Crude retreats but fuel prices stay high
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Why are fuel prices staying high even as crude oil prices fall?
Good morning from the Financial Times. Today is Friday, August 7th, and this is your FT News Briefing. A refining crunch is keeping fuel prices high, and Google shifts control of its AI efforts to San Francisco. Plus, we take you inside a Haitian community where tens of thousands are facing deportation after the US revoked their protected status. I'm Victoria Craig, and here's the news you need to start your day.
Global crude oil prices have been well off their wartime highs, so you might expect prices to also come down for refined products that are made from crude. But that has not been the case. Diesel and petrol are trading close to record premiums over crude oil. For example, diesel currently costs $70 a barrel more than crude, and that is much higher than the usual $20 premium. Joining me now to discuss why fuel prices are staying high even as crude falls is Verity Ratcliffe. She's the FT's energy correspondent. Hi, Verity. Hi. So walk me through this. Why are the premiums so high? What's going on?
What is causing record‑high diesel and petrol premiums over crude?
What we often focus on... on crude prices. When we talk about oil, it's typically oil futures is Brent futures. But when we look at the refining sector, we have to consider the price of the input, the crude and the products that come out the other end. And at the minute, the difference between those two, the inputs and the outputs for some products are at record highs. And we've seen a different evolution throughout this conflict in the Middle East with different tightness and different products as time has gone on. It started more of a crunch on jet fuel. So a lot of the refineries pivoted and tried to produce as much jet fuel as possible. And now at the minute, it's more motor fuels, particularly in Europe, particularly with diesel.
And the premium for producing diesel in Northwest Europe reached a record high last week.
So this is all down to refining capacity around the world specifically, right? How are these refinery operators responding to this situation?
Absolutely. It's about capacity. And a lot of that capacity is trapped behind the Strait of Hormuz. Some of the biggest refineries in the world are based there.
How is reduced refining capacity in the Gulf and Russia boosting U.S. refiners?
But also with Russia, Ukraine has become much more effective at targeting some of those refineries in recent weeks and months. And that's taken out roughly the same amount of diesel production, for instance. So everybody's had to adapt. And the way in which they adapt is limited to a certain extent by the crews that they can produce. So some of the more complex refineries, typically in the US, where they don't have such issues of getting the crude feedstock, are doing particularly well at the minute because they can pivot to different types of fuel.
You bring up the U.S., which has really sort of swooped in to provide that crude supply to these refineries. Could we see more of that if the war continues? Could we see a bigger reliance on American product?
Absolutely. At the minute, they have been the ones, the biggest winners, I suppose, in this market. And they are well-placed to take advantage of that so long as they can still secure the crude they need. The only issue is there's a hurricane season coming up. All that would need to happen to have big global disruption to oil product supplies would be for one or two units in the U.S. Gulf Coast to be affected. And that could really have knock-on impacts across the world.
Globally, what needs to happen in order for prices to stabilize long term?
Why are U.S. refineries better positioned to profit from the current crunch?
Since at the moment, it seems, as you said, there's just a focus on a minute by minute sort of demand for the kind of fuel that the world needs.
Yeah, the first thing that could happen is that if the Strait of Hormuz reopens, then you have a whole flood of crude but also products coming back out again. It's a little bit more difficult to sort out the issues with refineries in Russia because they've been attacked and that will take much longer to come back online again. The other thing that could happen, China is the only one really with spare refining capacity and also access to crude.
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Chapters
8 chapters
1
Why are fuel prices staying high even as crude oil prices fall?
0:02–1:22
2
What is causing record‑high diesel and petrol premiums over crude?
1:22–2:27
3
How is reduced refining capacity in the Gulf and Russia boosting U.S. refiners?
2:27–3:44
4
Why are U.S. refineries better positioned to profit from the current crunch?
3:44–5:20
5
What global events could finally stabilise fuel prices for the long term?
5:20–7:04
6
Why is Google moving control of its AI work from London back to Silicon Valley?
7:04–8:51
7
How will the revocation of Temporary Protected Status affect Haitian immigrants in the U.S.?
8:51–10:29
8
What could the potential deportations mean for communities like Springfield, Ohio?
10:29–11:58