U.S. President Donald Trump told oil producers and refiners at a White House meeting this week that he wants lower gasoline prices immediately.

With gasoline prices averaging above $4 per gallon across the United States and drivers facing the most expensive Labor Day weekend pump prices on record, President Trump urged executives from Chevron, Marathon Petroleum, Valero Energy, and PBF Energy, among others, to raise refining capacity and increase fuel availability. Pump prices are a politically sensitive indicator in the United States, and the meeting comes with the mid-term elections just two months away.

The problem for the U.S. Administration is that American refiners cannot raise output in the short term. They have been running at full capacity all summer, as the U.S.-Iran war has crippled crude and fuel supply out of the Middle East and depleted global inventories after many governments, including the U.S., tapped strategic reserves to ease the worst supply disruption in the history of oil markets.

Refiners have no immediate solution to high pump prices—short of a major de-escalation and a lasting deal with Iran. And none of the significant levers that could lower U.S. fuel prices are in the hands of U.S. refiners.

No Easy Fix

At the White House meeting, the executives reportedly discussed efforts to boost existing capacity and, above all, the Renewable Fuel Standard. Some refiners criticized the blending targets as unattainable and driving up gasoline costs, sources with knowledge of the closed-door meeting told Bloomberg. The Renewable Fuel Standard requires refiners to blend biofuels such as corn-based ethanol into the fuel pool, and compliance costs have long been a point of friction between refiners and successive administrations.

Moreover, U.S. refiners are not even entertaining the idea of building new refineries to ease similar supply crunches in the long term. Despite record-high margins and sky-high profits over the past few months, none of them plan to build new crude processing facilities. Even with deep pockets and blockbuster profits this year, oil companies are unwilling to sink billions of dollars into a costly new construction venture that may not be particularly profitable when it starts up in roughly five years, as fuel demand is expected to level off and even decline. That reluctance has deep roots: no major new refinery has been built in the United States in decades, with the industry instead expanding existing sites, and the expected long-term erosion of gasoline demand from rising electric vehicle adoption and efficiency gains reinforces the case against new construction.

"Nobody's going to go out and make a huge multibillion-dollar investment based on three months of record margins," Robert Campbell, an analyst at Energy Aspects in New York, told the Wall Street Journal this week.

Maximum Capacity

Even smaller capacity additions and adjustments to current refining capacity would likely take months, and even years, to materialize and make any meaningful impact on America's gasoline and diesel prices, analysts say.

"With refineries running at the closest pace to capacity in years, there's really no more room for U.S. refiners to process more oil—Venezuelan oil or anything else... refiners have been operating over 95% all summer long," Patrick De Haan, head of petroleum analysis at GasBuddy, said this week.

Due to tight global fuel markets and peak seasonal demand, U.S. refiners have maximized utilization rates this summer. At the end of August, the total refinery utilization rate across the U.S. was 98%, with peaks of 103.5% in the Midwest and 99.8% in the Rockies, according to the EIA's weekly petroleum status report for the week to August 28. Utilization rates above 100% are possible when refiners process crude beyond stated nameplate capacity.

U.S. gasoline and diesel exports have run at record levels in recent weeks as the global fuel market tightens amid depleting inventories, supply bottlenecks in the Middle East and Russia, and peak summer demand. The soaring U.S. refinery output has helped the global market considerably and has so far prevented it from tipping into a full-blown fuel crisis. U.S. refinery utilization has run consistently above 95% for three consecutive months—the longest such run of high refinery operations since 2000.

The all-time-high crack spread "is not a crude story. It is a refining story: Somewhere between 7 and 8 million barrels a day of global refining capacity is offline, and the gap is starting to show up at the pump," said Chris Griggs, product marketing manager for Enverus Intelligence. The crack spread—the margin between crude oil and refined product prices—is a key measure of refining profitability.

Phillips 66, one of the top U.S. refiners, also sees a refining capacity deficit of more than 8 million bpd at present. Refining fundamentals are very tight and getting tighter with the issues in Russia and the Middle East, Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66, said on the Q2 earnings call in early August.

"We have 7 million barrels a day of refineries down in Asia and the Mid East and another 1.4 million barrels down in Russia. And the refineries, depending on the damage and the ability to get spare parts, are going to take a good long time to get back online," Mandell added.

Phillips 66 expects high turnarounds in 2027 and 2028 and "likely more unplanned turnarounds in the near term as refiners push work out to take advantage of the higher margins," Mandell noted—suggesting U.S. refiners cannot and will not run at current high utilization levels for much longer.

U.S. refiners are doing all they can to sustain high utilization and fuel production amid the global crude and fuel supply disruptions. But they cannot do so indefinitely, and the single biggest factor shaping U.S. gasoline and diesel prices is the price of crude oil, which has soared this year due to the U.S.-Iran war. WTI Crude traded at about $90 per barrel early on Thursday, compared with $67 a barrel on February 28—the day the U.S. and Israel launched strikes on Iran.

By Tsvetana Paraskova for Oilprice.com