US oil refiners stretch capacity as outage risks threaten fuel markets

Refiners are postponing routine maintenance to maximise profits, but industry experts say sustained near-full capacity is neither safe nor operationally sustainable

US oil refiners have been running so hard for so long to capture record profits that they're increasingly vulnerable to equipment breakdowns at a time when global fuel markets already are unusually tight. 

Nationwide, refiners have been running at or above the 95 per cent utilization rate that's widely regarded as full capacity for almost two months, government figures showed. In at least one region, the Rocky Mountains, fuelmakers have surpassed the 100 per cent mark twice in the past few weeks, a pace that even the refining industry's main lobbying group warns is untenable.  

Churning along at maximum rates increases wear and tear on the units that pressurize, heat, crack and reformulate crude oil components to make gasoline, diesel, jet fuel and other feedstocks crucial to the smooth operation of the world's largest economy. Throw in a Gulf Coast hurricane or Great Lakes blackout and fuel production in those places can screech to a halt. 

The potential knock-on effects would hit consumers already hammered by the war-driven spike in pump prices, compounding pocketbook issues as the US midterm elections draw nigh. Running near max capacity is "raising the likelihood that equipment failures tighten fuel supply and amplify price volatility," Rapidan Energy analysts said.  

"In the real world, running refineries at 100 per cent isn't sustainable or safe for any long stretch of time," according to an American Fuel & Petrochemical Manufacturers fact sheet. "Refineries do not run at 100 per cent for long stretches of time, and they're not meant to."   

Case in point: When Hurricane Beryl lashed the Texas coast in July 2024, Gulf Coast refiners were forced to cut the amounts of crude and other feedstocks they processed by more than half-a-million barrels a day, Energy Information Administration data showed.  

Fuelmaking in the region declined for four straight weeks as damages from the storm were sorted out. Two months after Beryl, Hurricane Francine struck the Louisiana coast and processing tanked for another four consecutive weeks. 

The Atlantic hurricane season has been quiet thus far but National Hurricane Center forecasters on Friday said they were monitoring a cluster of storms in the eastern Gulf of Mexico that had a 30 per cent chance of intensifying over the next seven days. 

Now, refiners are deferring routine maintenance work to capture sky-high fuelmaking margins. Instead, some are resorting to temporary repairs even as extreme heat in some areas increases the stress of refining gear, according to the Rapidan analysts. 

Several major refiners already have postponed maintenance to keep capacity online to chase strong margins. Motiva Enterprises LLC delayed a turnaround at the biggest crude unit at its Port Arthur refinery in Texas by a year to the fall of 2027, people familiar with the operations have said. 

Any major outage could have an outsized impact because domestic fuel stockpiles are unusually low. Inventories have been strained by robust demand for US diesel to replace production lost to the conflicts in Russia and the Persian Gulf, and a drop in gasoline imports to a 29-year seasonal low.  

Equity investors, meanwhile, are cheering refiners on. Valero Energy Corp., Phillips 66 and Marathon Petroleum Corp. touched record share prices on Friday.  

Fuelmakers probably will continue to produce as much as they can to take advantage of fat profit margins, said Raul Calzada, a Houston-based refining analyst at Energy Aspects.  

"Margins should continue to incentivize refiners to run really hard probably into next year," Calzada said. "There's not a lot of maintenance in the books for second half of the year."