Refining constraints widen gap between crude oil and U.S. gasoline prices

Refining shortfalls, Chinese import cuts keep pump prices elevated

The Wall Street Journal analysis published Friday traced the divergence to a global refining system under severe stress. While crude prices have been partly restrained by a sharp drop in Chinese demand — the International Energy Agency reported imports of just 5.7 million barrels a day in June, down from roughly 11 million before the war — China has simultaneously reduced exports of gasoline and diesel, removing a key supply source for global fuel markets.

Emergency releases from strategic petroleum reserves have done little to fill the gap. IEA member countries released 2.4 million barrels a day in May and 1.5 million barrels a day in June, according to the agency, but the vast majority consisted of crude oil rather than gasoline or diesel. That crude still requires processing by refineries, many of which are already running at reduced capacity.

The refining bottleneck is most acute in the Middle East and Russia. Middle Eastern refineries, whose major export routes were disrupted by Strait of Hormuz closures and damage from Iranian strikes, processed just 7.6 million barrels a day in the second quarter — a fifth less than in 2025, the IEA reported. In Russia, the world’s second-largest fuel exporter, more than a quarter of refining capacity has been knocked offline by Ukrainian drone strikes. Russia last week imposed a short-term ban on diesel exports, a fuel it typically supplies at about 11% of global seaborne volume, and has begun buying gasoline from India and Belarus — a product it normally does not import.

The result is the widest gasoline crack spread in four years. Novi Labs data cited by the Journal showed the spread, which measures refiner profit margins, averaged 90 cents a gallon so far in July. Global gasoline inventories stood 3% below the trailing-five-year average as of June, a gap that is expected to widen to 4% in July. U.S. inventories are running about 8% lower than the five-year average for this time of year.

Despite tight supply, global demand has remained resilient. A Pew Research Center analysis of IEA data, cited by the Journal, found that 92 countries have introduced fuel-tax cuts, subsidies, price caps or other consumer protection measures, helping sustain consumption.

Domestic U.S. policy has added to pump prices as well. The Trump administration in March raised biofuel blending mandates to record levels for 2026 and 2027. Since most U.S. gasoline already contains the maximum standard 10% ethanol, refiners must buy compliance credits rather than blend more biofuel, driving up costs. Novi Labs estimated the embedded cost of those credits rose to 14 cents a gallon in July, up from 5 cents a year earlier.

Relief for motorists is unlikely to arrive soon even if the Strait of Hormuz reopens, the analysis concluded. Restarting shut-in crude production can happen quickly, but turning refining capacity back on takes longer, Rob Smith, global head of fuel retail at S&P Global Energy, told the Journal. A logistics bottleneck compounds the problem: crude oil travels in large vessels carrying up to 2 million barrels, while fuel products travel in smaller ships carrying tens of thousands of barrels. “It takes longer for that supply to get out of the Middle East because it travels via smaller vessels,” Smith said.

The United States does not maintain a large strategic stockpile of gasoline or diesel. President Trump could suspend ethanol blending mandates or the federal gas tax, but the Journal noted that the larger determinant of fuel prices is the global market. “There is no easy way out of high gas prices,” the analysis concluded.