Kloza on Diesel Prices Hit Fresh Record-High
Speakers
Tom Kloza
— Chief Energy Advisor, Gulf Oil
Summary
Tom Kloza says diesel, not crude, is the key market to watch as diesel hits a record high. He sees diesel prices can go higher due to roughly 7 million barrels per day of global refining capacity offline, though he warns of a near-term rest stop. He expects the most expensive heating season in years and warns that an export ban or windfall profits tax could flush speculative money out of refined products. Kloza also notes U.S. refiners are running at 97-98% capacity with no slack, and permitting reform will not fix near-term supply.
- Diesel prices hit a record and are the key refined product to watch, not crude.
- Roughly 7 million barrels per day of global refining capacity is offline, mostly due to drone attacks.
- Kloza expects the most expensive heating season in 20-30%, with winter still 60-90 days away.
- A diesel export ban or windfall profits tax could flush hot money from diesel, heating oil, and gasoline.
- U.S. refiners are running at 97-98% of capacity and have no idle equipment.
- The restart of ExxonMobil's Chicago-area refinery should bring relief to Great Lakes prices.
- Permitting reform or new refinery construction would not ease the near-term supply crunch.
- Crude oil is not in a speculative bubble, but policy interventions have depressed crude prices.
Ideas
Gasoline is a key product to watch.
Kloza calls a potential diesel export ban a 'nuclear option' and says if the White House signaled it was considering an export ban or windfall profits taxes, it would flush a lot of hot money out of the market. He says crude oil is not in a speculative bubble, but heating oil, diesel, and gasoline have speculative money betting on higher prices, making them vulnerable to a policy-driven selloff.
Crude is less attractive than refined products.
Kloza steers investors away from crude oil and toward refined products. He says everybody obsesses with crude, but diesel and gasoline in the bulk markets are what need watching. While crude is not in a speculative bubble, the president has been successful with verbal interventions that depress crude prices, and Kloza is more concerned about refining risk than crude.
Diesel can go higher on tight supply.
Kloza says diesel, not crude, is the key refined product to watch. He thinks diesel can go higher even after hitting a record 647, about $0.60 above the June 2022 record, because roughly 7 million barrels a day of refining capacity is offline globally, mostly due to drone attacks, while U.S. refiners are running full out. He warns there may be a near-term rest stop, but the international supply problem and lack of slack keep the risk skewed to higher diesel prices.
US refiners benefit from full utilization.
Kloza says U.S. refiners are running at 97% to 98% of capacity and making plenty of money, with no idle equipment to bring online. Combined with the loss of roughly 7 million barrels a day of global refining capacity, the system has no slack, supporting refining profitability and refined product prices.
