Refining Capacity Crunch Spells Record Gas Prices This Fall

Global energy markets are facing unprecedented turmoil due to the ongoing Russia-Ukraine war and Middle East conflicts, leading to a severe shortage of refined products like gasoline. Despite expectations of easing tensions in the region, crude oil prices may not be enough to offset the refining capacity crunch, potentially driving U.S. gasoline prices to record highs this fall.

The current national average retail price for regular unleaded gasoline is approximately $4.06 per gallon, a 36% increase from before the Middle East war erupted on February 27. Patrick De Haan, head of petroleum analysis at GasBuddy, warns that American drivers could face record gasoline prices around the Labor Day holiday on September 7 if the U.S. and Iran fail to reach a stable agreement on navigation through the Strait of Hormuz.

The core issue is not crude oil production cuts by oil-producing nations but rather a bottleneck in refinery capacity. Darren Woods, CEO of ExxonMobil, notes that refining capacity currently available to meet market demand is at a historically low level due to shipping disruptions and Ukrainian drone attacks on Russian refineries.