Middle East tensions jeopardize Asia's August refinery runs

BlockBeats report: Reuters reported on July 25 that a fresh escalation in U.S.-Iran military tensions is threatening a still-fragile recovery in global refining capacity, with Asian refiners facing the biggest disruption. Asia had been expected to lead a rebound in fuel output this quarter, but renewed instability around shipping routes through the Strait of Hormuz has forced many plans to pause. In a parallel risk to crude flows, Yemen's Houthi militia has threatened to block Saudi oil exports via the Red Sea. Energy Aspects estimates that more than 3 million barrels per day of Saudi crude normally shipped to Asia via the Bab el-Mandeb Strait could be pushed onto longer routes. On Tuesday, three Saudi tankers originally bound for China and India diverted toward the Suez Canal. Asian refiners that had already lined up crude for August are now bracing for delivery delays from the Middle East. At the same time, refineries in the United States and Europe are running close to full capacity, leaving limited headroom to offset lost supply. Lin Kechang, president of FPCC, said the company had planned to lift its August utilization to 480,000 barrels per day, or nearly 90% of capacity. While August crude supplies have been secured, he said the delivery schedule and arrival timing for some cargoes remain uncertain amid renewed Middle East conflict. A senior Chinese refining executive, speaking on condition of anonymity, also said shipments loading in July and August are expected to be delayed, complicating efforts to raise throughput. Supply pressure is also building from Russia, where refineries have been repeatedly hit by Ukrainian drones. The attacks have tightened domestic fuel availability and prompted Moscow to restrict diesel exports to rein in rising local prices. The combined shocks have pushed refining margins to record levels. Margins in the U.S. and Europe have reached all-time highs, while Asia's margins have climbed to a two-month peak. Sparta Commodities analyst Neil Crosby said global refining capacity is not sufficient to absorb a simultaneous disruption in the Strait of Hormuz and a Russian export ban, leaving higher prices as the mechanism to curb end-demand. For diesel and jet fuel, Asian refining margins have surged above $65 per barrel, versus just over $20 per barrel before the war.