(Sept 6): An increasingly stretched global refining system means fuel-price volatility is set to become more common, according to top oil executives.

A lack of spare crude-processing capacity due to under-investment, and shutdowns happening more frequently with refiners ramping up on better margins and deferring planned work were common themes at the APPEC by S&P Global Insights conference in Singapore this week. That’s left fuels like diesel and gasoline vulnerable to sudden swings when there are unplanned outages.

There have been unplanned plant shutdowns almost every week or two in Europe, Frederic Lasserre, global head of research & analysis at Gunvor Group Ltd, said in an interview. Many refiners have postponed regular maintenance, leaving them open to technical issues that lead to surprise outages, he said.

“The market is overly sensitive to any unexpected supply disruption anywhere,” Lasserre said. “Everyone knows there’s no plan B. We have no stocks, and we have no excess capacity anywhere.”

The recent spate of unplanned outages and tightness in refining capacity highlight the challenges as the world transitions from fossil fuels to cleaner energy. In the US, gasoline is at the highest seasonal level in more than a decade, with the rise partially due to extreme heat limiting refinery output.

“Refining capacity is very tight,” Vitol Group chief executive officer Russell Hardy said. A lot of plants closed during Covid-19 and Western markets are lacking sufficient oil products, he said.

The price of diesel — the fuel that powers the global economy — has outpaced the rise in crude after a slew of refinery outages partly due to excessive heat.

Low stockpiles are driving an “incredibly strong” diesel structure, signaling market tightness, said Ben Luckock, co-head of oil trading at Trafigura Group.

It’s becoming more expensive to fund normal refining projects, Alex Grant, senior vice president for crude, products and liquids at Equinor SA, said in an interview. Existing refineries will operate at the highest rates they can, with refining margins staying high, he said.

The refining system is “crying out” for fresh investment with oil demand still growing, especially in Asia, said Sri Paravaikkarasu, director of market analysis at Phillips 66. Refiners need to cater to it, while also accounting for the green energy transition, she added.