FT Piece: US oil refineries run at breakneck speeds as wars choke fuel supplies

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US oil refineries are running at full tilt as wars in the Middle East and Ukraine choke global supplies of fuels, increasing the risk of outages at a time when prices are already rising sharply.

Refineries across the US are running at 96 percent of their capacity, with those in the Midwest and Rocky Mountains regions operating at 100 percent, according to the US Energy Information Administration.

US energy companies have stepped up exports of petroleum products, including diesel and jet fuel, to record levels following Iran’s closure of the Strait of Hormuz, through which about a fifth of global oil supplies passed before the Middle East conflict began in February.

While transits through the waterway had increased briefly following a ceasefire between the US and Iran last month, a flare-up in hostilities has again frozen the strait. Houthi rebels have also threatened a Red Sea route that Saudi Arabia is using to get most of its crude to market.

Ukrainian drone strikes on Russia’s infrastructure have at the same time crimped the country’s refining capacity, while Moscow this month banned diesel exports.

In a sign of the tightening market, US wholesale diesel futures have jumped 26 percent so far this month. The rush for oil products has sent the average per-barrel margin US refiners receive for converting crude into gasoline and diesel to the highest level on record.

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An outage, either caused by a breakdown or natural disaster such as a hurricane, would hit consumers around the world already grappling with high energy costs, analysts warned.

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Washington has released about 77 percent of the 172 million barrels from the country’s Strategic Petroleum Reserve that it pledged in March to use as a cushion for the supply shock from the closure of the Strait of Hormuz and to keep prices low.

The SPR, which is held in underground salt caverns in Texas and Louisiana, has fallen to 311 million barrels, its lowest level since 1983. Its operational minimum, below which further withdrawals risk damaging infrastructure and disrupting pipeline operations, is estimated at 180 million to 200 million barrels, according to industry analysts.

Meanwhile, inventories at America’s largest commercial storage complex in Cushing, Oklahoma, have hovered at around 20 million barrels since the end of June, a level near its operational minimum.

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