Global fuel security increasingly threatened by extreme heat

Extreme heat caused by soaring summer temperatures is posing a threat to fuel supplies and refining systems around the world. The high temperatures have led to a surge in electricity demand, as well as disruptions at oil refineries, resulting in increased gasoline prices and a significant rise in the cost of diesel compared to crude oil. July 2023 was the hottest month on record globally, following the hottest June. The scorching heat caused oil processing at refineries to decrease by at least 2% in both months, impacting an already strained refining system and oil product markets.

Refineries in Europe reduced crude oil processing by 700,000 barrels per day this summer, accounting for around 6% of regional throughput. More than half of this decline can be attributed to the extreme heat. The rising temperatures not only limit fuel supply but also increase demand for heating oil and transportation costs due to drying up waterways. The heat also adversely affects refinery efficiency and aging equipment, leading to more outages and further increasing market uncertainty and price volatility.

Climate change and extreme weather events pose an ongoing threat to refinery operations and fuel prices. The impact is not limited to extreme heat in the summer, but also includes extreme winter weather in the Northern Hemisphere caused by a warming Pacific Ocean, which can push the polar vortex south and cause cold spikes in various regions. The increase in weather-related refinery outages highlights the challenges faced in transitioning away from fossil fuels while managing their impact on the climate. The market is particularly sensitive to any unexpected supply disruptions, as there are no alternative solutions in place.

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