Oil prices have fallen, but fuel prices haven't dropped. Where exactly is the market stuck?
2026-08-13 21:00:58
On Thursday, August 13th, the oil market re-entered a trading phase characterized by both cooling demand and constrained supply. Brent crude was last quoted at approximately $87.4 per barrel, down about 1.2% on the day, while WTI crude hovered around $81 per barrel. Prices have retreated from previous highs, but U.S. end-user fuel costs remain significantly higher than the same period last year. The latest official weekly data shows that on August 10th, the average retail price of regular gasoline in the U.S. was $4.006 per gallon, $0.888 higher year-on-year; the average price of highway diesel was $5.257 per gallon, $1.503 higher year-on-year. What the market truly needs to differentiate right now is not whether crude oil prices have fallen, but whether crude oil prices, refinery processing capacity, refined product inventories, and inter-regional transportation can recover simultaneously. For gasoline and diesel, these four variables have not improved simultaneously, therefore the temporary decline in crude oil prices has not yet fully translated into end-user prices. The latest weekly increase in U.S. commercial crude oil inventories was 17.4 million barrels to 424.4 million barrels, a weekly increase of 4.3%. On the surface, this appears to be a clear case of crude oil inventory buildup, but the inventory structure is more important than the total amount. During the same period, gasoline inventories actually decreased by 1 million barrels to 208.7 million barrels, about 6% lower than the five-year average for the same period; distillate fuel inventories were 107.1 million barrels, about 12% lower than the five-year average for the same period. 
This means that the US market is not currently short of crude oil; what is truly scarce is the effective supply that can be promptly converted into end products such as gasoline and diesel. The diesel market, in particular, needs to simultaneously meet the demands of road freight, industry, agriculture, and some heating needs, and its inventory buffer is significantly weaker than that of crude oil. Refineries are already operating at high capacity. In the week ending August 7th, US refineries processed approximately 17.2 million barrels per day of crude oil, reaching an operating rate of 96.2%, with gasoline production at approximately 9.6 million barrels per day and distillate fuel production at approximately 5.3 million barrels per day. With such high utilization rates, there is limited room for further significant increases in supply through increased operating rates. For traders, this explains why the rapid accumulation of commercial crude oil inventories has not translated into a corresponding significant easing of refined product prices. The core of the current oil price risk premium still stems from the Strait of Hormuz. Official data shows that approximately 21.6 million barrels per day of crude oil and petroleum liquids will be transported through the strait in the fourth quarter of 2025, while this figure has already decreased to 4.9 million barrels per day in the second quarter of 2026, with crude oil and condensate accounting for only about 3.7 million barrels per day. This is not a simple supply fluctuation, but a significant misalignment in the global crude oil logistics system. While some crude oil can be routed via land pipelines and other ports, the substitution capacity is limited, and transportation distances, shipping schedules, insurance costs, and inventory holdings will all increase. Therefore, even if global nominal production capacity has not permanently disappeared, actual deliverable supply remains constrained. The latest monthly assessment shows that global oil supply rose to approximately 101.5 million barrels per day in July, but is still 6.3 million barrels per day lower than the same period last year, with approximately 8.3 million barrels per day of production still suspended in the Gulf region. Meanwhile, transportation disruptions intensified again from July to early August, leading to a further downward revision of the third-quarter supply forecast by 1.7 million barrels per day. This also illustrates that current crude oil prices cannot be explained solely by demand data. Slowing demand will compress the demand premium in prices, but as long as the actual capacity of key shipping lanes is significantly lower than normal, the supply chain will still retain a high risk compensation. The price logic for gasoline and diesel is showing a clear divergence. Gasoline is mainly affected by summer driving demand, crude oil costs, and refinery operating rates, while diesel is also affected by the reduction in global middle distillate supply. The latest international energy market assessment shows that global refinery crude oil processing volume in July was approximately 80.9 million barrels per day, a decrease of nearly 5 million barrels per day year-on-year. Due to disruptions in Middle Eastern refined product exports, the estimated global refinery processing volume for the third quarter has been revised downwards by another 370,000 barrels per day, with light and middle distillate crack spreads remaining abnormally high. This is the main reason why diesel retail prices are significantly more sticky than crude oil. The latest forecast from the U.S. Energy Information Administration in August shows that the average price of regular gasoline in the third quarter of 2026 will be approximately $4.01 per gallon, and approximately $3.72 per gallon in the fourth quarter; highway diesel will be approximately $5.18 per gallon in the third quarter and remain at approximately $4.86 per gallon in the fourth quarter. The full-year average gasoline price is projected to be $3.78 per gallon, and diesel at $4.85 per gallon. It can be seen that even assuming some supply recovery in the fourth quarter, the decline in diesel prices will still be less than the level the market might expect during a normal inventory cycle. The fundamental reason is not simply the price of crude oil, but rather the combined effects of low middle distillate inventories, reduced supply from overseas refineries, and logistical constraints on cross-regional arbitrage. As of August 13, Brent crude was trading around $87 per barrel. While prices have risen by approximately 3% cumulatively over the past month and more than 30% year-on-year, intraday prices have already shown a significant pullback. This price structure reflects two mutually constraining variables. On the one hand, increased inventories, slowing end-user demand, and downward revisions to global demand expectations have reduced the tightness of the spot market; on the other hand, shipping bottlenecks, refinery disruptions, and low refined product inventories make it difficult for risk premiums to fully exit the market.
