The fuel market has travelled a fair distance over the past month.

At the start of the period, the dominant story was improving conditions through the Strait of Hormuz, recovering crude supply and a gradual retreat from the extreme pricing seen earlier in the year. That gave the market confidence that the worst of the supply crisis had passed.

More recently, however, that recovery has been interrupted.

Crude oil has risen again as tensions in the Persian Gulf have intensified, while diesel has moved considerably faster because the crude increase has coincided with a major reduction in Russian diesel supply. The result is that the market today is firmer than it was only a few weeks ago, particularly for diesel.

For Waikato businesses, the important point is that this is not a return to the full crisis conditions seen earlier in the year. Global supply chains are better prepared, Asia is better supplied, and alternative crude and refined-product routes have been established. But the latest developments have clearly increased costs again.

From crisis relief to a more balanced market

Through late June and early July, the fuel market was steadily normalising.

Shipping through Hormuz had resumed, previously trapped crude was moving again and additional supply was reaching the market through alternative routes. Crude prices fell sharply from their earlier highs as traders became increasingly confident that the disruption would remain manageable.

The market also became better balanced in Asia, which is particularly important for New Zealand. Refiners in China, South Korea, India, Taiwan and Malaysia increased or maintained product availability, while refinery operations gradually recovered.

For a period, the key question shifted from whether enough fuel would be available to how quickly global inventories could rebuild and refined-product premiums could return towards normal levels.

That remains the longer-term direction, but recent events have slowed the process.

Russia has become the main diesel issue

The most significant new development has been the deterioration in Russian refinery output following repeated Ukrainian attacks.

Ukraine has reportedly struck all 11 of Russia’s largest refineries, with Russian refinery downtime recently estimated at approximately 4.3 million barrels per day.

Russia has also temporarily restricted diesel exports, while June diesel exports had already fallen to around 500,000 barrels per day — approximately half January levels.

This matters because Russia is one of the world’s largest exporters of diesel.

When Russian diesel disappears from the international market, European and Atlantic Basin buyers have to source replacement fuel from the Middle East, India and Asia. Those are the same markets that ultimately influence the price of diesel delivered into New Zealand.

That is why diesel has moved much more sharply than petrol.

Crude oil has become more expensive, but at the same time the diesel produced from that crude has become considerably more valuable.

Hormuz risk has returned

Conditions around the Strait of Hormuz have also deteriorated again.

Shipping traffic had recovered strongly during early July, but movements subsequently fell sharply as tensions increased and commercial vessel operators reassessed the risk.

This is important because the Persian Gulf remains one of the most important sources of crude oil and refined products for Asia.

There is also renewed concern around the Bab al-Mandab Strait at the southern entrance to the Red Sea, following fresh threats to shipping from the Houthis in Yemen.

The Red Sea has become particularly important because Saudi Arabia can move crude by pipeline to Yanbu on its western coast and then ship it north or south without using Hormuz. Disruption to both routes at the same time would therefore create a much more serious challenge.

There are still reasons for some optimism.

The proposed 20% charge on cargoes travelling through Hormuz has been withdrawn, removing what could have become a substantial additional cost.

A renewed safe-passage arrangement between the US and Iran also remains the clearest route towards lower crude and shipping premiums.

Why this is different from earlier in the year

Despite the latest increase in prices, the market is much better prepared than it was when the original Gulf disruption began.

Alternative crude supplies have been sourced, shipping routes have changed, pipelines through Saudi Arabia and the UAE are being used more extensively, and refiners across Asia have adjusted their crude requirements.

China has also returned as an important source of refined-product exports, while South Korea, India and other Asian refiners have increased supply.

These changes matter.

The market is currently pricing genuine geopolitical risk and a genuine shortage of Russian diesel exports. It is not yet pricing an immediate physical shortage of fuel across Asia-Pacific.

That distinction is important for New Zealand.

Petrol and diesel are telling different stories

Petrol has also increased, but its market remains considerably better supplied.

Additional cargoes from China, South Korea, Taiwan and Malaysia have helped contain petrol premiums in Singapore. Petrol is therefore increasing primarily because crude oil has risen.

Diesel is different.

It is currently being pushed higher by three separate factors:

• higher crude oil prices;

• reduced Russian diesel supply; and

• renewed disruption around the Persian Gulf.

That combination explains why diesel has increased much more sharply.

What this means for Waikato businesses

The market today is less comfortable than it was a few weeks ago, but considerably more resilient than it was during the earlier crisis.

For fuel-intensive Waikato businesses in farming, transport, construction, contracting and distribution, diesel remains the area to watch most closely.

Prices are likely to remain sensitive until either Russian refinery output improves or conditions around Hormuz become more stable.

The main opportunity for price relief would be a renewed diplomatic arrangement allowing shipping through the Gulf to normalise. Conversely, further attacks on commercial vessels, Gulf energy infrastructure or the Red Sea route would create additional upward pressure.

For businesses, fuel-price discipline remains worthwhile. Compare retail pricing through tools such as Gaspy, consider commercial fuel-card options, review route planning and vehicle utilisation, and make sure fuel purchasing arrangements remain competitive.

Waitomo’s Commercial Card, Waitomo App and Kora also provide options for businesses looking to manage fuel expenditure more closely.

The broader direction remains better than it was earlier in the year, but the latest events are a reminder that the recovery will not necessarily happen in a straight line.

The market has moved from crisis, through recovery, and now into a period of renewed volatility. We remain confident that the global supply system is better equipped to manage disruption than it was several months ago, but diesel in particular is likely to remain sensitive until Russian supply improves and Gulf shipping becomes more predictable.