Refinery Shutdowns, Growing Demand Could Send Fuel Inventories to 25-year Low

Refinery closures combined with growing demand for gasoline, diesel, and jet fuel are about to start squeezing available volumes—and this squeeze is about to become marked next year. That’s according to the Energy Information Administration, which warned this would plunge inventories to the lowest levels since 2000.

Two refineries are set to shut down this year, the EIA said in the latest edition of its monthly Short-Term Energy Outlook. One is in Houston, and the other in Los Angeles. The Houston facility, owned by LyondellBasell, which has already begun the process of the shutdown, has a capacity of 263,776 barrels daily. The Los Angeles refinery, property of Phillips 66, can process 138,700 barrels of crude daily. The closure of these two would reduce fuel production capacity in the country by 400,000 barrels daily.

The refining industry globally has been experiencing the effects of a declining supercycle even though demand has continued to grow, and, as confirmed by the EIA, this growth will continue. Even so, the record margins of 2022 and 2023 are gone now. Before the new cycle begins, some belt-tightening is in order.

U.S., refiners

In the U.S., refiners were also subjected to additional pressure during the Biden administration to join the federal government’s climate change-oriented energy policy and switch to biofuels from petroleum fuels. In California, specifically, pressure has been strong, both on the federal and state level, with the government in Sacramento recently demanding from refiners in California to keep a certain level of fuel inventories to avoid price spikes that the refiners themselves attribute to the state government’s energy policies seeking to phase out vehicles using petroleum fuels.

The closure of the Phillips

The closure of the Phillips 66 refinery in Los Angeles is one consequence of that policy. There are even reports that California authorities are considering refinery nationalizations to secure the supply of fuels to drivers in the state. Two refineries in California have already converted to biofuel production plants because biofuel production fetches generous subsidies from the state government: Phillips 66 is closing the L.A. facility by the end of this year, and Chevron and Valero are also considering shutdowns.