Oil Majors Cash In On War-Driven Profits Amid Global Refining Capacity Crunch

Big Oil companies are reporting record profits due to high gas prices and war in Iran. Chevron, BP, and ExxonMobil have seen their quarterly profits soar, with Chevron posting its highest ever quarterly profit. The price of crude oil is up 28% this year, but the price of gasoline has risen even more, by 51%. This discrepancy suggests that refining margins are not just a result of high input costs, but also a hefty markup.

The Iran war has reduced Middle Eastern refinery output by 27%, and Ukraine's attacks on Russian refineries have further restricted global supply. As a result, refining capacity has become the bottleneck restricting fuel supply, even as some countries stabilize crude prices with reserve releases. The International Energy Agency's executive director Faith Birol noted that refinery activity and product supplies have not kept pace with crude deliveries.

The market power of Western oil refiners has been enhanced by these events, allowing them to pass on increased input costs and markups to consumers. This is a departure from the usual supply shock explanation for high gas prices. Economist Hal Singer predicted this outcome in March, citing the impact of geopolitical events on refining margins.