Our colleague, Tim Plaehn, wrote an interesting article this week titled: “Here’s how to profit off the gasoline price spike.”

In case you haven’t noticed, the price of gasoline at the pump has been going up lately. According to AAA, a gallon of gasoline is $3.88—its highest level since October 2022.

One reason for the price increase is that the price of crude oil has moved back above the $95-per-barrel level after Saudi Arabia announced further cuts in its oil output. However, there is a more important reason for the move higher in gasoline, diesel, and other mid-distillates: there is a shortage of refinery capacity in both North America and Europe.

This means it’s a great time to be a company that refines oil…

Refiners’ Record Profits

In fact, the International Energy Agency (IEA) said in its last oil market report that refiners were enjoying “near-record profits.” Here is what the IEA said:

A third wave of refinery capacity closures, conversions to biofuel plants and project delays since the pandemic reduced the overhang in global refinery capacity. This, combined with a sharp drop in Chinese oil product exports and an upheaval of Russian trade flows, resulted in record profits for the industry last year (2022).…

Refiners may need to shift their product yields towards middle distillates and petrochemical feedstocks to reflect changing demand patterns. Demand for petroleum-based premium road transport fuels, such as gasoline and diesel, is 1 mb/d below 2019 levels at the end of the forecast period. At the same time, robust petrochemical activity and slower growth in natural gas liquids (NGLs) supply raises demand for refinery-supplied LPG and naphtha…Close alignment with petrochemical plant feedstock needs could leave middle distillate markets very tight by 2028.

So, while we may have some temporary lulls, it looks like the middle distillates markets will remain tight for years to come.

The top U.S. oil refiners planned to run their plants in the third quarter at up to 95% of their combined 17.9 million barrel-per-day capacity, according to industry executives and analysts.

The U.S. refining industry has been running at above 90% of capacity for more than a year on strong gasoline and diesel demand—and high profit margins. Refiners remain optimistic about the ongoing bull run due to projected sustained strong demand growth and low inventory levels. Profit on processing a barrel of crude oil at a typical U.S. refinery has jumped by about a third year to date!

U.S. oil refining companies said, during their second quarter earnings presentations, that strong global demand for fuels and low product inventories are driving robust profits. U.S. distillate fuel oil inventories were 23 million barrels, or 16% below the prior ten-year seasonal average in August. And the deficit to the ten-year average has…

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