Motorists face a costly fall as refining capacity losses from Iran and Ukraine keep gasoline prices elevated even with U.S. crude near $76 a barrel.
U.S. drivers should not expect much relief from high gasoline prices after the summer driving season ends, because a global shortage of refining capacity will keep fuel unusually expensive through the fall, Patrick De Haan, head of petroleum analysis at GasBuddy, said.
Motorists are paying about $4.06 a gallon, down from the 2026 high of $4.56. Pump prices remain 36% above the level on Feb. 27, the day before the U.S. and Israel attacked Iran, according to AAA data.
De Haan said pump prices could set a Labor Day record if Washington and Tehran do not reach a stable agreement on the Strait of Hormuz. The current record for the holiday is $3.83 a gallon, set in 2012.
Prices should ease a bit when seasonal demand softens, De Haan said. The easing will be limited because the wars in Iran and Ukraine have taken roughly 5 million barrels a day of refinery capacity offline, Valero Chief Operating Officer Gary Simmons said on the company's earnings call last week.
"Refining fundamentals are very tight and getting tighter with the issues in Russia and the Mideast," Brian Mandell, executive vice president for marketing at Phillips 66, said on the refiner's Wednesday earnings call.
The tightness in refining explains why fuel has stayed expensive while crude oil has fallen sharply from this year's highs, ExxonMobil Chief Executive Darren Woods told CNBC's "Squawk Box" on Friday. In the past, ample refining capacity meant gasoline prices tracked the cost of oil. Today, refineries are the bottleneck, and Woods said that has created a "disconnect between crude prices and pump prices." Gas prices are now set by demand for refining, not by crude oil.
"That's one of the reasons why we haven't seen crude rise as quickly as people have thought, or we didn't see product prices fall as crude prices came down, because there is this disconnect in the marketplace," Woods said.
U.S. crude futures have plunged about 10% this week to trade near $76 a barrel after President Donald Trump teased a possible deal with Iran to increase traffic through the Strait of Hormuz. Oil prices remain up 14% since the start of the conflict, while retail gasoline has climbed 36% since Feb. 27.
Refiners are reaping the benefit. The crack spread, the difference between what refiners pay for crude and what they get for gasoline and diesel, surged past $70 in late July, almost as much as a barrel of crude cost at the time. Some refineries are postponing maintenance to take advantage of the elevated margins, De Haan said.
"If you've got the refinery, you run it absolutely as hard as you can," he said.
Valero's second-quarter earnings jumped more than 400% from a year earlier to $3.7 billion. Marathon Petroleum more than tripled profit to $5.1 billion, and Phillips 66 climbed to $3.8 billion, each up more than 300%.
On AlphaScala's proprietary scoring, Phillips 66 holds an Alpha Score of 64 with a Moderate label, while Marathon Petroleum scores 53 with a Mixed label.
Gulf Coast refiners have an extra edge: imports of Venezuelan crude and a Jones Act waiver that loosens the rules for shipping fuel between U.S. ports. They can export gasoline and diesel to whoever pays the most right now, De Haan said.
"Those refineries down the Louisiana and Texas coast, they have the most options in the world," he said. "There's not a better place to be a refinery in the world. The world is your oyster."
Global refining capacity available to meet demand is as low as it has ever been, Woods said. About 3 million barrels a day of Middle East capacity is offline because of the Strait of Hormuz disruption, he said.
"With respect to Persian Gulf conflict, the Middle East refineries have really been slow to come back online," Marathon Petroleum Chief Executive Maryann Mannen said on the refiner's earnings call Tuesday. "Any further disruption in the region could cause further supply constraints to evolve."
Ukrainian drone attacks have knocked out about another million barrels a day of Russian refining capacity, Woods said, prompting Moscow to ban diesel exports.
"Ukraine is being very effective at knocking Russian oil refineries offline," De Haan said.
China has also stopped exporting refined products, removing another couple of million barrels a day from the market, Woods said.
Phillips 66 estimates 7 million barrels a day of capacity is down in Asia and the Middle East, with 1.4 million barrels a day offline in Russia, Mandell said. Even if Hormuz reopens, crude supply would outpace product supply because the refineries cannot restart quickly.
"The refineries, depending on the damage and ability to get spare parts, are going to take a good long time to get back online," Mandell said.
Prepared with AlphaScala editorial tooling from the source reporting linked above. Indexable analysis may include a cited Alpha Score value. Publishing checks screen each story before release. Educational coverage, not personalized advice.