Global Refining Capacity Disruptions Fuel Concerns Over Elevated Gasoline Prices

Global refining capacity is facing significant disruptions due to ongoing geopolitical crises, particularly in Russia and Ukraine. The conflict has resulted in the loss of approximately 5 million barrels per day of refining capacity, exacerbating existing supply-demand imbalances.

The situation is further complicated by the war in the Middle East, which has taken another 1 million barrels per day offline. As a result, US gasoline prices may remain elevated despite the summer driving peak season coming to an end.

Patrick De Haan, head of petroleum analysis at GasBuddy, warned that if the US and Iran fail to reach a stable agreement on navigation through the Strait of Hormuz, American drivers could face record-high gasoline prices during the Labor Day holiday this year. The current average US gasoline price is around $4.06 per gallon, down from the year's high but still 36% higher than before the Middle East war.

Refiners are operating at full capacity to meet robust market demand, reaping substantial profits as a result of the wide margin between crude oil procurement costs and refined product selling prices. However, the constraints in refining have created a disconnect between crude oil prices and pump prices, with gasoline prices determined more by refining demand than by crude oil prices.