The next stage of the energy crisis is not in the oil fields, but in the refineries, with consumers and airlines set to bear the cost.
A deepening bottleneck in global refining capacity is pushing the prices for essential fuels like diesel and jet fuel up three times faster than for crude oil, according to a new report, signaling that the next wave of energy-driven inflation will hit at the pump and on the runway, not the wellhead.
"The adjustment mechanism for this energy crisis is happening in the refined products space," JP Morgan commodity analyst Natasha Kaneva said in a recent client note. "Consumers don't buy crude oil, they buy gasoline and diesel. That is where the demand destruction will come from."
Since the start of recent geopolitical conflicts, Asian prices for refined products have surged between 1.5 and 3 times more than crude oil itself, with the profit margin for producing jet fuel—known as the crack spread—exploding to extreme levels of $80 to $100 per barrel. This dislocation comes as global inventories are projected to hit their "operational bottom" by September, according to JP Morgan, after Asian and European refiners were forced to cut run rates by as much as 3.8 million barrels per day in April.
The shift from a crude supply crisis to a product supply crisis means that even if Brent crude prices remain stable around $100 per barrel, the direct cost for transportation and logistics will continue to escalate. This pressure is already visible, with the International Energy Agency (IEA) warning that European jet fuel stockpiles could be exhausted within weeks and U.S. gasoline prices approaching a record $5 per gallon.
A Zero-Sum Game in the Barrel
The core of the problem lies in the physical constraints of refining, which JP Morgan describes as a "zero-sum game." A barrel of crude oil can only be separated into a fixed amount of different products like gasoline, jet fuel, and diesel. Increasing the output of one inevitably means reducing the output of another.
Refiners can typically only shift their total output by about 2 to 5 percent between jet fuel and diesel, as they compete for the same molecules in the distillation process. With crack spreads for jet fuel at historic highs, the market is sending an urgent signal to produce as much aviation fuel as possible. U.S. refiners have responded by increasing jet fuel yields by about two percentage points, but this has come at the direct expense of gasoline production, which fell by 340,000 barrels per day year-over-year just as the U.S. enters its peak summer driving season.
Refiners Feel the Strain
The extreme market conditions are creating a volatile environment for refiners, where record margins are running alongside significant operational and financial risks.
Par Pacific Holdings (PARR), which operates refineries in Hawaii, Washington, and the Rockies, illustrates the challenge. The company achieved a record throughput in the first quarter to meet demand, yet it also suffered a $125 million "net price lag headwind" in Hawaii. This occurred because its contractual sales were based on prior-period pricing, which failed to keep up with the sharp rally in March product prices. "Given the spreads between jet and ULSD, we see an attractive economic incentive to try and maximize jet yields," CEO Will Monteleone told analysts, highlighting the difficult choices refiners must make.
Meanwhile, operational disruptions have become even more costly. Calumet Specialty Products Partners (CLMT) estimated it lost over $30 million in opportunity after an equipment failure forced its Shreveport plant offline, costing roughly 750,000 barrels of production during a period of elevated margins. The incident underscores how little slack exists in the system, where any unexpected downtime can have an immediate and amplified financial impact.
This article is for informational purposes only and does not constitute investment advice.
