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High Gasoline And Diesel Prices Are Here To Stay
U.S. gasoline and diesel prices are soaring to record highs nearly every day these days, as crude oil prices hold above $110 a barrel, the Russian invasion of Ukraine upends global crude and refined product trade flows, and refinery capacity globally is now lower than before the pandemic after some refineries—including in the United States—closed permanently after COVID crippled fuel demand in early 2020. There isn't a quick fix for all-time high fuel prices in America— or elsewhere — analysts say. The quickest fix is actually not one American consumers would want — a recession that would lead to job losses.
Despite the Biden Administration's months-long efforts to lower gasoline prices — including massive releases of crude from the Strategic Petroleum Reserve (SPR) and blaming oil companies for price gouging — U.S. refineries cannot catch up with demand.
Not that demand has soared so much. It's the capacity for supply, globally and in the U.S, that is now a few million barrels per day lower than it was before the pandemic.
U.S. Refinery Capacity Lowest Since 2015
Some 1 million barrels per day (bpd) of refinery capacity in America has been shut permanently since the start of the pandemic, as refiners have opted to either close losing facilities or convert some of them into biofuel production sites. Globally, refinery capacity is also stretched thin, especially after Western buyers — including in the U.S. — are no longer importing Russian vacuum gas oil (VGO) and other intermediate products necessary for refining crude into gasoline, diesel, and jet fuel.
The fuel market is extremely tight in Europe, too, considering that many refiners refuse to stock Russian crude and suppliers shun Russian diesel, even if the EU is still struggling to reach a common stance on an embargo on Russian oil imports.
In the U.S., refinery operable capacity was at just over 18 million bpd in 2021, the lowest since 2015, per EIA data.
"As you well know, 1 million barrels of distillation capacity has exited the system since pre-pandemic," Mike Jennings, CEO at refiner HF Sinclair and Holly Energy Partners, said on the Q1 earnings call last week.
Distillate refining margins are sky high due to a shortage of refined product, he added.
