Societe Generale strategists Michael Haigh and Jeremy Sellem argue that global Oil product markets have shifted from tight to critical. They link East-West pipeline disruptions, Russian outages, elevated freight and low inventories to structurally constrained supply. They highlight exceptionally high refining margins, stressed crude and product balances, and warns that current conditions leave little buffer against further shocks.
Global product balances under strain
“This weeks CCA examines the growing evidence of tightening global oil product markets. We assess the implications of the recent East-West pipeline disruption, worsening Russian refinery outages, and the increasing disconnect between crude oil and diesel markets as exceptional product tightness drives product prices higher. We also explore the sharp rise in freight rates, now up by an order of magnitude of tenfold in some key routes, and how these costs are increasingly feeding through to end-user prices.”
“Finally, through a series of charts, we present the anatomy of product market tightness, showing declining inventories, weaker exports, lower refinery supply, and rising refinery outages, all pointing to an increasingly constrained global market. Refining margins are extremely high reflecting the need for products.”
“Taken together, the charts suggest that product markets remain structurally tight. The persistence of margins well above historical averages across the US, Europe, and Asia indicates that the global refining system is struggling to replace lost supply, rebuild inventories, and meet demand simultaneously. This conclusion is consistent with the broader evidence of declining product exports, elevated refinery outages, low inventories, and ongoing disruptions to crude and product flows.”
“The fact that product markets remain exceptionally tight despite weaker demand in two key consuming regions highlights the extent to which supply disruptions, refinery outages, and constrained exports are driving current market conditions.”
“Taken together, the attacks underscore a notable escalation in the conflict and highlight the vulnerability of regional energy infrastructure. As a result, the likelihood of a severe supply shock has increased. Under a scenario where military tensions continue to intensify and disruptions become prolonged; Brent prices could rise well beyond current levels and potentially exceed $150/bbl.”