Oil prices are usually quoted as the future price of crude oil, with Brent and WTI being the main benchmarks. However, the economy relies on refined products such as diesel, petrol and jet fuel rather than on crude oil itself, and the cost of turning the one into the other is the refining margin, or ‘crack spread’. Adding this spread to Brent gives a proxy for what the end consumer actually pays, and on that basis the average price is currently around USD 140–180 per barrel.
Why refining margins are high
The supply of crude oil and refined products is constrained in several places at once: European refining margins hit a record USD 50 per barrel this summer, and diesel margins reached USD 100 per barrel, with total final cost of diesel reaching a record USD 200 per barrel. These margins are set to remain high because there is currently a global shortfall of over 10% of refining capacity.
- Middle East refinery runs are about a quarter below pre-February levels because of physical damage and export restrictions through the Strait of Hormuz and Bab al-Mandab.
- Russian refineries are running at about 40% below capacity after repeated drone strikes, and refined product exports were banned in July, with the ban having since been extended to the end of October. Russia supplies roughly 10% of the world’s diesel.
- China has restricted the export of refined products since March and is running refineries well below capacity.
- The US accounts for over 20% of global diesel exports and a restriction on these is under discussion but has not yet been announced; the market would struggle to absorb any such restriction.
The crude oil price and geopolitical factors
In 2026, two factors have dominated the crude oil price: whether oil can physically leave the Gulf, and the prospects of peace in the region. Brent moved above USD 100 per barrel when tanker transits collapsed, fell to the low USD 70s per barrel with the summer ceasefire and the return of tankers, before rising again towards USD 100 per barrel after the memorandum of understanding expired without a peace deal. Any outcome is binary and depends on geopolitical decisions, meaning that any view on the oil price is conditional on an assumption of the conflict being resolved, a possibility that is still not on the horizon.
Why prices could remain high
Prices should remain high even after oil supplies resume. Middle East supplies have recovered to at least three-quarters of their pre-conflict levels, yet Brent is still trading at around USD 100 per barrel. Moreover, contracts for immediate delivery – not future contracts – in the North Sea and the Middle East averaged USD 125–135 per barrel, a significant premium to futures, which supports the view that prices have re-rated with a higher built-in risk premium. Strategic reserves and commercial inventories in many countries are at multi-decade lows and continue to be depleted every day the disruption persists. China, the largest importer in the world, has sharply cut its purchases and continues to draw on its own reserves. It should also be noted that, more generally strategic reserves have been drawn down and commercial inventories are at historic lows. Rebuilding global oil stocks is therefore a new source of demand, to which must be added the need of countries which do not have strategic reserves establishing such reserves for their own energy security. Logistics also add costs: naval escorts, higher freight and insurance costs, along with longer transit times add more than USD 30 per barrel to the delivery price.
The opinions expressed herein are correct as at 15 October 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
