Shell, Exxon, Chevron warn fuel prices to stay high as refining capacity shrinks

The world's largest oil companies are sounding alarms over dwindling fuel inventories, warning that pump prices will remain elevated regardless of where crude futures trade. Shell ↗ 1.58%, ExxonMobil Exxon Mobil Corporation ↗ 1.59%, and Chevron ↗ 1.53% have each indicated in recent days that the physical oil market — where actual barrels change hands — has diverged sharply from futures prices, with refined product supplies under acute stress.

"The constraint pain point in the energy system is refining," Exxon's chief financial officer Neil Hansen told Bloomberg last week, calling it "something that perhaps the market isn't fully focused on." Shell CEO Wael Sawan told CNBC that "all the price signals" indicate the world is short on diesel and gasoline, requiring the industry to "reoptimize at the refining side."baystreet

A Structural Squeeze on Refining

Nearly 10% of global refining capacity is effectively offline due to the closure of the Strait of Hormuz, continued Ukrainian attacks on Russian refineries, China's fuel export caps, and Russia's diesel export ban, according to reporting by Fortune citing Melius Research. The Middle East, beyond being a leading crude exporter, is also a major exporter of refined products, with 11.7 million barrels per day of refining capacity in the region difficult to bring back online while shipping routes remain disrupted.cnn+1

U.S. refineries are running near physical limits to compensate. Exxon's Gulf Coast facilities operated at 95% utilization in the second quarter, Chevron's at 97%, and Shell's topped 102% — rates that cannot be sustained indefinitely, particularly with maintenance season approaching in September.baystreet

Diamondback Energy: 'Largest Supply Shock in History'

Diamondback Energy ↗ 0.62%, reporting second-quarter results on August 2, described the Iran conflict as "the largest supply shock in the history of the global oil market." CEO Kaes Van't Hof said global production fell by 13.6 million barrels per day and inventories declined at an accelerating pace of roughly 4.6 million barrels per day in May. The company posted revenue of $5.56 billion, beating consensus estimates, and raised full-year production guidance.247wallst+2

Van't Hof argued that even if geopolitical tensions ease, "the restocking required to rebuild global inventories has structurally raised the floor for oil prices compared to pre-conflict prices."247wallst

Shrinking Buffers

TD Economics warned in an August 4 report that the mechanisms used to absorb the supply shock — inventory drawdowns, strategic reserve releases, rerouted flows, and softer demand — are largely exhaustible. The U.S. Strategic Petroleum Reserve stands at roughly 310 million barrels, its lowest since 1983, down from approximately 700 million barrels before the 2022 release program. Gasoline stocks remain about 7% below their five-year average, while distillate inventories sit roughly 10% below.economics.td

"Fall is particularly difficult, kind of like a perfect storm right now," Hannah Hurckes of Boss Lady Logistics told the Wall Street Journal News Corp ↘ 3.58%, citing the convergence of harvest demand, early heating season, and war-driven diesel constraints.baystreet