Close-up of Chevron sign at a gas station, showing California gas prices, in Walnut Creek, California, April 8, 2025. (Photo by Smith Collection/Gado/Getty Images)
Gado via Getty Images
This August is on pace to be the most expensive August ever for Americans at the fuel pump. The national average price of regular gas at the time of this writing is $4.07 a gallon, and according to the American Automobile Association, this is a record price for this day in history. While gas prices rose with the war in Iran, they did not reach the record levels we saw in 2022 after Russia attacked Ukraine. That does not mean you will spend less money on gas this year than you did in 2022, because while prices may not reach the peak high, they appear likely to stay elevated over a much longer period. This is due to the destruction of oil and gas infrastructure in both the Middle East and Russia.
To be more specific, the world has lost a significant amount of refining capacity, and when you cannot turn oil into gasoline and diesel, prices rise. According to S&P Global, the world has lost 7.5 million barrels a day of refining capacity at this point, and it is not getting any better as the Houthis are now targeting these same facilities in Saudi Arabia. In July, Russia, which is responsible for 10% of global diesel supply, stopped diesel exports for a month; that pause was eventually extended to the end of the year, as it is estimated that Russia has lost nearly 40% of its refining capacity. This leads to the United States sending more diesel to countries around the world to pick up the slack. As of now, U.S. diesel inventories are a full 10% below the five-year average and dropping. This is causing much higher wholesale prices for diesel here at home, and the national average price has reached $5.40 a gallon.
When this much refining capacity is lost, lower oil prices alone cannot produce lower gasoline and diesel prices. Lower crude prices can put some downward pressure on fuel prices, but not as much as we have seen historically. For the average price of gas and diesel for August to fall below a monthly record high, prices need to fall today and stay there. The price of gasoline needs to fall by eight cents a gallon today and stay there, and diesel needs to fall by forty cents a gallon and stay there. So, it appears that the records are coming. Refining capacity does not appear likely to be restored soon, and elevated prices compared with the price of oil will likely be sustained for some time as crack spreads reach near-record highs.
The next question is whether refiners in the U.S. will forgo their usual fall maintenance schedules to capture the record profits from record crack spreads. There has been concern that upcoming refinery maintenance could put further upward pressure on prices in the coming weeks. It appears that some refiners are considering putting the maintenance off for a while. There is no confirmation from any of them currently, but Shell has indicated that it expects refinery utilization to fall this quarter due to maintenance. There is also concern about the inflationary impact of continuing high diesel prices with no apparent end in sight as inventories continue to fall.
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