U.S. gasoline prices have moved above $4 per gallon, and ExxonMobil and Chevron expect tight supplies of diesel and other refined products to keep fuel costs elevated through the third quarter and potentially longer. The pressure could persist even if Middle East hostilities ease because the primary constraint is increasingly global refining capacity rather than crude oil availability.
Nearly 10% of worldwide refining capacity is effectively unavailable because of restricted movement through the Strait of Hormuz, Ukrainian attacks on Russian refineries and China’s fuel-export ban. Remaining facilities are operating near their practical limits: Exxon’s U.S. Gulf Coast refineries averaged 95% utilization during the second quarter, while Chevron’s U.S. refineries ran at 97%.
Strong demand and limited capacity generated substantial gains for refinery owners. Exxon produced its highest quarterly diesel volume since at least 2014 and reported $5.5 billion in refining earnings, compared with $1.4 billion a year earlier. The company described available refining capacity relative to demand as exceptionally low and cautioned that rebuilding sufficient supply will take time.
Middle-distillate markets—including diesel, jet fuel and heating oil—could tighten further as Northern Hemisphere countries replenish heating-oil inventories ahead of winter. Gasoline prices are also becoming less closely tied to crude prices and more dependent on refined-product inventories, which are approaching historically low levels.
Industry Impact
Persistently high fuel prices would raise transportation, drilling, completion and supply-chain costs across North America. Refiners and fuel suppliers stand to benefit from strong margins, while oilfield service companies, operators and industrial buyers should prepare for continued diesel-price volatility even if crude flows improve or the Iran conflict subsides.
Author: phinds