The global crude oil market's focus is undergoing a fundamental shift. JPMorgan posits that while supply disruptions in the Strait of Hormuz certainly unsettle the market, the variable truly dictating the trajectory of the global energy landscape has quietly shifted to refining capacity—and the central thread of this narrative points to Russia.
JPMorgan's Head of Global Commodities Research, Natasha Kaneva, notes that the latest round of US-Iran conflict has once again reduced crude transit volumes through Hormuz. However, after months of supply volatility, the market has gradually adapted to viewing crude supply as a dynamic issue—barrels can disappear and can also return relatively quickly. The refining sector is far from this dynamic.
Global refinery throughput has plummeted by 8.2 million barrels per day compared to the start of the year, with Russia alone accounting for roughly 20% of that decline, emerging as one of the largest variables dragging down global refining activity. The direct impact of this situation on the market is already evident: Russian diesel and fuel oil exports have plunged by about two-thirds from their peak, further tightening the already supply-constrained global distillates market and keeping refining crack spreads at exceptionally high levels.
JPMorgan assesses that even if the situation in the Strait of Hormuz stabilizes, tightness in the refined products market could persist until 2027.
Three Major Refining Uncertainties, with Russia the Most Overlooked
Kaneva points out that the uncertainties currently constraining the global refining system come from three directions. The first is the Middle East. JPMorgan has tracked over 30 attacks on refineries and oil processing facilities within the region, but the actual extent of physical damage remains difficult to assess. The region possesses 11.7 million barrels per day of refining capacity, and what proportion of this can be swiftly restarted is still uncertain. JPMorgan's base case scenario assumes only 250,000 barrels per day of capacity remains offline by year-end, but the bank acknowledges low confidence in this estimate.
The second, and most easily underestimated by the market, is Russia. Russia's refining system has endured sustained, intensive strikes from Ukrainian drones over the past three months, damaging not only refineries and storage facilities but also secondary conversion units like hydrocrackers, catalytic crackers, and reformers that determine product yields. In June, Russian refinery throughput had fallen to 3.8 million barrels per day, down 1.5 million barrels from the start of the year.
Domestic Fuel Shortages in Russia Spread, Extending Beyond Consumer Level
The domestic fuel situation in Russia has evolved from a consumer-level issue into a broader operational crisis. Shortages have spread to regions with local refineries, rooted in the prioritization of supply allocation to Moscow. The strategic logic behind Ukraine's targeting is clear: attacks on refineries supplying the capital rose to 39% in 2026, up from 22% in 2025.
Coinciding with the peak of Russia's "dacha season," when millions drive to suburban holiday homes, seasonal gasoline demand hits its annual high, significantly increasing the visibility of fuel shortages. Some areas have seen queues for fuel lasting days, with gas stations imposing purchase limits, and stations owned by major retailers experiencing temporary outages. Retail fuel prices have surged sharply, with reports indicating prices at some independent stations exceeding normal levels by over 50%.
The impact of shortages has spread from private car owners to agriculture, public transport, utilities, logistics, and small-to-medium enterprises. With the agricultural harvest season commencing in southern regions in August, diesel demand will enter its annual peak, further intensifying supply pressure.
The Russian government's response measures focus on maintaining near-term fuel availability. These include importing gasoline from Belarus and India, approving tax amendments to incentivize higher blending ratios, permitting refineries to produce lower-specification Euro 3 standard gasoline instead of Euro 5, and tightening export controls on gasoline, jet fuel, and diesel. These measures essentially manage fuel shortages at the margin, rather than repairing refining capacity itself.
Russia's Refining Dilemma Spills Over to Global Markets
The damage to Russia's refining system has had profound effects on the global supply landscape. Unable to absorb it domestically, Russia is redirecting more crude to the export market, with crude export volumes approaching historical highs, further exacerbating the global crude oil surplus. Simultaneously, refined product exports have declined sharply. Russia holds a pivotal position in global refined product trade: it is the world's second-largest diesel exporter, supplying about 12% of global diesel exports (approximately 800,000 barrels per day), and also the world's largest fuel oil exporter, accounting for about 16% of global fuel oil exports (around 900,000 barrels per day).
Consequently, the disruption to Russia's refining system has a far greater impact on the refined products market than its direct effect on the crude oil market. Prior to the escalation of Ukrainian drone attacks, Russian refineries typically processed about 5.3 million barrels of crude per day, producing roughly 2 million barrels of diesel, 1 million barrels of gasoline, 900,000 barrels of fuel oil, 300,000 barrels of jet fuel, and 1.1 million barrels of other products. Domestic consumption absorbed most of the gasoline and jet fuel, while about half the diesel and nearly all the fuel oil was exported to global markets. This normal operating level serves as the baseline for measuring the current supply shortfall.
JPMorgan: Gradual Recovery, Risks Skewed to the Downside
JPMorgan's core assessment is that the disruption to Russian refining capacity has shifted from a sporadic disturbance to a systemic issue. Since late March, Ukraine's strikes have evolved from sporadic harassment into a sustained strategic campaign aimed at systematically degrading Russia's refining and fuel distribution system. More notably, the repair complexity for such secondary units is far greater than for atmospheric distillation units, and downtime could extend from weeks to several quarters.
JPMorgan's base case expects Russian refinery throughput to gradually recover from the current 3.6 million barrels per day to about 4.5 million barrels per day by early 2027, averaging 4.7 million barrels per day for the full year 2027. This forecast is based on the assumption that drone attacks will subside somewhat after Russia's September elections.
Upside risks exist: if Ukrainian drone attacks were to cease abruptly, there is potential for rapid repair of most damaged units, with throughput potentially rebounding significantly within one to two months. Downside risks are equally noteworthy—Ukraine has amply demonstrated its capability and willingness to conduct large-scale, precise strikes deep within Russian territory. The market's core unknown is how long this offensive can be sustained.
At the upstream level, constrained by downstream bottlenecks, Russian crude oil production has fallen to 8.7 million barrels per day, down about 600,000 barrels from the start of the year, nearing the practical capacity limit of export infrastructure. The capital expenditure structure of Russian oil companies has shown a clear shift—overall spending continues to grow, but upstream investment is largely flat, with funds being prioritized for refinery repairs, equipment replacement, and domestic fuel security.
JPMorgan expects Russian crude oil production to recover slowly, reaching about 9 million barrels per day by year-end and stabilizing at around 9.2 million barrels per day in 2027.
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