The Middle East crisis appears far from over, while the energy shock has been compounded by insufficient global capacity to refine crude into petrol, diesel and jet fuel. That is bad news for almost everyone except energy producers such as Sasol, whose share price has surged about 87% this year, making it the JSE top 40’s best performer.
As one global analyst put it: “The consumer buys gasoline and diesel, not oil.” The supply squeeze began with disruption around the Strait of Hormuz, which curtailed Middle Eastern refining output and exports, but has since been compounded by problems across three of the world’s most important refining centres — the US, Russia and China.
In the US, the tight supply-demand balance reflects decades of limited capacity investment and the closure of ageing plants. American refining capacity has increased by only about 1.5% since 1982, while petrol demand has risen by almost a third, from roughly 6.8-million barrels a day to 9-million. The system has become more efficient, but it has little spare capacity when global demand for US fuel exports suddenly surges.
In Russia, Ukrainian drones are now striking refineries as far as 1,300km inside the country, curtailing processing capacity and fuel exports. Some estimates suggest as much as 3-million barrels a day — about 60% of national capacity — have been disrupted. Russia, traditionally a major refined fuel exporter, has consequently been forced to import petrol from India while restricting exports.
Then there is China, where many plants are configured to process medium-sour Gulf crude. As those supplies tightened, refiners faced higher feedstock costs just as weak domestic demand and restrictions on fuel exports were already undermining margins. Refinery runs were cut sharply.
Strategic reserves offer only limited relief because they are weighted towards crude rather than refined products. Finished-fuel stocks are also more expensive to hold, must comply with differing regional and seasonal specifications and require regular rotation. The supply squeeze is arriving at an especially awkward time, with northern hemisphere driving and aviation demand at its seasonal peak.
The result has been near-record crack spreads (the refining margins between crude and products such as petrol and diesel) exceeding $60 a barrel in some markets. At those levels, crude trading in the $80s can impose a similar burden on fuel consumers to oil above $100 under more normal refining conditions.
That helps explain why local diesel prices are rising in August while petrol prices are likely to remain flat, despite Brent briefly falling towards $70 after Iran and the US signed a memorandum of understanding in June. With oil prices climbing again as Middle East hostilities resume, further increases in September are possible. Diesel and petrol are already about 38% and 30% more expensive than before the closure of Hormuz.
For Sasol, the distinction between crude and refined product pricing is particularly important. It is often overlooked that the group is more sensitive to refining margins than to Brent itself. According to the sensitivity analysis in its 2025 results, every $1 a barrel increase in Brent adds about R642m to Sasol’s earnings before interest and taxes. A $1 a barrel increase in refining margins adds an even larger R871m.
The surge in pricing will not mean much for Sasol’s financial year to June 2026, as elevated prices affected only about three months of the period. The larger benefit, assuming margins remain high, should emerge in financial 2027.
Encouragingly, Sasol’s latest business performance update suggests that the group is becoming less dependent on external tailwinds. CEO Simon Baloyi noted that Secunda recorded its highest annual production in five years, with output rising 8% to 7.26Mt and exceeding guidance. He said the destoning project improved coal quality and kept “sinks” — unwanted rock and high-ash — below the guided range of 12%-14%. Saleable coal production edged higher, while external purchases fell 12%.
Natref fuel production rose 76% to 25.8-million barrels as reliability improved. Stronger output from Natref and Secunda lifted fuel sales by 13% and reduced external white-product purchases by 51%.
International Chemicals also started pulling its weight after a period of operational setbacks. Baloyi expects the division’s adjusted ebitda to exceed its original guidance range of $375m-$450m. In Sasol’s US projects, total sales volumes rose 20%, revenue increased 13%, and both crackers operated above nameplate capacity in the fourth quarter. The fact that the full-year basket price declined 5% suggests that the recovery was driven primarily by improved utilisation and execution rather than a favourable pricing cycle.
There were still blemishes. Oryx GTL remained offline following Middle East gas-supply disruptions, while Mozambique gas production declined 7%. But stronger operations and elevated refining margins should accelerate cash generation and help move net debt towards the $3bn threshold, where dividends can resume.
Working capital ended above guidance after Sasol built fuel inventories ahead of Natref’s first-quarter shutdown, while higher prices following the Middle East conflict increased their value. The associated cash outflow should largely reverse after year-end as those inventories are sold. Sasol also completed its financial 2027 oil-hedging programme, securing a headline Brent floor of $59 a barrel while retaining substantial exposure to higher prices.
With the US midterm elections looming in November, Donald Trump will probably do his best to secure some form of agreement with Iran, even if it proves temporary. Fortunately for Sasol, while commodity prices will always remain its principal earnings driver, the group is increasingly generating its own momentum through operational improvement and self-help measures.