Oil and gas surge fuels rate hike risks ahead of winter

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Oil and gas surge rate hike

Diesel and gas become a new problem for central banks

Diesel futures in some regions have surpassed the equivalent of $200 a barrel, while some consumers are paying more than $300, including taxes. In the U.S., the average retail price of diesel has reached a record $6 a gallon.

European natural gas, meanwhile, has risen to its highest level since late 2022. Inventories ahead of the cold season are at a record low for this time of year, while analysts see the possibility of prices returning above €100 per megawatt-hour—around 25% above current levels.

Limited refining capacity is adding to the pressure. Ukrainian strikes on Russian refineries have pushed the country's diesel exports to a record low, while facilities in the Middle East are still recovering from attacks earlier in the war with Iran.

Flows through the Strait of Hormuz also remain well below prewar levels. Before the conflict, around a fifth of global oil and liquefied natural gas flows passed through the route.

Houthi attacks on Saudi Arabia have created an additional risk. Following a series of strikes, the kingdom shut its East-West pipeline, a 7 million-barrel-a-day route that had become a key alternative to the Strait of Hormuz.

Energy crisis threatens a difficult winter

The buffers that previously helped contain prices are gradually shrinking. Releases from strategic reserves are slowing, China is increasing oil purchases, and commercial inventories continue to decline.

The strain is already visible in the physical market: chartering a supertanker can cost more than $1 million a day, while buyers are paying substantial premiums for immediate deliveries. Kuwait Petroleum Corp. representative Sheikh Khaled Al-Sabah warned of a "very difficult winter" for Northern Europe.

The IEA expects global oil demand to decline in 2026 by the most since the pandemic, with high diesel prices among the main factors. At the same time, the agency warned that inventories that previously helped contain prices are being depleted and the global refining system is operating close to its limits.

Against this backdrop, Washington is stepping up pressure on Tehran through both military and economic measures. The Donald Trump administration is preparing additional sanctions against Iran, while the president said he would decide to strike again under similar circumstances.

A prolonged conflict raises the risk of further supply disruptions and additional pressure on energy prices. That leaves governments facing the challenge of protecting consumers from rising living expenses while central banks tighten monetary policy.

Earlier, we reported that Iran allowed the use of cryptocurrency in foreign trade transactions. The decision expanded the country's ability to use digital assets for international settlements.

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