Refining Capacity Loss Drives Record Gas Prices This August

This August is on pace to be the most expensive month ever for Americans at the fuel pump. The national average price of regular gas has reached $4.07 a gallon, surpassing previous records. According to the American Automobile Association, this marks a record high for this day in history.

The increase in gas prices is largely due to the destruction of oil and gas infrastructure in both the Middle East and Russia. The world has lost 7.5 million barrels a day of refining capacity, making it difficult to turn oil into gasoline and diesel. As a result, prices have risen.

Refining capacity does not appear likely to be restored soon, and elevated prices compared with the price of oil will likely be sustained for some time. Crack spreads have reached near-record highs, contributing to the high prices. Some refiners are considering skipping their usual fall maintenance schedules to capture record profits from these high crack spreads.

There is also concern about the inflationary impact of continuing high diesel prices with no apparent end in sight as inventories continue to fall. The U.S. has been sending more diesel to countries around the world to pick up the slack, but this has led to lower domestic inventories and higher wholesale prices for diesel.