KEY POINTS
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Diesel prices have reached record highs as renewed U.S.-Iran hostilities and Ukrainian attacks on Russian refineries deepen disruptions across the global energy markets.
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Unusually low inventories and attractive margins of fuel types like diesel have incentivized refiners to shift away from fuel oil production.
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That shift is reducing the amount of fuel oil available for cargo shipping and power plants.
Diesel prices have reached record highs as renewed U.S.-Iran hostilities and Ukrainian attacks on Russian refineries deepen disruptions across the global energy markets.
Unusually low inventories and attractive margins of fuel types like diesel have incentivized refiners to shift away from fuel oil production, according to Reuters.
That shift is reducing the amount of fuel oil available for cargo shipping and power plants, potentially increasing costs for ocean carriers, equipment suppliers, and businesses that rely on freight transportation.
Why Shipping Fuel is Under Pressure
Reuters reported that record-low inventories for gasoline and diesel are encouraging refiners to maximize those operations, which tightens the balance for fuel oil. This is because fuel oil is increasingly used as feedstock to produce higher-value fuels, like diesel, gasoline, and jet fuel.
This is compounded by conflicts constraining supply at the source and making shipping more complicated. Middle East fuel-oil exports fell 45% year over year from March through August, while Russian fuel-oil exports reached a record low in August after attacks affected refinery output, according to data cited by Reuters.
At the same time, vessels avoiding the Red Sea and the Bab el-Mandeb strait are taking longer routes, adding to fuel consumption.
Costs Could Move Through the Construction Supply Chain
These disruptions have translated to real price increases, with Reuters reporting that prices in Singapore are up 76% from the start of the Iran war as of September 1, outpacing the increase in benchmark Brent crude over the same period.
Higher fuel oil costs can raise shipping rates for firms, adding pressure to imported equipment, building materials, and manufactured components moving across the globe.
The extent of the impact will depend on how long refinery outages, shipping disruptions, and rerouted vessel traffic persist.
With diesel already increasing the cost of operating heavy equipment and transporting materials, more expensive fuel oil could add another layer of inflation to owners and developer’s margins.
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