Global oil markets are facing a severe supply shock, with more than 14 million barrels per day of production taken offline, a figure that has sent benchmark Brent crude to a four-year high of $126 a barrel. The combination of deep OPEC+ production cuts and escalating geopolitical conflicts has removed over a billion barrels from the market, according to the International Energy Agency.
"The current tightness will continue to underpin the refined product market," Saxo Bank analyst Ole Hansen told Reuters. "Not least considering the damage done to refineries."
The supply deficit is driven by two main factors: voluntary and involuntary production cuts from the OPEC+ alliance and significant damage to refining infrastructure from the wars in Iran and Ukraine. OPEC+ nations produced 9.908 million bpd below their collective quota in April, with major producers like Saudi Arabia and Russia falling short by 3.398 million and 580,000 bpd, respectively.
This shortfall creates a significant challenge for global energy security, with the IEA warning that the supply crunch could delay market recovery into 2027. The agency expects processing at Gulf refineries to fall to 8.7 million bpd this year, down 900,000 bpd from 2025, and has lowered its forecast for Russian crude runs.
The wars in Iran and Ukraine have delivered the biggest blow to global oil refining since the COVID-19 pandemic. Attacks have knocked out nearly 9% of the world's refining capacity, or about 9.69 million bpd. In the Middle East, 20 refineries have been struck or forced into precautionary shutdowns, taking over 2.3 million bpd of capacity offline. This includes Saudi Arabia's largest refinery, the 550,000 bpd Ras Tanura plant.
In Russia, Ukrainian drone attacks have forced about 700,000 bpd of crude processing capacity offline between January and May. The outages are having a disproportionate impact on diesel and jet fuel, flipping Asia from a regional surplus to a deficit and pushing European pump prices to record highs.
To meet demand, refiners and traders have been forced to draw down crude and fuel inventories by about 500 million barrels, a figure that TotalEnergies CEO Patrick Pouyanne said could rise to 1 billion barrels. "Even if the war was to end quickly, prices are expected to remain at high levels," he said.
The IEA has warned that Europe could face jet fuel shortages as early as June if Gulf supplies are not fully replaced. Reflecting the shortfall, Nigeria's new 650,000 bpd Dangote refinery nearly doubled its jet fuel exports to Europe in April, according to Kpler data.
This article is for informational purposes only and does not constitute investment advice.
