U.S. oil refineries are working harder, hustling to take advantage of supply disruptions in the Middle East
On oil refinery near the Port of Corpus Christi, Texas, in February. U.S. refineries are running their plants harder than ever.
A once-dull corner of the energy market is shining brighter than ever.
U.S. refiners are scrambling to run their plants closer to capacity than usual, as they race to supply the domestic market and to export their high-margin gasoline, diesel and other products.
Their hustle will be richly rewarded. Wall Street expects refiners' quarterly profits to triple - and in some cases quadruple - as the industry takes advantage of supply disruptions stemming from the war in the Middle East and the shipping standstill at the Strait of Hormuz.
The supply shortages have sent global gasoline and diesel profit margins surging, said Matthew Blair, an analyst with TPH & Co. Middle East refineries are running at low rates due to limits on their product exports, while Asian refineries are seeing less crude supply.
"U.S. refineries were the big winners and they raised operation rates and their own product exports," Blair said. There were challenges on the crude side from tighter discounts and other market dynamics, but strength on the product side "more than offset it," he said.
Blair sees their strength continuing into the current quarter, calling the start of the July-September period "phenomenal" for U.S. independent refiners.
Refineries operated at 96% of their capacity in the week ended July 10, according to the latest available figures from the U.S. Energy Information Administration.
A more usual pace would be around 92% to 94%, said Denton Cinquegrana, chief oil analyst at Dow Jones Energy. (Dow Jones Energy is a unit of Dow Jones, the publisher of MarketWatch.) There were some weeks in the late 1990s when run rates hovered around 99%, but refining capacity overall was lower at the time, he said.
U.S. refiners are exporting about 10% to 20% of their products, which had never happened before, said Bill Selesky, an analyst at Argus Research. More typically, they would export about 5% to 10% for their production, he said.
The U.S. has "abundant, inexpensive" crude oil that companies can use as feedstock, generating "pretty strong" margins that are not going to change soon, Selesky said.
Europe has curbed refined capacity over the past five to 10 years, and other regions of the world, such as Latin America, have underinvested in their refining capacity, Selesky said. "That's where the U.S. benefits. We have a lot of refining capacity still," he said.
Wall Street has been busy dialing up expectations for U.S. refiners' second-quarter profits and sales. Valero Energy $(VLO)$ is scheduled to kick off earnings season for the industry on July 30.
FactSet consensus calls for adjusted earnings per share of $10.13 on sales of $39.5 billion. That would be a fourfold increase in profit, compared with adjusted earnings of $2.28 a share on sales of $29.9 billion in the second quarter of 2025.
Valero is among the refiners slated to benefit the most, Selesky said. They are the lowest cost producer in the U.S., operating very efficiently and with up-to-date refining capacity, he said.
The other two major U.S. refiners, Phillips 66 (PSX) and Marathon Petroleum $(MPC)$, are slated to report a week after Valero.
Consensus for Phillips 66 calls for adjusted EPS of $7.36 on sales of $43.4 billion, which would be triple the company's second-quarter 2025 earnings of $2.38 a share. Sales that quarter came in at $33.5 billion.
Marathon is expected to report adjusted EPS of $13.67 on sales of $40.5 billion, which would compare with $3.96 a share on $34.1 billion in the year-ago quarter.
Valero's stock fell on Wednesday as oil prices slipped, but it has closed at record highs over the past five sessions. It has soared 77% in 2026, while the State Street Energy Select Sector SPDR ETF XLE has advanced 25%.
Shares of both Phillips 66 and Marathon Petroleum had also closed at record highs on Tuesday.
The U.S. and Iran exchanged more attacks on Wednesday, with the U.S. military saying its strikes were "designed to further degrade military capabilities Iranian forces have used to attack commercial shipping in the Strait of Hormuz." Two tankers were attacked on Monday, allegedly by Iran.
Oil futures dropped on Wednesday, but both London-traded Brent (BRN00) and New York-traded West Texas Intermediate (CL00) benchmarks are on pace for gains of more than 10% this week.
Concerns about rising gasoline prices weigh on the minds of U.S. consumers and revived fears of inflation.
Don't miss: How U.S.-Iran tensions are threatening to end the price break at the pump
The agreement that the U.S. and Iran signed in mid-June led to a lull in fighting - and to lower crude and retail gasoline prices. Wall Street now largely banks on an ongoing war.
"I don't think the Middle East situation gets any better from here to the end of the year. If anything, it kind of stays where it is right now, nothing gets resolved," Argus Research's Selesky said. He expects crude futures be anywhere from $70 a barrel to $80 a barrel this year.
"And if you have a $70 to $80 barrel for oil, you know, all these refining companies, they're gonna do very, very well."
Refining was not thought of as a growing business. Electricity, biofuels and other sources of energy have been taking market share as developed nations, including the U.S., become less dependent on oil.
Refining is facing a "structural" decline in demand, consulting firm BCG said last year, adding it expected global refining capacity to shrink by as much as 10% to 30% in the next decade, with the most severe reductions taking place in Western Europe and in North America.
In recent years, a few U.S. refiners have converted their crude-oil refineries to renewable-energy facilities, including an HF Sinclair's refinery in Cheyenne, Wyo., which now processes refined soybean oil and animal fats into renewable diesel and small amounts of renewable naphtha. And Phillips 66's refinery in Rodeo, Calif., also makes renewable diesel from vegetable oil.
-Claudia Assis
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(END) Dow Jones Newswires
July 15, 2026 12:15 ET (16:15 GMT)
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