Brent Crude at $91 Is Just an Illusion; Diesel at $170 Is the Real Energy Risk

As crude oil prices hover around $90 per barrel, market sentiment appears calm. However, Jeff Currie, former head of commodities research at Goldman Sachs, is issuing a warning: the real energy shock is not occurring in the crude oil market but has already spread to the market for refined products that consumers and businesses use daily.

According to OilPrice, Currie stated bluntly in an interview with CNBC that "no one on Earth consumes crude oil"; end-energy consumers face prices for gasoline, diesel, and jet fuel. European diesel is trading at approximately $170 per barrel, nearly double the current price of Brent crude. Meanwhile, gasoline prices have risen by about 30% compared to a year ago, while diesel prices have surged by as much as 46%.

The surge in diesel prices directly impacts trucking, shipping, and industrial production costs, with its inflationary transmission effect being far more direct than that of crude oil prices. Currie warns that judging the current energy market conditions based on Brent prices could lead investors to seriously misjudge the actual energy cost environment, which has deteriorated significantly.

Crack Spreads Between Crude and Refined Products Expand to Historically Rare Levels

Brent crude traded near $90.94 this week, while WTI closed at $84.94 on Tuesday, showing relatively stable price trends. However, the level of European diesel at approximately $170 per barrel implies that the spread between crude oil and downstream products has expanded into an abnormal range.

Currie pointed out that historically, the price trends of crude oil and refined products were highly correlated, and crude oil prices once served as a reasonable proxy for the overall energy market. However, he believes this transmission relationship has now broken down, with the "relative stability" shown by crude oil prices masking more severe supply-demand imbalances in the refined products market.

Behind the widening spread is a superposition of supply-side shocks. According to Currie, during the period of sudden supply increase from late June to early July, approximately 100 million to 120 million barrels of crude oil were stranded in the Strait of Hormuz, unable to flow smoothly to downstream refineries.

"Illusion of Abundance" Strategy Faces Risk of Failure

Currie also questioned the habitual response strategies of governments. He believes that over the past few decades, governments have accustomed themselves to deploying strategic reserves and soothing the market through public statements during energy supply disruptions, thereby creating an "illusion of abundance." This strategy has proven effective in multiple previous supply shocks.

However, Currie believes that the current disruption differs in scale, duration, and the tightness of the refined products market, posing greater challenges to the effectiveness of the aforementioned strategies.

Currie expects that the price dislocation between crude oil and refined products will eventually revert. The driving force lies in historically high refining margins, which will attract refineries to increase utilization rates, thereby boosting the supply of refined products and driving the market toward gradual rebalancing.

But before this repair process is complete, Currie's assessment is that Brent crude at $91 paints a reassuring picture for investors—a picture that consumers ceased to inhabit weeks ago.