Exxon CEO: Gas Prices Won't Fall Until Refinery Capacity Restored
ExxonMobil Chairman and CEO Darren Woods recently delivered a blunt message about what's coming for gas prices in the US. In an interview on CNBC, he stated that there is a disconnect between crude oil prices and pump prices at the gas station.
This disconnect means that Americans should not expect relief at the pump, even if crude oil prices fall. Woods explained that pump prices are being established by the supply and demand of refined petroleum products, not crude oil itself.
The reason for this disconnect is a refinery constraint. Historically, refineries had excess supply, which meant that pump prices tracked crude prices closely. However, due to disruptions in Middle Eastern exports and global refineries scrambling to fill the gap, there is now a shortage of refined products such as diesel and gasoline.
This shortage shows up in retail pump prices even if WTI crude has not risen proportionally. In fact, data from the EIA confirms this trend, with on-highway diesel retail prices averaging $5.313 per gallon, up $1.508 more than one year ago, while regular gasoline averaged $4.096 per gallon, up $0.973 year-over-year.
To resolve this issue, Woods stated that refineries need to get capacity restored and back into the marketplace. This can happen by reopening the Strait of Hormuz or by China increasing refined product exports into global markets.