Refinery Rundown

It was not too long ago when the U.S. lacked refining capacity. Politicians complained about high gas prices yet made it almost impossible to bring them down because it was practically impossible to build a new refinery because of burdensome regulations. In the U.S., refineries were not built for decades, and as demand for fuels increased and refinery capacity was strained, it caused high gas prices in the U.S. and tight supply as refiners struggled to keep up. But the refining world has changed, and now refiners are shutting down because the demand for fuel is weak and they can’t make money. Due to top demand destruction from the Covid 19 spread and thin refining margins, the U.S. is going to see a reduction in capacity. This is a move that is being forced by the historic drop in global fuel demand but one that we will all pay for down the road. The first refinery to shut was the Holly Frontier refinery in Wyoming. Now two refineries from Marathon are going to be closed as well. Bloomberg News reports,

 “Marathon Petroleum Corp, the largest U.S. independent oil refiner, said it wouldn’t restart two refineries in California and New Mexico amid concerns that demand for fuels is unlikely to return to pre-pandemic levels this year. Marathon said in a statement it will convert its 166,000 barrel-a-day Martinez, California, refinery near San Francisco into a terminal facility and may add a renewable diesel plant to align with California’s Low Carbon Fuel Standards objectives and Marathon’s greenhouse gas-reduction targets. It will also close the 26,000 barrel-a-day Gallup refinery in New Mexico. Both refineries were idled in April as Covid-19 decimated demand for refined products like gasoline and jet fuel. Marathon said May 5 during its first-quarter earnings call that Martinez and Gallup were targeted because they are the highest-cost facilities among its 16 refineries. It assumed product demand would improve enough to restart them before the end of the year. Subsequently, gasoline demand briefly improved after a slew of states attempted to reopen their economies around Memorial Day, then stalled as Covid-19 raged anew.”
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