Even as the summer driving season concludes, gasoline prices in the United States are likely to stay elevated. Global refining capacity is facing a severe shortage due to conflicts in Europe and the Middle East, keeping fuel markets tight.
Currently, the average retail gasoline price in the US is around $4.06 per gallon. While this is below the 2026 peak of $4.56, it is still 36% higher than before the conflict began on February 27. An analysis by GasBuddy suggests that if the US and Iran fail to reach a stability agreement regarding the Strait of Hormuz, gas prices could hit record highs over the Labor Day weekend, exceeding the previous record of $3.83 set in 2012.
The seasonal drop in demand during autumn will provide some relief. However, the structural shortage in refining capacity may keep prices unusually high during that season. The core of the issue is capacity disruptions. Conflicts related to Iran and Ukraine have knocked out approximately 5 million barrels per day of refining capacity. Due to the situation in the Strait of Hormuz, about 3 million barrels per day of capacity in the Middle East is unavailable. Ukrainian drone strikes have idled roughly 1 million barrels per day of Russian capacity, prompting Moscow to ban diesel exports. Furthermore, China's halt to exports has removed another 2 million barrels per day from the global supply. Phillips 66 estimates that combined, around 7 million barrels per day of capacity in Asia and the Middle East, and roughly 1.4 million barrels per day in Russia, are offline.
A divergence has emerged between crude oil and gasoline prices. While crude oil prices have fallen about 10% this week to around $76 a barrel, they are still up about 14% since the start of the conflict. The increase in terminal gasoline prices, however, has been far more significant. The CEO of ExxonMobil noted that in the past, when refining capacity was ample, oil prices were primarily determined by the cost of crude oil. Now, constraints in the refining sector have created a disconnect between crude oil prices and pump prices, with gasoline being more influenced by refining demand than by the price of crude itself. Even if the Strait of Hormuz reopens, the supply of refined products may lag behind the recovery of crude oil supply.
Refiners are currently enjoying a period of high profitability. Facing a supply shortage and robust demand, they are running their plants at near-full capacity and delaying maintenance, with cracking margins exceeding $70 per barrel at one point. Valero's second-quarter profit surged more than 400% from the previous year to $3.7 billion, while Marathon Petroleum and Phillips 66 saw profit increases of over 300%. Refineries on the US Gulf Coast, benefiting from imports of Venezuelan crude and relaxed shipping regulations, have particularly flexible export options and are being described as "the best place in the world to operate a refinery."
Industry insiders believe that repairing damaged refineries will take a significant amount of time, depending on the extent of the damage and the availability of spare parts. Therefore, even if crude oil prices stabilize further, gasoline prices in autumn are likely to remain elevated due to the structural gap in refining capacity.
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