Crude Oil Tops $102 as Soaring Diesel and Shipping Costs Offset Hormuz Flow Recovery

Crude oil prices surged on Thursday, with the global benchmark climbing above $102 a barrel, as severe refining bottlenecks and soaring shipping costs overshadowed a partial recovery in tanker traffic through the Strait of Hormuz.

Refining Constraints Drive Fuel Prices

The primary pressure on prices stems from a disconnect between crude oil supply and the availability of refined products like diesel and gasoline. While Morgan Stanley analysts estimate Middle East crude exports are now just 7% below pre-conflict levels, exports of refined fuels from the region remain down by approximately 40%, J.P. Morgan told clients in a recent note.

This refined product shortfall is exacerbated by Ukrainian strikes on Russian refineries, which led Moscow to curb its diesel exports. The resulting market tightness has created a historic premium for diesel fuel. In New York, diesel futures have recently traded at roughly double the price of crude oil, with the spread far exceeding previously recorded levels. A Dallas Fed survey released this week found 48% of energy executives believe it will take at least a year for this spread to normalize to 2025 levels.

Geopolitical Risks Inflate Shipping Costs

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Heightened security risks in key maritime chokepoints are adding a significant premium to energy transport. Tankers are increasingly taking longer, more expensive routes to avoid Houthi attacks, while others engage in ship-to-ship transfers just outside the Strait of Hormuz.

According to price reporting agency Argus, the cost for a supertanker to transport crude from the Middle East to China has ballooned to the equivalent of $35 a barrel, a dramatic increase from less than $7 before the war began. The dangers remain acute, with the U.K. Maritime Trade Operations Centre reporting on Wednesday that three vessels in the Strait of Hormuz had been hit with projectiles.

Broader Market Impact

The global crude-futures benchmark rose 4.4% on Thursday to settle at $102.31 a barrel. These elevated energy costs contribute to broader inflationary pressures, which have helped push the 10-year U.S. Treasury yield to its highest level in 24 years this week. Meanwhile, consumers are feeling the impact at the pump, with average U.S. gasoline prices holding above $4.41 per gallon, according to data from AAA.