Gas Prices May Stay High This Fall Despite Crude Stabilization
· investing
Refining Reality: Gas Prices May Not Ease Up Despite Crude Stabilization
The notion that gas prices will plummet once crude oil stabilizes is a comforting narrative, but it’s about to get a hard reality check. A perfect storm of refining capacity constraints is brewing, and it won’t be fixed overnight.
While the summer driving season may have ended, don’t expect pump prices to drop significantly anytime soon. According to Patrick De Haan, head of petroleum analysis at GasBuddy, U.S. drivers could see gas prices hit a Labor Day record if Washington and Tehran fail to reach an agreement on the Strait of Hormuz.
The global shortage in refining capacity is largely due to ongoing conflicts in Europe and the Middle East. The Iran and Ukraine wars have shut down refineries with a staggering 5 million barrels per day of capacity, as pointed out by Valero Chief Operating Officer Gary Simmons on his company’s earnings call last week.
Motorists are currently paying around $4.06 for gas, which is still 36% above what prices were before the U.S. and Israel attacked Iran in 2026. ExxonMobil CEO Darren Woods described this disconnect between crude prices and pump prices as a defining characteristic of our refining landscape.
In the past, refineries operated efficiently, churning out gasoline and diesel to meet demand. However, today they’re struggling to keep up due to capacity constraints. This has led to bumper profits for refiners, who are running their facilities at or near full capacity to meet robust demand while supply is short.
The margins between crude oil input costs and product sales prices – known as the crack spread – have surged past $70 in late July, almost matching the price of a barrel of U.S. crude at the time. Some refineries have even delayed maintenance to cash in on these elevated profits, according to De Haan. “If you’ve got the refinery, you run it absolutely as hard as you can,” he said.
While refiners are reaping the benefits, motorists are left footing the bill for this refining reality check. With about 3 million bpd of capacity unavailable due to disruptions in the Middle East and another 1 million barrels per day knocked offline by Ukraine’s drone attacks on Russian refineries, it’s no wonder that gas prices remain stubbornly high.
It’s not just a matter of waiting for Hormuz to reopen or for refineries to come back online. The refining capacity available to meet demand is at an all-time low, with about 5 million bpd of capacity offline in Asia and the Middle East, according to Phillips 66 estimates. Any further disruption in the region could cause supply constraints to evolve even more.
A potential deal between Washington and Tehran may not bring relief to gas prices as quickly as expected. As De Haan noted, “Ukraine is being very effective at knocking Russian oil refineries offline.” China’s decision to stop exporting has also removed another couple million barrels per day from the market.
In short, this refining crisis won’t be resolved anytime soon. Motorists would do well to prepare for a prolonged period of high gas prices, and investors should take note that refiners are here to stay – and make money while doing so. As Woods said, “The world is your oyster” – but only if you’re a refinery owner right now.
As the global energy landscape continues to shift, one thing’s for sure: it’s time to get real about refining reality. Gas prices may not ease up just yet, and that’s a hard pill to swallow.
Reader Views
- TLThe Ledger Desk · editorial
"The looming threat of refinery shutdowns and capacity constraints should prompt policymakers to rethink their priorities. Instead of solely focusing on oil price stability, they should address the bottlenecks in refining infrastructure, which are as much a constraint on supply as geopolitics. A coordinated effort to upgrade or expand existing refineries could yield more tangible benefits for consumers than just relying on global market fluctuations."
- LVLin V. · long-term investor
The market's narrative on gas prices is often driven by crude oil stabilization, but that's just half the story. What gets lost in translation is the complexity of refining capacity constraints, which are set to persist regardless of oil price fluctuations. The disconnect between crude costs and pump prices is indeed a defining characteristic, but let's not overlook the elephant in the room: refiners' stranglehold on product sales pricing. They're raking it in due to robust demand and supply shortages – so don't expect pump prices to drop significantly anytime soon.
- MFMorgan F. · financial advisor
The article hits on the main issue: refining capacity constraints. However, it neglects to mention that these bottlenecks are exacerbated by the increasing complexity of modern refining operations. Many refineries are struggling to adapt to shifting fuel standards and blending requirements, leading to reduced efficiency and further straining capacity. This isn't just a matter of supply and demand – it's also about infrastructure and operational preparedness. We can't rely solely on higher profits for refiners to drive innovation in this space; policy changes and investment in modernization are equally crucial for bringing prices down.