economy
Gas prices could remain high this fall even if crude prices stabilize. Here's why
The refining market is very tight due to the Ukraine and Iran wars, keeping gas prices elevated even as crude prices fall.
TL;DR
- Global refining capacity is significantly reduced due to conflicts in Europe (Ukraine war) and the Middle East (Iran tensions).
- Wars have shut down approximately 5 million barrels per day of refining capacity.
- Refining fundamentals are tight, leading to a disconnect between crude oil prices and gasoline prices.
- Refiners are experiencing record profits due to high crack spreads (the difference between crude oil cost and product sales price).
- Some refineries are delaying maintenance to maximize operations in the current profitable environment.
- Geopolitical events, including attacks on Russian refineries and potential disruptions in the Strait of Hormuz, are contributing to supply constraints.
- China's cessation of exports has also removed significant refining capacity from the market.
- Even if crude oil prices fall or diplomatic resolutions occur, refining constraints are expected to keep gas prices high for an extended period.