Global Conflicts Squeeze Refining Capacity, Fuel Prices Set to Stick Around
High fuel prices are expected to persist due to global conflicts that have severely impacted refining capacity, according to ExxonMobil Holdings and Chevron. The wars in Russia and the Middle East have knocked off nearly 10% of the world's ability to refine crude oil, with key chokepoints such as the Strait of Hormuz largely closed.
The consequence is that refineries left operational are running at full capacity, unable to produce more fuel even if the oil is available. This has led to record-high fuel-making margins for refinery owners but increased costs for consumers.
In the US, the average price of gasoline has risen above $4 a gallon, with retail gasoline prices only 10% below their peak in May despite a 26% drop in West Texas Intermediate (WTI) oil prices. Refining 'is obviously the bottleneck in the petroleum system right now, and margins are exceptionally high,' said Neil Mehta, an analyst at Goldman Sachs Group.
ExxonMobil's Gulf Coast refineries ran at a utilisation rate of 95% in the second quarter, while Chevron's US facilities ran even harder, at 97%, showing there is little room for error. The trend is evident across the industry, with Shell running its refineries at 102% in the period but expecting this to drop due to scheduled maintenance.