Crude oil is no longer the main character: the next energy crisis is quietly brewing at refineries

Ask AI · How does the zero-sum game of refineries trigger an energy crisis?

While the market is still questioning why oil prices haven’t experienced a breakthrough surge, the real energy shock has quietly shifted its focus.

JPMorgan Chase commodities analyst Natasha Kaneva pointed out in a recent report that the adjustment mechanism of this round of energy crisis is undergoing a fundamental change—pressure is now being transmitted from crude oil to downstream refined products. Since the outbreak of the conflict, Asian refined oil prices have increased by 1.5 to 3 times the rise in crude oil prices, and the crack spread for jet fuel has soared to an extreme level of $80 to $100 per barrel.

Previously, the International Energy Agency (IEA) warned in April that European jet fuel inventories could be exhausted within six weeks at the fastest, and Kuwait Petroleum Corporation (KPC) has also officially invoked force majeure clauses to suspend some shipments.

Consumers are not buying crude oil, but fuel. This seemingly simple fact is becoming the core logic for understanding the next phase of the current energy crisis. JPMorgan Chase believes that, against the backdrop of limited refining capacity and a sharp drop in Middle Eastern refined product exports, the price of refined products—and not crude oil—will become the main transmission channel for demand destruction, exerting a substantial impact on global aviation, logistics, and consumption sectors.

Inventories: The largest supply gap in history, yet crude oil prices remain unusually calm

Since more than two months after the outbreak of this conflict, the market faces a paradox that confuses analysts: this is recorded as the “largest crude oil supply disruption in history,” yet Brent crude oil prices have only remained around $100.

JPMorgan Chase data shows that global crude oil inventories are experiencing the largest decline on record. If the current trend continues, inventories will reach “operational stress” levels within weeks, and by September, they will fall to the “operational bottom line.”

Kaneva explained in the report that, the relative stability of oil prices does not indicate market indifference to the crisis, but rather an acknowledgment of a more severe reality: such a large-scale supply shock cannot be absorbed solely by the crude oil market itself, as the system lacks sufficient resilience. Asian and European refiners have been forced to cut operating rates—reducing 2.1 million barrels per day in March, and further expanding to 3.8 million barrels per day in April. Meanwhile, Middle Eastern exports of refined products have also lost about 4.7 million barrels per day.

According to Bloomberg’s April report, Kuwait Petroleum Corporation (KPC) has officially notified customers, citing force majeure, to suspend deliveries of crude oil and refined products to ships unable to access the Persian Gulf. Insiders revealed that Kuwait’s oil and gas infrastructure has suffered multiple strikes, and current production has fallen to the lowest levels since the early 1990s. Even if the conflict ends, full capacity recovery will take time.

Refining mechanism: A zero-sum game, a molecular battle between products

To understand why the refined product crisis is difficult to resolve quickly, it is necessary to understand the physical constraints of refining itself.

JPMorgan Chase detailed the logic of refining in the report: Refining is essentially a process of separating a barrel of crude oil into different products based on boiling points—a strict mass conservation system—how much input, how much output, nothing can be created out of thin air. This means that refining is a zero-sum game: producing more of one type of fuel necessarily means producing less of another.

Crude oil itself is not a homogeneous substance. Light crude molecules are smaller and naturally tend to produce gasoline and naphtha; heavy crude molecules are more complex, yielding more diesel, fuel oil, and residual oils. In high-complexity refineries (such as those in the U.S.), through fluid catalytic cracking (FCC), gasoline yield can be increased from about 20% naturally to over 45%, because of the large number of passenger cars worldwide, modern refineries are generally optimized for gasoline production.

Aviation fuel occupies an “intermediate distillate” position in the distillation tower, between gasoline and diesel, usually accounting for 8% to 15% of refinery output. Diesel also belongs to the intermediate distillates, accounting for about 25% to 35%. The key point is that aviation fuel and diesel compete for the same molecules within a barrel, with a direct production competition between the two. Refiners have very limited flexibility to adjust between them, typically only able to shift about 2% to 5% of total output.

This means that when market signals demand maximum production of aviation fuel, diesel supply is almost inevitably compromised.

Impact: Chain reactions from refineries to gas stations are already spreading

The current crack spread signals are clear enough: with jet fuel crack spreads soaring to $80 to $100 per barrel, reaching a new high since the Russia-Ukraine conflict, the market is sending a clear instruction to refineries—produce as much jet fuel as possible.

U.S. refineries have responded by increasing jet fuel yields by about 2 percentage points and pushing jet fuel exports to record levels to capture excess global profits. But the cost is immediate: gasoline yield drops by 2 percentage points, with output down about 340k barrels per day compared to last year. The timing is particularly unfavorable—America’s driving season is set to officially begin around Memorial Day at the end of May, and U.S. gasoline prices have already risen to $4.56 per gallon, with the risk of crossing $5 not to be ignored.

On the aviation side, the impact is equally direct. IEA warns that several European countries may face jet fuel shortages within the next six weeks, with the Middle East previously accounting for 75% of Europe’s net jet fuel imports. Low-cost carrier EasyJet has said that rising fuel costs are dragging down customer bookings, with ticket sales later this year expected to decline by 2% compared to 2025. Industry organization ACI Europe, representing airports across the EU, warned that the summer travel season will be disrupted, causing a “severe economic impact” on member states heavily reliant on tourism.

JPMorgan Chase concludes that, the next phase of the energy shock will no longer manifest as a classic surge in crude oil prices, but rather as a fuel shortage crisis at the refining and end-user levels—crude oil prices may remain relatively stable around $100, while the crack spread for refined products continues to widen, directly impacting consumers, airlines, and logistics systems through fuel prices.