Tuesday, three Saudi oil tankers that were originally heading to China and India have turned around towards the Suez Canal. As a result, Asian refiners that had prepared for August crude oil supplies are now facing delays in Middle Eastern cargo deliveries. Meanwhile, refineries in the United States and Europe are operating at nearly full capacity with little room for increased production.

Lin Kechang, President of Formosa Petrochemical Corporation (FPCC), stated that the company had planned to increase its operating rate to 480,000 barrels per day (nearly 90% capacity) in August. While the company has already secured crude oil for August delivery, the ongoing Middle East conflict has introduced uncertainties regarding the delivery and arrival times of some shipments. A Chinese refinery executive, who chose to remain anonymous, also mentioned that shipment delays are expected in July and August, making production increases difficult.

Another significant pressure on the tight supply comes from Russia: its refineries continue to suffer from Ukrainian drone attacks, leading to domestic fuel shortages. Moscow has been forced to restrict diesel exports to curb domestic price spikes.

With multiple factors at play, global refinery margins have been pushed to high levels: U.S. and European refinery margins have reached historic highs, while Asian refinery margins have hit a two-month high. According to Neil Crosby, an analyst at Sparta Commodities, global capacity is insufficient to simultaneously deal with the closure of the Strait of Hormuz and Russia's export ban, necessitating price hikes to dampen end-user demand. In the diesel and jet fuel sectors, Asian refinery margins have surged to over $65 per barrel, compared to just over $20 pre-conflict.