The real energy shock is not with the price of crude but with the price of refined products. There is no question that crude oil prices have spiked and remained elevated since the beginning of the Iran War, but higher crude is just one component of a more complex energy price shock. Ukraine's war strategy to destroy Russian refining capacity is affecting refined product prices worldwide. Houthi attacks on Saudi refining are also disrupting the production of refined products. Finally, refining utilization is running above 96% in the US. There is no room for more production.
So we have the following set of problems:
1. Refined product cannot move out of the Middle East
2. Refinery capacity destroyed in Russia (approximately 40%)
3. Refining capacity impacted in Saudi Arabia
4. US refining is running above 96%, with refined product exports to Europe.
The problem is not with crude but with refined product prices.
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