TotalEnergies CEO highlights market disconnect on oil derivatives

Patrick Pouyanné, CEO of the energy giant TotalEnergies, has drawn attention to a striking "disconnect" between the crude oil market and the market for its derivatives. He explained that while crude oil can still flow through the Strait of Hormuz, albeit with interruptions, refined products are not leaving the Persian Gulf, and supplies from Russian refineries are also impacted.

This "surprising phenomenon," as Pouyanné described it in an interview with France Inter, is driven by geopolitical events, including the war between the United States and Iran. The disruption at the Strait of Hormuz, which previously handled about a fifth of the world's oil and liquefied natural gas, has led to a situation where crude oil prices hover around $85 per barrel. However, diesel prices have surged above $150 per barrel.

The reason for this disparity, according to the French group's chief, lies in the logistics of transporting refined products. While crude oil tankers are large enough to absorb the additional costs associated with navigating the Strait of Hormuz amid current risks, smaller vessels carrying derivatives like diesel find the increased costs prohibitive. Consequently, these refined products are not leaving the Persian Gulf.

Adding to the supply chain issues is the ongoing war in Ukraine. Attacks on Russian refineries have caused significant damage, preventing them from supplying oil derivatives to the global market. Pouyanné emphasized that a functioning global market relies on intact supply chains, a condition currently unmet.

Despite these market pressures, TotalEnergies is continuing its initiative to cap fuel prices at its service stations in France. Pouyanné stated that the company is the only one globally doing so and intends to maintain this protection as long as the conflict persists. These price caps have cost TotalEnergies between 250 and 300 million euros but have also led to an increase in its market share within France. The company is currently limiting gasoline prices to 1.99 euros per liter and diesel to 2.25 euros per liter.