Global fuel markets remain very tight and inflexible despite higher flows out of the Persian Gulf in recent weeks, Russell Hardy, chief executive of the world's biggest independent oil trader, Vitol Group, said on Tuesday.

"It's pretty, pretty tight and inflexible out there as far as the market is concerned," Hardy told the Asia Pacific Petroleum Conference, held by S&P Global Energy in Singapore, referring to the fuel market.

Globally, refined product inventories are "still drawing," Hardy said, as reported by Bloomberg.

"We're still not running enough refining capacity to prevent those draws, and we keep eating into the surplus that exists around the world," Vitol's top executive added.

According to analysts, the real stress in the oil markets lies in the downstream. Despite the uptick in flows from the Strait of Hormuz, only 1 million barrels per day (bpd) out of an estimated 10 million bpd of outbound flows are refined products; the rest is crude. That imbalance matters because crude passing through the strait does little to relieve shortages of diesel, jet fuel, and other refined products; only refining capacity can do that, and that capacity is exactly what is under strain across major producing regions.

Refinery capacity in the Middle East is constrained by Iranian strikes on refineries and the trickle of fuel flows through Hormuz. In Russia, refinery capacity is also severely restricted by near-daily Ukrainian drone strikes, while Russia has banned diesel exports until at least the end of September. Russia has historically been one of the world's largest diesel exporters, so its withdrawal from that market removes a key supply cushion at a time when other exporters are already stretched.

Refineries in the United States have been running at maximum capacity this summer after delaying maintenance. At the end of August, the total refinery utilization rate across the U.S. stood at 98%, with peaks of 103.5% in the Midwest and 99.8% in the Rockies, according to the EIA's weekly petroleum status report for the week ending August 28. Such high rates are considered unsustainable, as maintenance at these facilities will need to be carried out at some point, sooner rather than later. A structural backdrop compounds the pressure: U.S. refining capacity has declined over the past several years as a number of facilities have closed, leaving less headroom than in previous cycles.

The re-escalation in the Middle East and the Russian ban on diesel exports have pushed middle distillate cracks to record highs this month. Middle distillate cracks, the spread between refined product prices and crude oil prices, are a key indicator of refining profitability, and record levels signal how scarce supply of fuels like diesel and heating oil has become relative to the crude feedstock.

"The global refining system has little slack to make up for the disruptions we are currently seeing," ING's commodities strategists Warren Patterson and Ewa Manthey wrote in a note last week.

What traders and analysts will be watching in the weeks ahead includes whether U.S. refiners can sustain near-maximum utilization before forced maintenance, whether the Russian diesel export ban is extended beyond September, and whether product inventories continue to draw down into the heating season.

By Tsvetana Paraskova for Oilprice.com