President Trump pressed U.S. oil executives to lower gasoline prices immediately, but refiners have run above 95% utilization for the longest stretch since 2000, leaving no spare capacity to add. Global refining capacity offline in Asia, the Middle East and Russia is the real driver of tight fuel supply, and none of the major refiners plan to build new plants.
President Donald Trump told oil producers and refiners at a White House meeting this week that he wants lower gasoline prices immediately. But the executives he summoned run plants that are already stretched to their limit.
No quick lever to pull
With gasoline prices above $4 per gallon on average across the United States and drivers facing the most expensive Labor Day weekend gas prices on record, Trump urged executives from Chevron, Marathon Petroleum, Valero Energy and PBF Energy to raise refining capacity. However, American refiners cannot raise output in the short term. They have been running at full capacity all summer, as the U.S.-Iran war has crippled crude and fuel supply out of the Middle East and depleted global inventories after governments, including the U.S., tapped strategic reserves to ease the disruption.
Utilization already near the ceiling
U.S. refinery utilization reached 98% at the end of August, 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 to August 28. Utilization has run above 95% for three consecutive months, the longest such stretch since 2000. As a result, gasoline and diesel exports have also run at record levels even as the global fuel market tightens.
A global refining gap, not a crude problem
Phillips 66 estimates the global refining capacity deficit at more than 8 million barrels per day. Brian Mandell, the company's Executive Vice President of Marketing & Commercial, said on the Q2 earnings call in early August that 7 million barrels a day of refining capacity is down in Asia and the Middle East, with another 1.4 million barrels a day offline in Russia. He added that those refineries will take a long time to return, depending on the damage and the availability of spare parts, and that Phillips 66 expects high turnarounds in 2027 and 2028.
Why no one is building new plants
Despite record-high margins and sky-high profits over the past few months, none of the major U.S. refiners plan to build new crude oil processing facilities. A new refinery takes about five years to complete, and companies are unwilling to commit billions of dollars to a project that may not be profitable once it starts up, as fuel demand is expected to level off and even decline. Even smaller capacity additions would likely take months or years to make a meaningful dent in pump prices, analysts say.
That leaves crude prices as the single biggest factor behind gasoline and diesel costs. WTI crude traded at about $90 per barrel early Thursday, compared with $67 a barrel on February 28, the day the U.S. and Israel launched strikes on Iran.
Without a de-escalation that brings crude down, refiners have no lever left to pull.
Source: Oilprice.com
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