Oil prices have ebbed and flowed this summer with each new twist in the Iran war, but products made from crude — the fuels that run our world — have marched steadily higher.

Gas and diesel prices decoupled from crude in July, limiting any relief from lower oil prices, and according to economists, they are likely to stay high, even after oil starts flowing again through the Strait of Hormuz.

Why are oil product prices rising more than oil itself? That has to do with something called a “crack spread” and a series of supply disruptions that are uniquely putting the squeeze on oil product markets.

BofA Global Research describes it as a “perfect summer storm.”

“Three of the world’s four major refining hubs remain impaired for one reason or another,” said strategists in recent note.

The closure of the Strait of Hormuz and strikes on Middle East refineries during the Iran war has disrupted more than 20 per cent of global seaborne oil product trade this year. Unlike oil, the loss of these flows has not been offset by the use of pipelines, said Capital Economics.

Meanwhile, Ukraine drone attacks have knocked more than 40 per cent of Russia’s refining capacity offline, which is about three per cent of the global total. Russia is exporting more crude, but has banned gas and diesel exports and has actually been forced to import these products.

China, which has helped ease the loss of crude oil to the market by reducing its imports, has also worsened the strains of the refined product markets by cutting fuel exports, worried about its own domestic supply.

That leaves the United States as the only major refining hub “open for business,” but record exports are drawing down already tight U.S. inventories.

These supply disruptions have pushed crack spreads — the difference between the price of oil and the products that are derived from it, such as gasoline, diesel and jet fuel — to record highs. Gas prices, for example, are up 98 per cent this year, compared to the 44 per cent rise in WTI crude oil prices.

BofA strategists said the middle distillate markets have tightened rapidly, with diesel and gasoil cracks up more than 85 per cent since June and jet fuel cracks surging nearly 140 per cent.

“With the harvest season already under way, diesel demand is set to accelerate just as inventories across the U.S., Europe, and Asia sit near multi-year lows,” they said. “The result is a market that is about to enter its strongest seasonal demand period with very little margin for error, particularly because global gasoline also remains exceptionally tight.”

Capital Economics expects an increase of traffic through the Strait of Hormuz to lower the price of crude oil over the remainder of the year, but unless Ukraine pulls back from attacks on Russia’s energy infrastructure, oil product prices could remain higher well into 2027.

How is this affecting inflation?

Based on just oil prices, fuel inflation would have contributed 0.6 percentage points to headline inflation in developed economies in July, said Capital. However, because of the surge in crack spreads, fuel inflation is probably contributing closer to 1 percentage points.

Sign up here to get Posthaste delivered straight to your inbox.

Who needs income if you have wealth? That’s the thinking of Bank of America strategists who blame (in part) a smoking hot equity market for the collapse of labour force participation among older workers in the United States.

The participation rate of workers 55 or older never really recovered after the shock of the pandemic, and remained range-bound until the summer of 2024, they said. Since then it has gone downhill, as the S&P 500 gained 35 per cent over the past two years.

“The resulting surge in wealth has likely made retirement an easier choice for many,” said the strategists.

  • Today’s Data: Canada inflation for July, international securities transactions, United States Empire Manufacturing

  • Why are the U.S. and Japan trying to prop up the yen and what does it mean for Canada?
  • Clocks are ticking on mortgage refinancings
  • How can John, who must convert his RRSP to a RRIF at 71, reduce taxes if he keeps working?

Over his 40-year career, portfolio manager Tony Genua built a reputation as a steadfast believer in growth investing. In July, he came out of a brief retirement to join Ninepoint Partners LP where, as a partner and senior portfolio manager, he’ll oversee the Global Select Fund, which aims to harness the growth potential of a concentrated portfolio of international companies. The Financial Post talked with Genua about how he’ll manage the fund, his stock-picking philosophy and where he sees opportunities in the market. Read more

Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors. Sign up here.

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

Financial Post on YouTube

Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com .

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here