(Bloomberg) — Massive metal towers rising more than 100 feet are pumping out gasoline, diesel and jet fuel at break-neck rates around the world. Those refineries now have little margin for error.
The fuels that drive the global economy are increasingly in short supply as wars in the Middle East and Europe roil markets and refineries are pushed to the limit, increasing the risk that even brief outages send prices soaring to new peaks.
“We are in short supply globally; there is zero slack in the system,” said Amrita Sen, co-founder and director of market intelligence at London consultancy Energy Aspects. “We don’t have enough refining capacity. The only way to balance is through supply and demand.”
The US and Israel’s war on Iran ushered in the biggest oil supply disruption in history. But as oil prices rose, it was the refined products made from crude oil that saw an outsized jump.
The global fuel crisis has shown up in many ways, from depleted inventories to rationing. In the US, gas prices in many states are back above $4 dollars a gallon and rising. Diesel is above $5. In Russia, people can wait in line for gasoline for hours. The French government even suspended weekend driving restrictions for fuel tankers to keep diesel and gas flowing to service stations.
Now, more obstacles. The Iran war is expanding, Ukraine is hammering Russian refineries and global fuelmakers are running plants flat out, risking outages. Fuel demand is outstripping supply, especially when it comes to diesel, the workhorse of the global economy.
To experts, that means a tipping point: Either the Iran conflict ends or fuel prices continue to spike, spurring a pullback in buying known as demand destruction.
For fuelmakers, many of whom report earnings this week, it’s been a profit bonanza. In the US, refineries are turning more oil into fuel than they have at this time of year since 2018. That is happening even as refining capacity has shrunk by almost 600,000 barrels a day over the same period.
Incentivized by record profits, refineries have been running so hard for so long that they’re increasingly vulnerable to equipment breakdowns, storms and heat waves.
The pace is unsustainable, analysts and traders say.
While global refining capacity has continued to expand, nearly all of the new plants have been built in Asia and the Middle East. These sprawling industrial complexes run around the clock and house miles of pipeline connecting enormous storage tanks to towering processing units that effectively heat up crude and turn it into a range of fuels.
Since the start of 2025, nearly 1 million barrels of crude capacity were lost to the market from plant closures in the US and Europe. Adding to that, Russia and China’s export quotas since the Iran began have taken about 2.5 million to 3 million barrels of product exports off the market, according to Energy Aspects.
“There’s no real solver that’s waiting in the wings,” Macquarie Group global oil and gas strategist Vikas Dwivedi said of gasoline. “There’s no big surge of imports, there’s no big refinery that’s out that’s going to come back and help resupply the market, and demand has held up exceptionally well.”
A refinery’s profit is commonly measured using what’s known as the “crack spread.” It compares the cost of buying three barrels of crude oil with the revenue from selling the fuel made from it — typically two barrels of gasoline and one barrel of diesel. The difference is the refinery’s theoretical profit margin.
In the middle of July that margin in the US came just shy of $70, the highest level in history and more than double than before the start of Iran war in late February.
The only way to rebalance is for crack spreads to remain elevated and for crude prices to continue rising, sending retail prices to heights that erode demand and weaken profit margins, Sen said. But,“crack spreads will stay up. We don’t have enough refining capacity.”
“The epicenter of all this is the diesel market, and Europe in particular,” Morgan Stanley analysts wrote in a note. The margins for turning oil into diesel in Europe have been hitting fresh records daily as inventories of the fuel and jet fuel are depleted. Shell Plc said it was running its refineries at full capacity in the second quarter.
Meanwhile Goldman Sachs recommended clients hedge against persistent geopolitical shocks by going long on European diesel, a tight market highly exposed to refinery outages in the Middle East and Russia.
Russia’s refining infrastructure remains a key bottleneck.
Since April, Ukrainian forces have carried out more than 50 strikes on Russia’s fuel-producing facilities, hitting at least 25 refineries, according to a Bloomberg tally of public statements from both countries.
Those attacks have pushed Russia’s crude-processing rates to multi-year lows of 3.8 million barrels a day in June, according to data from the International Energy Agency this month. The drop in refinery productivity has triggered a nationwide fuel supply crunch. So far this year, prices for gasoline and diesel at the pump have risen 18.3% and 20.2% respectively, compared with Russia’s 4.82% inflation, according to data from the Federal Statistics Service.
While Asia heads into this second crunch relatively comfortable compared to Europe and the US, because it is home to most of the world’s fuels consumers, abundance can turn to shortages very quickly.
The narrow window when refiners were well-placed to export fuel to the West is quickly shrinking. With Middle East flows cut off again, Asia’s fuel inventories — and any more supply made from crude secured during the now-defunct ceasefire — will be badly needed home.
While the world’s largest refiner China relaxed restrictions by permitting major exports of gasoline, diesel and jet fuel this month, future exports may not be guaranteed as the latest escalation puts energy security back in focus.
India, for its part, has been running its refineries at full capacity, flush with Russian crude that’s good for making diesel and with domestic demand cut by the seasonal monsoon.
Other East Asian processors including major export refiner South Korea have to mull cutting operating rates, now that they’re faced with the prospect of Middle East crude cargoes secured for the months ahead being delayed or stuck.
“We have very little slack in the system to deal with any of that,” said Morgan Stanley’s Martijn Rats.
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