High Global Fuel Prices Are About Refinery Issues as Much as Oil Supply

Written by Paul Wiseman for IIR News Intelligence (Sugar Land, Texas)

Summary

Industrial Info Resources data show that in September 2026, 12.13% of global crude and condensate capacity was offline for various reasons. It is also tracking more than 2 million barrels per day of refining capacity that could be added by the end of 2027.

Give It to Me Strait

For many around the world, the assumption is that extremely high prices for gasoline, diesel and other refined products are due to oil shortages because of Strait of Hormuz issues, where about 20% of the world's oil travels to market. And that is certainly part of the issue.

But a recent report by the Federal Reserve Bank of Dallas (Dallas Fed) shows that it's more about refinery outages than oil prices per se. The report says, "Global refinery capacity has declined by as much as 10% amid mounting transportation challenges and geopolitical tensions."

Industrial Info Resources data show a slightly higher number, said the company's Vice President, Energy Intelligence, Hillary Stevenson. "In September 2026, we show that 12.13% of global crude and condensate capacity was offline. That includes planned outages and unplanned outages due to war, weather, and other factors."

The Dallas Fed specifies things like Ukrainian drone attacks on Russian refineries, Houthi rebels in Yemen attacking Red Sea shipping, and export restrictions in China and Russia among pricing pressure issues. On top of all that, there's "a decade of minimal refinery investment..."

That lack of investment, mainly in the West, was largely because refiners there for years faced a drop in demand due to energy transition issues such as the growing use of electric vehicles.

It's in the Crack Spread

With the decline in refined product inventories due to refinery issues, the difference between oil prices and retail diesel, gasoline and jet fuel has ballooned. That difference, known as the crack spread, hasn't been this wide since 2022 after Russia's invasion of Ukraine disrupted markets.

Russia's position as third in the world in oil production and second in exports made the Ukrainian action of significant concern.

On the Bright Side

Industrial Info's Stevenson says the company's data shows "more than two million bpd (barrels per day) of refining capacity could be added by the end of 2027. All of that is under construction, giving it high probability of being completed." She cautioned, however, that construction delays are not uncommon in these projects, so some could be delayed.

Regionally, the Middle East leads the construction list with 742,000 bpd. That's followed by North Asia, mainly China, with 530,000 bpd, and South Asia--India--with 500,000 bpd in the works. There are no significant refinery projects currently in North America.

In the west, said the Dallas Fed, many older refineries closed due to "thin margins, regulatory costs, and aging facilities" as China and the Middle East built new, world-scale and efficient refineries.

The good news for the U.S. is that about half of its diesel production losses have been offset by renewable diesel and new Gulf Coast hydrocrackers processing light sweet crude.

Post-Conflict Hope?

If the Strait of Hormuz opened tomorrow, crack spreads could take years to return to normal, the Dallas Fed noted. That's because it could take years to complete worldwide refinery repairs.

Worldwide, diesel has come to the forefront as Europe has depended heavily on Russian and Middle Eastern supplies. Both of those are now in short supply, leaving Europe hanging as it has little production or refining capacity of its own. The Dallas Fed estimates that 6-8 million bpd of refinery capacity has been lost.

Data from Industrial Info Resources show that more than 8 million bpd of refining capacity was offline in September 2026, the highest level since the COVID pandemic. Of that, nearly 6.9 million bpd was offline due to Middle East Conflict and drone attacks on Russian refineries.

By the Numbers

• 12.13%: Amount of worldwide refinery output offline in September, from Industrial Info Resources data
• 2 million bpd: Amount of new capacity under construction with likely completion dates in 2027, from Industrial Info Resources data

Key Takeaways

• Higher fuel prices are affected by oil shortages, but refinery issues from drone bombings and other issues are also significant issues.
• New refineries are being built, but repairs on existing units could take years.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).