Global crude refining reached 80.9 million barrels per day in July, up 1.8 million barrels per day from June, but remained about 5 million barrels per day below year-earlier levels, according to International Energy Agency data. The figures point to a widening gap between crude oil availability and refineries’ ability to convert it into diesel, gasoline and jet fuel.
The war in Iran and reciprocal attacks between Russia and Ukraine disrupted refining facilities and export routes, while inventories fell and U.S. refineries approached full capacity. This pushed diesel refining margins to record levels in Europe and the United States.
Russian and Middle Eastern supplies disrupted
Vitol Chief Executive Russell Hardy said at the Asia-Pacific Petroleum Conference, or APPEC, in Singapore that the market was short of about 2 million barrels per day of Russian products and another 2 million barrels per day from the Middle East. He warned that inventories would continue to be drawn down because insufficient refining capacity was operating to make up the shortfall.
The Gulf exported about 3.3 million barrels per day of refined petroleum products in 2025. IEA data indicate that nearly 3 million barrels per day of refining capacity has been shut down by attacks and disruptions at key export terminals.
Saudi Arabia and the United Arab Emirates can redirect part of their crude exports through pipelines that terminate outside the Strait of Hormuz, but options for bypassing the strait are more limited for refined products. Energy expert Mamdouh Salameh said the problem at some Middle Eastern refineries was not necessarily a shortage of crude in the region, but the inability to export output normally through Hormuz, turning transport disruptions into a bottleneck in the global products market.
In Russia, Ukrainian attacks on energy facilities disrupted refineries and reduced refining operations and exports, while Moscow imposed restrictions on diesel exports to protect the domestic market. The global market has therefore lost two major sources of refined products, particularly diesel, while other refineries face operating limits that prevent them from replacing the millions of lost barrels.
U.S. refineries near full capacity
Refineries cannot be run at full capacity simply because prices rise. These facilities are subject to operating constraints and regular maintenance, and their ability to process different types of crude and produce various refined products also varies. Mark Sain, global trading executive at Phillips 66, said at APPEC that most U.S. refineries were already operating close to full capacity.
S&P Global estimates U.S. refinery utilization at about 98%, limiting the ability of the largest alternative supply center for Western markets to increase production if other facilities suffer outages.
Seaborne refined-products trade fell by about 3.8 million barrels per day year on year, according to the IEA, despite a roughly 700,000-barrel-per-day increase in U.S. exports. Combined diesel exports from Russia, the Middle East and Asia also fell by about 1.3 million barrels per day, equivalent to nearly 20% of global seaborne diesel trade.
Jet fuel exports from the same regions fell by about 670,000 barrels per day, equivalent to 34% of global trade. This reflects the concentration of pressure on middle distillates, led by diesel and jet fuel.
Inventories fall as diesel margins surge
Tracked global oil inventories fell to just under 7.9 billion barrels at the end of July, a cumulative decline of 410 million barrels since the start of the war in Iran, according to the IEA. Markets used inventories to offset part of the production shortfall during the early months.
S&P Global estimated global diesel inventories at about 542 million barrels on Aug. 21, down 28.5 million barrels from a year earlier. In the United States, low-sulfur diesel inventories edged up to 94.18 million barrels in the week ended Aug. 28, but remained about 12.2 million barrels below the year-earlier level and below the bottom of the previous five-year range.
In contrast, U.S. diesel exports reached a record monthly level of 54.2 million barrels in August, as buyers turned to the United States to replace supplies lost from Russia and the Middle East.
The U.S. Energy Information Administration says the proportions of gasoline, diesel, jet fuel and other products produced by a refinery are determined by its design, processing-unit capabilities and the types of crude it receives. These proportions can be adjusted in response to prices and market conditions, but flexibility remains limited by the equipment, refinery design and crude quality.
The U.S. diesel refining margin surged to a record above $108 per barrel during the first week of September, while U.S. diesel prices also reached record levels. High profits prompted refineries to prioritize diesel, gasoline and jet fuel production over other products, shifting part of the pressure to fuel oil used by ships and power plants.
Pressure spreads to transportation, food and inflation
Diesel powers a large share of trucks, trains, construction and mining equipment, machinery and generators. In agriculture, tractors, harvesters, irrigation pumps and other equipment run on diesel, passing higher costs through to food prices by raising the cost of farm production and then the cost of transporting crops and products to markets.
Salameh said the reliance of trucks and farm tractors on diesel means that higher prices have a broader impact than an increased fuel bill, extending to the costs of industrial and agricultural production and the transportation of goods.
Market estimates indicate that the fuel-oil market could post a shortfall of about 218,000 barrels per day in the third quarter. Meanwhile, the price of low-sulfur marine fuel in Singapore has risen about 76% since the outbreak of the war in Iran, approaching $825 per ton on Sept. 1.
In aviation, jet fuel is used instead of diesel, but the two products are both middle distillates, meaning their production relies on some of the same processing capacity within refineries.
The International Monetary Fund says higher energy, diesel and jet-fuel prices raise costs, disrupt supply chains and weaken purchasing power, while transport and trade disruptions increase the cost of getting goods to markets. An IMF study found that fuel-price shocks pass through to domestic prices faster than food-price shocks.
Market sensitivity is increasing as seasonal demand rises and some refineries enter maintenance periods. S&P Global estimates that global diesel demand typically increases by about 2 million barrels per day between August and October, coinciding with the North American fall harvest, the start of planting in parts of South America and the approaching winter in the Northern Hemisphere.
Europe is among the regions most exposed to the pressure because of its reliance on imports, while Asia is facing disruptions to products arriving from the Middle East. In South America, Brazil lost Russian supplies and turned to the United States, which provided about 74% of its diesel imports in August.
Salameh said continued increases in energy and diesel prices would raise trade, production and food costs and could weigh on economic growth. The scale of the impact, he added, would depend on the duration of the crisis and the response of demand, prices and government policies.