This means that the US market is not currently short of crude oil; what is truly scarce is the effective supply that can be promptly converted into end products such as gasoline and diesel. The diesel market, in particular, needs to simultaneously meet the demands of road freight, industry, agriculture, and some heating needs, and its inventory buffer is significantly weaker than that of crude oil. Refineries are already operating at high capacity. In the week ending August 7th, US refineries processed approximately 17.2 million barrels per day of crude oil, reaching an operating rate of 96.2%, with gasoline production at approximately 9.6 million barrels per day and distillate fuel production at approximately 5.3 million barrels per day. With such high utilization rates, there is limited room for further significant increases in supply through increased operating rates. For traders, this explains why the rapid accumulation of commercial crude oil inventories has not translated into a corresponding significant easing of refined product prices. The core of the current oil price risk premium still stems from the Strait of Hormuz. Official data shows that approximately 21.6 million barrels per day of crude oil and petroleum liquids will be transported through the strait in the fourth quarter of 2025, while this figure has already decreased to 4.9 million barrels per day in the second quarter of 2026, with crude oil and condensate accounting for only about 3.7 million barrels per day. This is not a simple supply fluctuation, but a significant misalignment in the global crude oil logistics system. While some crude oil can be routed via land pipelines and other ports, the substitution capacity is limited, and transportation distances, shipping schedules, insurance costs, and inventory holdings will all increase. Therefore, even if global nominal production capacity has not permanently disappeared, actual deliverable supply remains constrained. The latest monthly assessment shows that global oil supply rose to approximately 101.5 million barrels per day in July, but is still 6.3 million barrels per day lower than the same period last year, with approximately 8.3 million barrels per day of production still suspended in the Gulf region. Meanwhile, transportation disruptions intensified again from July to early August, leading to a further downward revision of the third-quarter supply forecast by 1.7 million barrels per day. This also illustrates that current crude oil prices cannot be explained solely by demand data. Slowing demand will compress the demand premium in prices, but as long as the actual capacity of key shipping lanes is significantly lower than normal, the supply chain will still retain a high risk compensation. The price logic for gasoline and diesel is showing a clear divergence. Gasoline is mainly affected by summer driving demand, crude oil costs, and refinery operating rates, while diesel is also affected by the reduction in global middle distillate supply. The latest international energy market assessment shows that global refinery crude oil processing volume in July was approximately 80.9 million barrels per day, a decrease of nearly 5 million barrels per day year-on-year. Due to disruptions in Middle Eastern refined product exports, the estimated global refinery processing volume for the third quarter has been revised downwards by another 370,000 barrels per day, with light and middle distillate crack spreads remaining abnormally high. This is the main reason why diesel retail prices are significantly more sticky than crude oil. The latest forecast from the U.S. Energy Information Administration in August shows that the average price of regular gasoline in the third quarter of 2026 will be approximately $4.01 per gallon, and approximately $3.72 per gallon in the fourth quarter; highway diesel will be approximately $5.18 per gallon in the third quarter and remain at approximately $4.86 per gallon in the fourth quarter. The full-year average gasoline price is projected to be $3.78 per gallon, and diesel at $4.85 per gallon. It can be seen that even assuming some supply recovery in the fourth quarter, the decline in diesel prices will still be less than the level the market might expect during a normal inventory cycle. The fundamental reason is not simply the price of crude oil, but rather the combined effects of low middle distillate inventories, reduced supply from overseas refineries, and logistical constraints on cross-regional arbitrage. As of August 13, Brent crude was trading around $87 per barrel. While prices have risen by approximately 3% cumulatively over the past month and more than 30% year-on-year, intraday prices have already shown a significant pullback. This price structure reflects two mutually constraining variables. On the one hand, increased inventories, slowing end-user demand, and downward revisions to global demand expectations have reduced the tightness of the spot market; on the other hand, shipping bottlenecks, refinery disruptions, and low refined product inventories make it difficult for risk premiums to fully exit the market.
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