August Fuel Prices Set for Record Highs Amid Global Refining Capacity Loss

This August is shaping up to be the most expensive on record for Americans at the fuel pump. The national average price of regular gas has reached $4.07 a gallon, according to the American Automobile Association (AAA), which notes that this is a record high for this time of year. While gas prices rose significantly in 2022 following Russia's attack on Ukraine, they did not reach the same record levels as seen now.

The world has lost a significant amount of refining capacity, with S&P Global reporting a loss of 7.5 million barrels per day at this point. This is due to various factors, including the destruction of oil and gas infrastructure in both the Middle East and Russia. The Houthis' targeting of facilities in Saudi Arabia is another major concern, as it further reduces global refining capacity.

The loss of refining capacity means that lower oil prices alone cannot produce lower gasoline and diesel prices. In fact, when crude prices fall, fuel prices tend to rise less than they would historically. To put this into perspective, the price of gasoline needs to drop by 8 cents per gallon today and stay there for the average August price to fall below a record high.

The situation is even more dire for diesel prices, which have reached $5.40 a gallon. U.S. diesel inventories are currently 10% below their five-year average, leading to higher wholesale prices at home. The concern now is whether refiners in the U.S. will postpone their usual fall maintenance schedules to capture record profits from high crack spreads.