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Something odd caught my eye in the energy markets last week.
Crude oil dropped from $95 to $91 — a solid move lower. But gasoline? It kept trying to rally.
That doesn’t normally happen. When crude drops, gasoline usually follows. But this time, the two split apart like they were reading different scripts.
So I started digging. And what I found explains a lot about why your gas station prices don’t seem to care what crude oil is doing.
We Can Pump It, But We Can’t Refine It
Here’s the irony: America is now the world’s largest exporter of crude oil.
We’re pumping more oil than ever. We’ve got the supply. But over the past 10 to 15 years, we’ve been systematically shutting down refineries instead of expanding them.
Environmental regulations and clean-energy policies have made upgrading or permitting new facilities extremely difficult, and the ones still running are being pushed to their limits.
They’re operating at 92% to 94% capacity. That’s actually a high level of utilization for refineries — any higher risks breakdowns.
California alone shut down two refineries in just the past six months. And the refineries that have been shut down aren’t sitting idle.
Many have been demolished or repurposed, making a quick restart impossible. For example, the famed Philadelphia refinery — where I once worked — was shuttered and within two years became little more than a dirt lot.
To make matters worse, there’s been a pattern of refinery fires over the past several years. Whether due to bad luck, aging equipment, or something more nefarious like sabotage or espionage, frequent refinery fires add further strain to an already stretched system.
So now we’re in this bizarre situation: We export crude oil to other countries, they refine it, and we buy it back as gasoline. That’s not a supply chain — that’s a detour.
Why This Matters Right Now
This refinery shortage is why gasoline has been rallying while crude sells off. It’s simple: Plenty of crude, not enough refining capacity.
Can we fix it? Sure. There’s a new refinery being built in Brownsville, Texas.
But even fast-tracked, new refineries require two to three years just for initial operations and four to five years to ramp up fully. You can’t just pop one of these things up like a tent.
And for context, we haven’t built a new ground-up refinery since the mid-1970s. Fifty years without a ground-up refinery means infrastructure is running on borrowed time.
On the geopolitical side, while the Strait of Hormuz dominates headlines, most global oil doesn’t pass through it. Other chokepoints and supply routes remain crucial.
And refining options abroad aren’t as reliable as they once were. We’ve previously depended on refining in the Middle East and even Australia, but those options are increasingly constrained by closures and geopolitical tension.
China may have the refining muscle, but don’t expect them to bail us out. And no, a quick gasoline turnaround isn’t in the cards.
Bottom line: Even if crude oil keeps falling, don’t expect gasoline prices to follow the same path. The refining bottleneck changes the equation entirely.
And that’s the real story behind the divergence I spotted last week.
Geof Smith
Geof Smith Trading
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P.S. Wall Street’s Dirtiest Secret Yet…
I recently began sharing a secret report with my tight circle of buddies about hidden orders from Wall Street that send stocks higher within days…
Disclaimer: The trades expressed today are based on signals from the Sleeper Cell Scanner with the benefit of 20/20 hindsight unless otherwise stated. According to a backtest of 64 years of data dating back to 1962, the signals pulled by the scanner would have been 81.9% accurate on over 7,300 trade signals… No strategy is perfect, and wins are not guaranteed. There are bound to be winners and losers along the way. Since the Sleeper Cell Scanner is a tool for traders and not a trading service, profits and performance will vary among users.
