Oil Refining Boom Masks Deeper Industry Fragility

The current golden era in oil refining is temporary and driven by exceptional circumstances. The Iran war has led to record-high refining margins for gasoline, diesel, and jet fuel due to limited access to crude and attacks on refineries. Western oil majors have retreated from the sector over the past two decades, but the recent disruptions have improved their profitability.

The US, which emerged as a major fuel supplier during the conflict, operated at 97% capacity in July, with BP's refining-indicator margin climbing to $30 per barrel in the second quarter. Exxon and Chevron also reported strong downstream profits, while Shell's refining network ran at 102% utilisation.

However, most of these pressures are likely to ease as the industry's problems cannot be repaired immediately. Fixing damage to dozens of refineries will take months or years, and global spare refining capacity remains exceptionally thin.