What’s That: Refinery Utilization

When fuel prices rise, crude oil often gets most of the attention. However, another factor plays a major role in determining the availability and cost of gasoline, diesel, and jet fuel: refinery utilization.

Refinery utilization measures how much of the nation’s refining capacity is being used to turn crude oil into refined products. While it may sound like an industry metric reserved for analysts, refinery utilization can have a direct impact on fuel supply, inventories, and ultimately the prices businesses pay at the pump.

What Is Refinery Utilization?

Refinery utilization refers to the percentage of a refinery’s available processing capacity that is currently being used. In simple terms, it measures how hard a refinery is working.

The calculation is straightforward:

Refinery Utilization = Actual Crude Throughput ÷ Operable Refining Capacity

For example, if a refinery can process 500,000 barrels of crude oil per day but is currently processing 450,000 barrels, its utilization rate is 90%.

Although a 100% utilization rate may sound ideal, refineries rarely operate at full capacity for extended periods. Facilities require routine maintenance, equipment inspections, and periodic turnarounds to maintain safe and reliable operations. Unexpected equipment issues and weather events can also temporarily reduce production.

Why Does Refinery Utilization Matter?

Refinery utilization directly affects the amount of fuel available to the market. When utilization rates rise, refiners produce more gasoline, diesel, and jet fuel to meet demand. When rates decline, fuel production falls, which can tighten inventories and contribute to higher prices.

Several factors can cause utilization rates to decrease, including planned maintenance, severe weather, equipment failures, power outages, and unplanned refinery shutdowns. Historically, the market had enough excess refining capacity to absorb many of these disruptions. Today, that cushion is much smaller.

When this article was originally published in 2023, the U.S. refining industry had recently benefited from capacity additions, including ExxonMobil’s Beaumont expansion. Since then, the landscape has changed. Refinery closures and conversions to renewable fuels have reduced U.S. operable refining capacity to approximately 18.2 million barrels per day.

While that decline may appear modest, even relatively small reductions in refining capacity can significantly reduce the industry’s ability to respond to supply disruptions. Simply put, there are fewer backup barrels available today than there were just a few years ago.

At the same time, refiners have been running hard. During recent summer driving seasons, refinery utilization rates have climbed into the mid-90% range and have approached 96%, levels that are above historical averages. These elevated operating rates reflect strong fuel demand and favorable refining margins, but they also mean there is very little spare capacity available if a major refinery unexpectedly goes offline.

Why Refinery Utilization Matters More Today

Refinery utilization has become a much more closely watched indicator because fuel markets have become increasingly sensitive to disruptions.

Recent geopolitical tensions in the Middle East, unplanned refinery outages, and relatively low gasoline and distillate inventories have highlighted how dependent the market is on the remaining refining system. When utilization rates are already elevated, even a temporary refinery outage can tighten supplies and move prices higher.

The refining landscape has also changed as several traditional petroleum refineries have been converted to produce renewable fuels. Facilities such as Phillips 66’s Rodeo Renewable Energy Complex have shifted production toward renewable diesel. While these conversions support the growth of lower-carbon fuels, they also reduce the amount of traditional refining capacity available to produce gasoline, diesel, and jet fuel.

As a result, every remaining barrel of conventional refining capacity has become increasingly important.

How Does Refinery Utilization Affect Fuel Prices?

Refinery utilization can have a significant impact on fuel prices because it directly influences supply.

Higher utilization rates generally lead to increased fuel production, which can help build inventories and relieve upward pressure on prices. Conversely, lower utilization rates can reduce fuel production and tighten supplies, particularly if inventories are already low.

This relationship becomes even more important during periods of strong demand. If refiners are already operating near their limits, there may be little opportunity to increase production further in response to an unexpected outage or a sudden increase in consumption. In these situations, prices can react quickly as the market adjusts to tighter supply conditions.

For businesses that rely on fuel, monitoring refinery utilization alongside inventory levels and refinery outage reports can provide valuable insight into potential market risks and supply conditions.