High global refinery outages are reducing demand for crude oil, keeping its price in check. However, this has created extreme tightness in refined products like diesel, with record-high price differentials. As refineries restart, the suppressed demand for crude will be unleashed, driving prices up.
Typically, when crude oil stored at sea is brought ashore, onshore inventories swell. Recently, the opposite occurred: a record drawdown of offshore oil was met with a further decrease in onshore stocks, indicating that demand is so strong barrels are being consumed immediately upon arrival.
For much of 2024, the oil market was cushioned by releases from strategic petroleum reserves, a large volume of oil stored at sea, and unusually low Chinese imports. These "shock absorbers" have now been significantly diminished, leaving the market highly vulnerable to any new supply disruptions.