"I don't think there will ever be another oil refinery built in the U.S." said the CEO of the oil giant. There isn't enough refining capacity to meet the demand for gasoline, jet fuel, and diesel even if oil producers increase their production. Even if oil companies pump more crude oil, prices will stay high.
It's good news for the refining industry. It shows that refining margins will remain strong. That could allow refining stocks to keep producing good results.
The image came from the same source as the one above.
The average price for a gallon of gas in the US is $4.75. This year's level is 45% higher than last year's. There isn't an easy solution to high gas prices. There are other factors that contribute to the surge in gas prices.
The refining margins have increased recently. Even though international air travel and Chinese consumption aren't back to their pre-pandemic levels, there is still red-hot demand for refined product from Russia and China. The price at the pump is influenced by the higher margins and refining is the second- largest input cost.
The image is from the EIA
Changes in oil prices have less impact on prices at the pump as refining margins increase.
Even if the oil companies increased their crude oil production, it wouldn't make a big difference in the price of gas. New refining capacity cannot be added quickly.
The U.S. will never build another refinery. The current environment makes it impossible for an energy company to build a refinery. "You're looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world don't want these products to be used in the future." It doesn't make sense to build a refinery if a company is willing to commit time and money.
Demand for refined products is strong and there is no new capacity coming down the pike. In the first quarter, that was the case for the U.S. business. $486 million of earnings was reported by the company. Higher demand allowed Chevron to increase its refinery run to take advantage of higher margins.
Energy companies that focus on refining made more money. Marathon's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from refining and marketing in the first quarter was over a billion dollars. In the year-ago period, that figure was $23 million. Marathon used more of its available capacity in the first quarter of 2020 than it did in the first quarter of the previous year.
Marathon Petroleum Corporation The refining market improved in the first quarter, and Valero was able to take advantage of it. The year-ago period saw an adjusted loss of $506 million.
With refining margins only improving in recent weeks, the industry appears poised to produce an even bigger earnings gusher in the next quarter. Most of the windfall will go to enriching investors, since refining isn't spending capital on increasing their traditional refining capacity. The fuels of the future are the focus of most of the refinery's activities. Marathon formed a joint venture to build a $2 billion renewable fuels project while Valero accelerated the expansion of its Diamond Green Diesel project.
A new refinery has not been built in decades. The current environment makes it unlikely that it will build another one in the near future. There isn't a quick solution to capacity issues.
It suggests that the refining industry should continue to thrive. Chevon will benefit from the current market conditions, but refining is a small part of its operations. If you're looking to cash in on the current refining boom, you might want to consider pure-play refining companies like Valero or Marathon. If refining margins stay strong, they have more upside potential.
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