Gas prices go up. Everyone gets mad at the president or the local gas station owner. It's a classic American tradition. But honestly, most of the noise you hear on the news about US oil and refining completely misses how the physical gears actually turn. We talk about "oil" like it’s one single thing you just suck out of the ground and pour into a tank. It isn’t. Not even close.
The United States is currently the world’s largest oil producer. That sounds like we should be set, right? Total energy independence? The reality is way more annoying and complex. We produce millions of barrels of "light, sweet" crude, but a huge chunk of our massive refinery infrastructure on the Gulf Coast was built decades ago to process "heavy, sour" sludge from places like Venezuela or the Middle East. It’s like having a high-end espresso machine when you only have coarse-ground Folgers. You can’t just swap them out overnight.
The Mismatch in US Oil and Refining Capacity
Here is the weird part: we export the good stuff and import the "bad" stuff.
Because our refineries are designed for heavy crude, US companies often ship our domestically produced light oil to overseas buyers who have simpler setups. Meanwhile, we buy heavier oil from abroad to keep our complex refineries running at peak efficiency. It’s a global shell game. If a refinery stops running for even a few days, the ripples hit your local gas station in less than a week.
Refining is basically just "cooking" oil. You heat it up in a distillation tower. The light stuff—like butane and gasoline—rises to the top. The heavy stuff—like diesel and jet fuel—sinks. But you can't just decide to make only gasoline. Physics doesn't work that way. Every barrel of oil yields a specific "slice" of products, known in the industry as the "crack spread."
Why we haven't built a new "major" refinery since 1977
People love to point out that we haven't built a massive, grassroots refinery in the US since the Carter administration. That’s technically true, but it’s also a bit of a trick. While we haven't built new sites, we have expanded the existing ones until they are absolute monsters.
Take the Motiva refinery in Port Arthur, Texas. It’s the largest in North America. They’ve expanded it so many times it can now process over 600,000 barrels per day. Why expand instead of build new?
- Permitting is a nightmare. It takes a decade of legal battles.
- The "Green" transition. If you’re an executive at Chevron or ExxonMobil, are you going to spend $10 billion on a refinery that takes 20 years to pay off when the government is telling everyone to buy EVs? Probably not.
- NIMBY-ism. Nobody wants a refinery in their backyard.
So, we are essentially redlining our current fleet of refineries. They are running at 90% to 95% capacity most of the time. When a hurricane hits the Gulf or a pipe bursts in Illinois, there is zero margin for error. Prices spike because the system is stretched thin.
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The Diesel Problem No One is Talking About
While everyone looks at the price of unleaded, the real backbone of the economy is diesel.
Everything you own was on a truck. Those trucks run on diesel. The US oil and refining sector has been struggling to keep up with diesel demand for years. Why? Because as we transitioned to "shale oil," the chemical makeup of what we pull out of the ground changed. Shale oil is great for making gasoline, but it’s actually kinda crappy for making high-quality diesel.
To get more diesel, you need those heavy crudes I mentioned earlier. But with sanctions on Russia and the collapse of the Venezuelan oil industry, the supply of that "heavy" feedstock has been tight. This is why you sometimes see diesel prices stay high even when gasoline starts to drop. It’s a structural bottleneck, not just "corporate greed."
The "Jones Act" is making your gas more expensive
Here is a specific detail most people miss. If you want to move oil from Texas to a refinery in New Jersey, you have to use a US-made, US-crewed ship because of a 1920 law called the Jones Act.
The problem? We don't have enough of those ships.
It is often cheaper for a refinery in New York to buy oil from Africa than to buy it from Texas because the shipping costs are so much lower on foreign-flagged vessels. It’s a bizarre self-imposed wound on our energy security.
Where the Money Actually Goes
When you pay $3.50 for a gallon of gas, where does it go? According to the Energy Information Administration (EIA), the breakdown usually looks something like this:
- Crude Oil Costs: About 50-60%. This is the global market price.
- Refining Costs: 15-20%. This is the cost of turning the gunk into fuel.
- Taxes: 10-15%. Federal and state cuts.
- Distribution and Marketing: 10-15%. The truck driver and the guy running the register.
Refiners are currently making decent margins, but it’s a boom-and-bust business. In 2020, during the lockdowns, these companies were losing billions. People stopped driving, tanks filled up, and prices went negative. Now, they are trying to make up for lost time and pay back the debt they took on to survive the pandemic.
Environmental Regulations vs. Production
There is a constant tug-of-war between the EPA and the refining industry.
The Renewable Fuel Standard (RFS) requires refiners to blend biofuels—like corn ethanol—into gasoline. If they can't do it themselves, they have to buy "credits" called RINs. For small refineries, these credits can cost more than their entire labor force. Some small plants in the Northeast have shut down entirely because they couldn't afford the regulatory paperwork. When a plant shuts down, that supply is gone forever. You don't just "restart" a refinery like a lawnmower. If it sits cold for a year, the pipes corrode and the talent leaves.
The Future of the American Refinery
We are starting to see a shift toward "Renewable Diesel."
Companies like Valero and Marathon are converting old petroleum refineries to process soybean oil and used cooking oil. It’s a way to keep the lights on while hitting carbon reduction goals. But don't be fooled: this stuff is expensive to make. It relies heavily on government subsidies. Without those tax breaks, renewable diesel would make your pump price look like a phone number.
The reality is that we are going to need traditional US oil and refining for a long time. Even in the most aggressive EV adoption scenarios, we still need jet fuel for planes and lubricants for machinery. There is no "electric" equivalent for the high-heat chemicals produced in a refinery that go into your phone, your tires, and your heart valves.
Actionable Insights for the Average Consumer
Understanding the industry doesn't lower the price of gas, but it can help you plan.
- Watch the "Refinery Utilization" rate. The EIA publishes this weekly. If it’s above 95%, any small hiccup—like a fire or a storm—will cause a price spike.
- Keep an eye on the "Crack Spread." This is the difference between the price of crude and the price of the finished product. If crude is flat but the crack spread is rising, your gas prices are about to jump even if "oil" isn't up.
- Don't blame the gas station. Most stations make pennies on the gallon. They want low prices because that’s when you come inside and buy a $3 bag of chips—where they actually make their profit.
- Seasonality matters. Refiners switch to "summer-grade" gasoline in the spring. It’s more expensive to make because it has lower volatility (to prevent smog). This is why prices almost always climb in April and May regardless of what is happening in the Middle East.
The US refining system is a marvel of engineering that is being asked to do the impossible: produce more fuel than ever while preparing for a future where its primary product might be obsolete. It’s a high-wire act. Next time you see the price change on that big plastic sign, remember it’s not just a number. It’s the result of a massive, aging, and incredibly precise global machine trying to balance physics, politics, and a whole lot of heavy sludge.