With crude oil hovering near $90 per barrel, market sentiment may seem relatively composed, but Jeff Currie, the former head of commodities research at Goldman Sachs, is raising the alarm: the true energy shock is not unfolding in the crude market, but has already spread to the refined fuel markets that consumers and businesses depend on every single day.
As reported by OilPrice, Currie told CNBC that "nobody on Earth consumes crude oil," noting that end-users of energy ultimately face prices for gasoline, diesel, and jet fuel. European diesel is trading at roughly $170 per barrel — nearly double the current spot price of Brent crude. In the meantime, gasoline prices have climbed about 30% compared to a year ago, while diesel prices have surged by as much as 46%.
The escalation in diesel prices directly impacts trucking, shipping, and industrial production costs, making its inflationary ripple effect far more immediate than that of crude oil. Currie cautioned that judging today's energy market conditions by Brent prices alone could lead investors to seriously misread an actual energy cost environment that has deteriorated substantially.
Crude-to-Product Price Spread Stretches to Historic Extremes
Brent crude traded near $90.94 this week, while WTI stood at $84.94 on Tuesday, with price action remaining relatively subdued. Yet European diesel at roughly $170 per barrel suggests the spread between crude and downstream products has expanded into extraordinary territory.
Currie pointed out that historically, crude oil and refined product prices have moved in close tandem, allowing crude to serve as a reasonable proxy for the broader energy market. However, he believes this transmission relationship has now broken down, with the "relative stability" seen in crude prices masking a far more severe supply-demand imbalance in the refined products market.
Behind this widening spread lies a confluence of supply-side shocks. According to Currie, during the surge in supply from late June to early July, an estimated 100 million to 120 million barrels of crude remained stranded within the Strait of Hormuz, unable to flow smoothly to downstream refineries.
The "Illusion of Abundance" Strategy Faces Its Toughest Test
Currie also questioned the conventional playbook that governments have relied upon for decades. In his view, when energy supply disruptions occur, authorities tend to tap strategic reserves and soothe markets with public statements, thereby creating what he calls an "illusion of abundance." That strategy has worked through numerous prior supply shocks.
But Currie argues that this current disruption is different in scale, duration, and the level of tightness seen in refined product markets, meaning the effectiveness of such measures is now far more uncertain.
Currie anticipates that the price dislocation between crude and refined products will eventually correct itself. The driving force: historically high refining margins will incentivize refiners to boost processing rates, thereby increasing product supply and gradually rebalancing the market.
Until that repair process runs its course, however, Currie's assessment is that Brent crude at $91 paints a reassuring picture for investors — a picture that consumers stopped living in weeks ago.