Global Refined Product Squeeze Tightens Market for Bakken Crude

Global fuel markets are extremely tight with diesel supply shortages expected to last through winter, according to industry executives. This environment supports sustained demand for Bakken crude, a key feedstock for U.S. refineries running at near-maximum capacity.

Russell Hardy, CEO of the world's largest independent oil trader Vitol Group, stated the market is "pretty, pretty tight and inflexible." He made the remarks Tuesday at the Asia Pacific Petroleum Conference in Singapore, according to OilPrice.com. Hardy noted that globally, refined product inventories are "still drawing" due to insufficient refining capacity.

The crunch is particularly acute for diesel. Phillips 66’s senior vice president for global trading, Mark Senn, said, "When you're looking forward to a winter season coming where diesel stocks are quite deficit, you're setting up for an environment where that strength could continue." U.S. diesel prices have topped $5.90 per gallon this month, Reuters reported via OilPrice.com.

Supply disruptions are central to the problem. Hardy estimated the market is missing nearly 2 million barrels per day (bpd) from Russia and another 2 million bpd from the Middle East. Russian diesel exports are banned until at least end-September due to refinery damage from Ukrainian drone strikes. Middle Eastern fuel flows through the Strait of Hormuz are constrained, with only 1 million bpd of refined products moving out compared to total outbound flows of 10 million bpd.

Refinery attacks continue. Saudi Aramco's Jizan refinery, with a 400,000 bpd capacity, was hit again this week by Houthi attacks, OilPrice.com reported.

This global refining shortfall bolsters the outlook for Bakken crude. U.S. refineries have been running at maximum capacity to meet demand, delaying maintenance. The U.S. Energy Information Administration's weekly report for the week to August 28 showed a national refinery utilization rate of 98%, with peaks of 103.5% in the Midwest and 99.8% in the Rockies region, which includes Bakken-linked refining capacity.

"These high rates are unsustainable as maintenance should be done at the facilities at some point, sooner rather than later," the OilPrice.com report noted. However, the intense demand provides a favorable backdrop for North Dakota producers. The sustained high runs, especially in the Midwest, translate to consistent offtake for the light, sweet crude from the Williston Basin.

In related energy news, Gazprom's chairman Alexey Miller said Russia's underground gas storage inventories will reach a new all-time high this year, according to Rigzone. This factor is separate from the refined product crunch but indicates continued geopolitical segmentation of global energy flows.

For Bakken operators, the prolonged global distillate shortage and maxed-out U.S. refinery runs signal robust demand fundamentals for their crude production heading into the winter heating season.