The World No Longer Has an Oil Problem, It Has a Refining Problem.

Your diesel bill did not come down this month and it will not come down next month either. The reason has nothing to do with how much crude oil the world has.

Major business and energy media have spent the last two weeks making the same observation from different angles, the global energy market no longer has a crude problem, it has a conversion problem. Crude oil is available. The infrastructure to turn it into usable fuel products is not working fast enough, in the right places, to meet the demand that exists.

The numbers confirm it. The International Energy Agency's July Oil Market Report described a market defined by a fundamental disconnect between apparently well-supplied crude markets and tight product markets. Refinery margins reached four-year highs in early July, not because crude was scarce, but because the capacity to process it into diesel, gasoline, and jet fuel had been systematically reduced. Global refinery runs are down 6 million barrels per day year-over-year. Oxford Economics identified three simultaneous disruptions compressing the refining system from multiple directions: the re-closure of the Strait of Hormuz, renewed Houthi threats to Red Sea shipping, and Russia's full ban on diesel exports effective July 8.

JPMorgan calculated that one-fifth of the entire reduction in global refined product output is attributable to Russia's lost refining capacity. Diesel futures responded accordingly, rising 20 percent over three weeks. Oxford Economics went further, warning explicitly of a growing tail risk of acute diesel shortages that could constrain freight, agriculture, and industrial production.

The market is not broken. It is telling operators something important, the value in energy right now is not in owning crude. It is in the ability to convert crude into products at the point where they are needed. 

The challenges of the current environment simply highlight the fact that there is a structural deficiency in the ability of the market to provide refined products on a reliable basis and at a reasonable price.

Operators with crude access are sitting on the solution

Industrial operators who produce crude or have access to condensate near their operations are uniquely positioned in this environment. They hold the input that the global refining system cannot process fast enough. The bottleneck is not their feedstock. It is the distance between where their crude is and where the refining infrastructure exists to convert it.

Think Energy Holdings was built exactly for this moment. Our modular processing plants deploy at or near the point of crude production and convert feedstock into ultra-low-sulfur diesel on-site, in 90 to 120 days, without any dependence on the global refining infrastructure that Oxford Economics, the IEA, and JPMorgan have all confirmed is operating under severe strain. The operator stops being exposed to a market where diesel futures move 20 percent in three weeks. Their fuel cost becomes a local production cost, determined by their feedstock and their plant, not by drone strikes in Russia or tanker traffic through the Strait of Hormuz.

The IEA's headline observation that the market is long crude but short conversion capacity is a precise description of the problem Think Energy solves. The world has the raw material. What it needs is conversion capacity deployed where the crude is, not concentrated in large centralized facilities that are either offline, under attack, or geographically inaccessible to the operators who need the product.

Several of the world's leading energy and business publications have called it a refining problem this week. Think Energy's answer has been operational before the headlines arrived.

If your operation has access to crude or condensate and runs on purchased diesel, Think Energy can show you exactly what on-site processing would cost versus what you are paying today. Reach out at gothinkenergy.com.