Oil companies are posting record profits as fuel prices surge, prompting accusations of price gouging from Congress and a consumer backlash over higher costs at the pump.
The core issue is not crude scarcity but a tightening in global refining capacity. Geopolitical disruptions—including Russia's war in Ukraine and Middle East tensions—have hammered refinery operations. China also curtailed refinery output and fuel exports earlier this year to protect its domestic market from rising oil prices.
Goehring Rozencwajg Associates estimates global refinery runs fell by roughly 5 million barrels per day earlier this year, accounting for a significant portion of the observed decline in global oil demand.
As demand for gasoline, diesel, and jet fuel holds steady while refinery throughput falls, inventories tighten and refining margins widen. The Gulf Coast 3-2-1 crack spread—which reflects the profit margin from converting crude oil into gasoline and diesel—has recently traded far above its historical average. The U.S. diesel crack spread surpassed $100 per barrel for the first time, reaching $108. Fuel-oil inventories at major global trading hubs sit roughly 30 percent below seasonal norms.
U.S. refiners are operating near maximum capacity to address the shortfall. Refinery utilization recently hit 98 percent, the highest level since 2018, leaving little spare domestic capacity to quickly offset the global deficit.
Oil and refined products trade in competitive global markets. When geopolitical events disrupt supply, prices rise even if extraction costs remain flat. Refiners profit from these disruptions when gasoline and diesel become scarce. Record profits alone do not prove market manipulation. Gasoline prices follow a formula that includes crude oil costs, refining margins, transportation and distribution expenses, taxes, and retail margins. These components spike during supply constraints but fall during oversupply or weak demand, leading to reduced profits or losses.
The profitability has triggered calls for government action. Some lawmakers advocate a windfall profit tax on oil companies. The world's top 100 oil and gas firms reportedly generated $30 million every hour in excess profits during the early stages of the energy crisis, according to NPR. Other proposed remedies include antitrust policies in concentrated markets or caps on excess markups. Some lawmakers are pushing an ultimatum: major oil companies must either reinvest windfall profits into expanding capacity or distribute dividends to consumers to offset higher fuel costs.
