Diesel Crack Spread Hits $108: The Refining Crisis

Diesel Differential Soars to $108, and Crude Oil Isn't to Blame

The barrel of crude oil is back at $100, but that's not the data that should be worrying anyone. The sustancia ilegal spread for ultra-low sulfur diesel—the difference between crude oil price and the price of the diesel derived from it—reached $108 on September 1st. Its historical range is between $15 and $25. Nobody discusses this, yet it is what truly sustains the fuel price.

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Why Crude Oil Doesn't Explain the Price of Diesel

The argument that oil prices dictate fuel prices is outdated. The key lies in refining. A considerable refining capacity has been destroyed between the Persian Gulf and Russia. According to industry analysis reports, about five million barrels per day of Russian capacity are out of service due to Ukrainian attacks; another two million in the Middle East, due to drone strikes. In total, about seven million barrels per day of installed capacity are currently unproductive.

Furthermore, maritime trade in refined products has dropped from 32 to 27 million barrels per day—a plunge of 14%. This means less product available in the global market, precisely when diesel demand remains high. The planet can only increase production by between 600,000 and one million barrels per day with massive investment, and it takes five to eight years to expand refining capacity. In short, the storm won't clear up in a quarter.

Reversible or Irreversible? The Fundamental Debate

Some maintain that the situation is recoverable: it would only require repairing damaged refineries and resuming production. The problem is that you cannot repair these facilities while they are under attack. Sending technicians to a war zone is an unacceptable risk, and repairs, when possible, take months. The optimistic view assumes the end of hostilities, but the war in Iran hangs like a Sword of Damocles over regional production.

The opposing view is harsher: without addressing the decline in diesel consumption, the bottleneck is structural. Global demand for diesel, which powers all heavy machinery—trucks, ships, tractors, construction and mining equipment—will not electrify overnight. Electric cars, for their part, depend on minerals and electricity generated largely from fossil fuels. All non-electrifiable transport will become more expensive.

Curiosity: not all petroleum is created equal. US fracking wells barely produce long hydrocarbon chains, which yield diesel and kerosene; those in the Persian Gulf do. This is why the US administration is interested in Venezuelan crude, which is useful for producing diesel.

The Consequences: Inflation and What's Ahead

Fertilizers, vital for food production, are also refined in the Middle East. The rising cost of diesel and its derivatives is passed on to the consumer basket. The idea that beer will cost 5 euros in 2028 is an exaggeration, but the direction is clear. Goods distribution suffers, and the transport sector, already operating on minimal margins, faces unstoppable energy costs.

Predicting a return to horse-drawn transport in the next decade sounds like doom, but the fact remains that the economy dependent on diesel has a demand that cannot adapt quickly. The debate itself has shifted toward electric vehicles, but some remind us that the solution—if there is one—is bicycle and scooter, not the electric car, because there aren't minerals for everyone.

Can a wave of inflation similar to that of 2021 repeat itself? The answer lies not in crude oil, but in the remaining refining capacity. Who dares to invest in something that could become obsolete due to the energy transition? That is the question no one wants to answer.

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