Why Oil Majors Don’t Want to Build New U.S. Refineries

U.S. President Donald Trump urged oil producers and refiners to raise refining capacity to lower gasoline prices during a White House meeting with industry executives. However, American refiners are currently operating at full capacity and cannot increase output in the short term due to the U.S.-Iran war disrupting crude and fuel supply from the Middle East.

This has led to record-high gasoline prices, with the average at or above $4 per gallon across the United States. Refiners are not considering building new refineries, despite record-high margins and profits, as the investment is too costly and may not be profitable when operations start up in about five years due to expected leveling off and decline in fuel demand.

Analysts say U.S. refineries have maximized capacity utilization rates this summer, with some running at 98% capacity. The refinery utilization rate has been consistently above 95% for three consecutive months, the longest such run since 2000. The issue is not a crude story but a refining story, with between 7 and 8 million barrels a day of global refining capacity currently offline, causing a refinery capacity deficit and higher gasoline prices at the pump.