Early on Tuesday, Bloomberg’s NYMEX One-Month Heating-Oil/crude Spread

BY SRH

Early on Tuesday, Bloomberg’s NYMEX one-month heating-oil/crude spread, which is monitored on the Terminal as the HOCL1 Index, broke $100 per barrel before rising to about $106 by late morning.

The historic blowout is a serious warning that a crisis centered on finished fuels rather than crude availability is intensifying due to refinery outages in Russia (see Goldman’s most recent diesel warning), limits on industrial fuel exports, and ongoing interruptions across the Strait of Hormuz.

Greater duration:

HNewsWire cautioned:

Kelly Chen, a senior economist at DNB Carnegie who specializes in China, emerging economies, and energy markets, provided the most recent update on the global squeeze on refined goods on Tuesday morning.

Chen pointed out that China is one of the few nations with sufficient excess refining capacity to significantly ease the strain on the world market.

“Some clients ask us if China can be a potential source of relief for the product markets,” the senior economist said in the paper, highlighting Beijing’s apparent lack of strategic or economic motivation to save Western petroleum markets.

She added, “As product exports through the Strait of Hormuz remain heavily disrupted and Ukrainian attacks have constrained Russian refining, China is one of the few regions with room to materially raise refinery throughput and exports quickly.”

“Beijing did raise its export quotas for refined products in July, but they are still well below 2025 goals. “Whether the authorities have an incentive to increase product exports further is the question,” she stated.

“If US pressure forces China to reduce or halt purchases of Iranian oil, China would have to either compete more aggressively for scarce crude oil barrels or draw further on its own strategic inventories,” Chen said, arguing that China is unlikely to save the world’s diesel markets. In order to alleviate a shortage elsewhere, either course of action would erode China’s own energy security. China may not be eager to do much more because it has already used its own buffers to absorb the disruption to crude oil. High road fuel prices may further increase demand for Chinese electric vehicles and energy technologies worldwide. Therefore, we believe Chinese authorities have no motive to dramatically increase product exports until crude oil supplies become less interrupted.”