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By: Editorial Team, StoneX Media
Crude oil is trading in the $74 to $75 range, up on the back of the escalating conflict between the U.S. and Iran in the Strait of Hormuz, yet still contained compared to earlier points in that war. Refined fuel markets tell a very different story. Diesel, gasoline and jet fuel are pricing closer to what analysts would expect from $100 crude, a gap that traces back not to the Middle East but to Russia. Ukraine's drone campaign against Russian refineries has done enough damage to refined fuel supply that the product markets are now signaling far more stress than the crude price alone would suggest.
Arlan Suderman serves as StoneX's Senior Commodities Economist, where he tracks daily developments across energy and agricultural markets, from crude oil and refined product spreads to grain and oilseed trade flows. That coverage puts the current divergence between crude oil and refined fuel prices directly in his daily focus, as he follows how war related supply disruptions in Russia and the Middle East move alongside broader energy pricing.
Ukraine has increasingly turned to drone technology to strike deep inside Russian territory, hitting refineries as far as 1,500 miles beyond its own borders, including sites near Moscow. Suderman notes that several facilities have been struck as many as four times. "It's believed that they have eliminated a third of Russia's diesel fuel production capacity, in addition to negatively impacting gasoline production capacity as well as jet fuel production capacity", he says. The damage spans nearly the full range of refined products rather than a single fuel line, touching diesel, gasoline and jet fuel output alike. As a result, Russia is now managing a refining shortfall that reaches well beyond any one part of its energy sector.
"Fuel lines in Russia are said to be hours in length", Suderman notes, evidence that the shortage has moved beyond the war effort and into daily civilian life. That situation carries political weight for President Putin, who is trying to maintain public support for the war against Ukraine even as fuel access tightens at home. Ukraine's targeting reflects a dual approach, striking refineries to reduce fuel supply for the war effort while also hitting the ships and transportation networks used to move whatever fuel remains toward the front lines. In effect, the campaign is squeezing Russia's war logistics from two directions at once, cutting production and disrupting distribution at the same time. Notably, this pressure builds even as Russia works to keep other fronts of the war, including the Kerch Strait, functioning for its own supply lines.
The clearest market signal of the refinery damage shows up in the gap between crude oil and refined product prices. Crude oil has moved higher on the escalation between the U.S. and Iran but remains relatively contained, trading in the $74 to $75 area, notably lower than earlier points in that conflict. Refined product markets tell a different story entirely. "The product markets are trading closer to resembling as if we had one hundred dollars crude oil", Suderman says, despite crude itself trading well below that level. That divergence, driven largely by the loss of Russian refining capacity rather than by crude supply itself, confirms that the fuel market disruption from the war in Ukraine is proving more consequential for prices at the pump than the headline crude number alone would suggest.
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--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Arlan Suderman, Senior Commodities Economist
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Ukraine's drone campaign has knocked out roughly a third of Russia's diesel production capacity, sending refined fuel prices soaring even though crude oil itself remains comparatively contained. The result is a widening gap between headline crude prices and the fuel markets that actually move at the pump.
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