The disruption in the global oil market triggered by the ongoing Iran war, which has engulfed the entire Middle East, is poised to have a greater impact on products such as jet fuel and diesel than on crude, according to a Goldman Sachs Group report.
“Prices have rallied much more for many refined products than for crude,” analysts Yulia Zhestkova Grigsby and Daan Struyven said in a note. The severe disruptions seen in supplies of so-called medium-heavy crude pose the risk of lower production of diesel, jet fuel and fuel oil, they said.
Global energy markets have been pitched into turmoil by the US-Israeli war against Iran, which broke out on February 28 and has now entered its third week. The conflict has led to a halt of oil and product exports through the Strait of Hormuz, and seen attacks on energy infrastructure across the region. That’s forced crude producers to slash output and halt some refinery operations.
While crude prices have surged by more than 40 per cent since the first attacks with Brent surging past the $100 barrel mark, there has been an even higher increase in the prices of petroleum products such as jet fuel and diesel. In parts of Asia, fuel costs have as much as doubled, with countries such as China, Thailand and South Korea capping exports to protect local markets.
“No products or regions are fully immune,” the Goldman analysts said. The war was hurting the ability of Persian Gulf producers to export refined products, spurring refinery outages, and slashing flows of the types of crude that are best suited to making fuels such as diesel, they observed.
“Nearly 60 per cent of typical crude exports from the Persian Gulf are medium and heavy crude (typically used to produce jet fuel, diesel, and fuel oil), with much more limited alternative producers outside the Middle East,” the experts opined.
The global disruption stemming from the conflict will also affect ‘naphtha’ — a refining byproduct used to make petrochemicals that’s a critical input for some manufacturers — as well as jet fuel, according to the Goldman Sachs report.
Asia imports close to 50 per cent of its ‘naphtha’ from the Persian Gulf region, while Europe depends on the region for 40 per cent of its jet fuel, the report added.
