Marginal utility: Lack of new capacity leads to boom time for North America refining (Ep. 256)

The North American refining sector faces a complex supply-demand imbalance driven by geopolitical disruptions in the Strait of Hormuz and significant outages in Russian refining capacity. While historical trends suggested long-term demand destruction, current supply constraints—exacerbated by delayed Asian infrastructure projects—have pushed refining margins to record highs. North American refineries currently serve as a critical global relief valve, though tight inventories limit future export capacity. Structural shifts, including increased vehicle efficiency and evolving EV adoption, continue to reshape gasoline demand, prompting refiners to prioritize yield optimization and petrochemical feedstock shifts over new greenfield construction. Future investment remains cautious, with capital likely favoring stock buybacks and brownfield optimizations rather than large-scale capacity expansion, as the industry navigates a volatile landscape defined by geopolitical uncertainty and the long-term energy transition.