American refineries are basically running at full speed. In the most recent week, these facilities handled 17 million barrels of crude each day, a volume unseen since September 2019.
Midwest refineries pushed through a record 4.3 million barrels per day. The plants are cranking.
But here is the frustrated part for anyone who has filled up a gas tank lately. All that production is not going to bring down prices quickly. The reason is that global fuel supplies are still incredibly tight.
Kpler's director of commodity research, Matt Smith, offered a simple explanation. "Super-sized refining margins continue to encourage refiners to run as hard as possible, resulting in a solid draw to crude inventories."
Translation: refiners are making a lot of money right now, so they are going to keep producing at maximum capacity. But the stuff they are pulling out of storage to feed those refineries is disappearing fast.
The situation at Cushing, Oklahoma is especially telling. That is the major US storage hub where oil companies park their crude. It is holding below 20 million barrels right now, which industry folks consider the absolute minimum needed to keep the system running.
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Gasoline inventories are sitting at levels not seen since 2012 for this time of year. Distillate supplies - think diesel and heating oil - are at their lowest since 2000.
Diesel stockpiles did tick up by 1.1 million barrels last week, which is good news. But that is a tiny bump in a very shallow pool.
So why can't American refineries just solve this? Because the problem is not on the production side. It is on the global supply side.
Wars in Ukraine and Iran have knocked out significant amounts of fuel production worldwide. That is what allows refineries to charge such high prices and earn those fat profit margins Smith mentioned.
Russia has banned gasoline exports through the end of the year and is eyeing another month of its existing diesel ban. Meanwhile, shipping conditions in the Strait of Hormuz remain unclear, which adds another layer of uncertainty to already fragile markets.
US drivers are staring down $4-a-gallon gasoline. And the futures market for both gasoline and diesel is still rising.
US fuel markets still look tight. That is the short version for anyone hoping prices will drop soon.
For investors, this touches more than just your gas budget. Tight fuel markets create complications for central bankers trying to tamp down inflation. When energy prices stay high, they push up costs across the whole economy, making it harder to tamp down inflation.
Keep an eye on those storage numbers at Cushing. If they fall further, that is a warning light. For now, the system is running - but it is running with very little room for error, and your gas station is likely to keep reflecting that for a while.
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