Gas Prices May Stay High Due to Global Refinery Capacity Crunch
Tight refining capacity keeps fuel costs elevated despite crude oil price drops, industry experts warn.
1Global Refinery Crisis
Approximately 5 million barrels per day of refining capacity remains offline due to wars in Ukraine and Iran. ExxonMobil CEO Darren Woods links persistently high gasoline prices to this bottleneck, noting an unprecedented decoupling of refining demand from crude oil prices. The current supply-demand imbalance marks a historic shift in energy markets.
2US Price Records
AAA data shows US gas prices currently average $4.06 per gallon, down from 2026's $4.56 peak but still 36% above pre-Iran strike levels. GasBuddy analyst Patrick De Haan predicts potential Labor Day records if tensions persist in the Strait of Hormuz. The 2012 Labor Day high of $3.83 could be surpassed amid refining constraints.
3Corporate Profit Surges
Valero's Q2 profits soared 400% YoY to $3.7 billion, while Marathon Petroleum and Phillips 66 reported 300%+ increases to $5.1B and $3.8B respectively. Refineries capitalize on widening 'crack spreads' - the margin between crude costs and fuel prices. July's $70+ crack spread nearly matched crude prices per barrel.
4Asian and Middle Eastern Disruptions
Phillips 66 executive Brian Mandell reports 7M bpd refinery capacity offline in Asia/Middle East, plus 1.4M bpd in Russia. China's export halt removes 2M bpd from global markets. Ukrainian drone strikes on Russian refineries further constrain capacity. These disruptions compound existing supply challenges.
5Deferred Maintenance Strategy
Refineries postpone scheduled maintenance to capitalize on high margins. GasBuddy's De Haan notes, 'If you've got the refinery, you run it absolutely as hard as you can.' This short-term profit focus comes as crack spreads reached parity with crude prices in late July, creating unusual market dynamics.
6Hormuz Strait Risks
Exxon's Woods cites 3M bpd Middle Eastern capacity idled due to Hormuz disruptions. Marathon Petroleum CEO Maryann Mannen warns additional regional conflicts could worsen supply constraints. Even if the strait reopens, refining bottlenecks would prevent immediate price relief, creating crude-product imbalances.
7US Gulf Coast Advantage
Louisiana/Texas refiners benefit from Venezuelan crude imports and relaxed Jones Act shipping rules. GasBuddy's De Haan states, 'There's not a better place to be a refinery in the world,' highlighting the region's pivotal role in global diesel and gasoline exports amid tightening supplies elsewhere.
8Long-Term Implications
Industry leaders anticipate months-long repairs for damaged refineries amid spare parts shortages. Phillips 66's Mandell cautions, 'Refineries are going to take a good long time to get back online,' signaling sustained high gasoline prices through fall 2023. The capacity crunch may reshape energy market fundamentals.