An Overview of the U.S. Oil Refinery Industry
- Ralph A. Cantafio
- Jun 20, 2025
- 5 min read
Updated: Jun 30, 2025
What Is Crude Oil and How It Gets to Refineries
Crude oil is a naturally occurring mixture of hydrocarbons found in underground reservoirs. It serves as the raw material for many petroleum products, including gasoline, diesel, jet fuel, heating oil, and petrochemical feedstocks. Once extracted, crude oil must be transported to refineries for processing. In the United States, approximately 58 percent of crude oil is transported via pipeline, which is the most efficient and cost-effective method over long distances. Other transportation modes include rail, truck, barge, and tanker ships, depending on geography and infrastructure. Key logistical hubs such as Cushing, Oklahoma, serve as major nodes in the national pipeline network and also function as pricing benchmarks for crude types like West Texas Intermediate (WTI).
Refinery Locations and Capacity Trends
As of January 2024, the United States has approximately 132 operable petroleum refineries with a collective crude distillation capacity of 18.38 million barrels per day (bpd). These facilities are predominantly located along the Gulf Coast in states like Texas and Louisiana, as well as in California. Together, these regions account for a significant share of the country’s refining capability. Refinery capacity peaked in 2019 at 18.98 million bpd but declined during the COVID-19 pandemic due to reduced demand and temporary shutdowns. Since then, capacity has slowly recovered. For example, ExxonMobil’s expansion at its Beaumont, Texas facility added 250,000 bpd in early 2023. Utilization rates, which had dropped to around 78 percent during the pandemic, have now rebounded to about 94 percent as of mid-2025. Looking ahead, the U.S. refining landscape is expected to see modest growth primarily through incremental capacity additions and reactivations of idled units. Given environmental regulations and capital constraints, construction of new large-scale refineries is unlikely. Instead, the industry
is witnessing a gradual shift toward renewable fuel production and conversion of older facilities to produce biodiesel or sustainable aviation fuel. Projections suggest that total refining capacity will likely remain within the range of 18.5 to 19.5 million bpd over the next decade.
Understanding the Crack Spread
The crack spread is a key indicator of refinery profitability. It represents the difference between the cost of crude oil and the market prices of refined products such as gasoline and diesel. Refiners calculate this margin to determine whether it is economically viable to process crude into particular products. One of the most common benchmarks is the 3:2:1 crack spread, which assumes that three barrels of crude oil are refined into two barrels of gasoline and one barrel of ultra-low sulfur diesel (ULSD). Other regional variations, such as California’s 6:3:2:1 ratio, reflect different regulatory environments and product slates. To calculate the crack spread, product futures prices (quoted in dollars per gallon) are converted to dollars per barrel and summed, then the crude oil futures price is subtracted. For example, if gasoline is trading at $2.00 per gallon and diesel at $2.50 per gallon, the total product value from three barrels of crude might be around $225, while the crude itself may cost $180, resulting in a $45 per barrel crack spread.
Gasoline Prices and Refining Economics
While crude oil prices are a fundamental input cost, they do not directly determine the price of gasoline at the pump. The refining margin—the crack spread—plays a major role in shaping gasoline prices. High crack spreads typically indicate strong demand or tight supply of refined products, prompting refineries to increase output. Conversely, if margins shrink, refiners may scale back production, leading to tighter supply and higher prices. Additionally, regional inventories, maintenance shutdowns, and unexpected outages can influence local gasoline prices more than crude oil benchmarks. In short, gasoline prices are the result of a complex interplay between crude oil costs, refinery economics, operational decisions, and regional market dynamics. Therefore, it is possible for gasoline prices to rise even when crude prices fall, especially if refining margins are high due to strong demand or constrained capacity.
Regulatory Framework for U.S. Refineries
The U.S. refinery sector is subject to a broad range of regulations at the federal, state, and local levels. At the federal level, the Environmental Protection Agency (EPA) enforces the Clean Air Act, which includes programs such as the Renewable Fuel Standard (RFS) and Tier 3 fuel standards aimed at reducing emissions. Occupational safety regulations are administered by the Occupational Safety and Health Administration (OSHA), including the Process Safety Management (PSM) rule and Chemical Facility Anti-Terrorism Standards (CFATS). State governments often impose additional regulations, especially in jurisdictions with stricter environmental policies. California, for instance, enforces its own low-carbon fuel standards and air quality requirements through the California Air Resources Board (CARB). These standards
necessitate more complex refining processes, which can influence both costs and output configurations. States also oversee permitting for new construction and enforce best available control technology (BACT) standards for emissions. At the local level, municipalities may require zoning approvals, implement community air monitoring programs, and establish ordinances governing noise, odors, and emergency planning.
These local regulations often reflect community concerns about safety, environmental impact, and quality of life. The cumulative impact of these regulatory layers significantly shapes refinery operations, influencing everything from siting and capacity decisions to product mixes and capital investments. Compliance can be costly, but it also drives innovation and improvements in safety and environmental performance.
Conclusion
The U.S. oil refinery industry remains a critical component of the nation’s energy infrastructure, converting domestically produced and imported crude oil into the fuels and chemicals that power the economy. While total capacity has plateaued near pre-pandemic levels, refiners are adapting to evolving market conditions, shifting policy landscapes, and the growing push toward cleaner fuels. The crack spread continues to be a key determinant of both production strategies and consumer fuel prices. Ultimately, the future of the refining sector will depend on its ability to navigate regulatory demands, technological change, and energy transition dynamics.
References (Chicago Style)
U.S. Energy Information Administration (EIA). "U.S. Number and Capacity of Petroleum Refineries 2024. https://www.eia.gov.
U.S. Energy Information Administration (EIA). U.S. Refinery Utilization and Capacity.
Accessed June 2025. https://www.eia.gov.
EIA. “An Introduction to Crack Spreads.” Today in Energy, 2009.
CME Group. “Introduction to Crack Spreads.” Education Articles.
EIA. “What Drives Petroleum Product Prices: Prices and Crack Spreads.” 2025.
Reuters. “US Oil Refining Capacity Rises for Second Year in a Row.” June 14, 2024.
Reuters. “US Crude, Fuel Stockpiles Rise as Refining Ramps Up, EIA Says.” June 5, 2024.
Wikipedia contributors. Petroleum refining in the United State. Wikipedia, The Free
Encyclopedia. Last updated 2025.
Wikipedia contributors. Petroleum in the United States. Wikipedia, The Free Encyclopedia.
Last updated 2025. https://en.wikipedia.org/wiki/Petroleum_in_the_United_States.
FasterCapital. “The Ultimate Guide to Understanding Crack Spreads: Gasoline Edition.” April 2025. https://fastercapital.com
Comments