U.S. fuel shortage looms as refineries shut down

The United States is on course to experience its lowest fuel inventories in more than two decades, according to the latest Short-Term Energy Outlook from the U.S. Energy Information Administration (EIA). The agency forecasts that stocks of the country’s three main transport fuels—petrol, distillate fuel oil, and jet fuel—will fall to 375 million barrels by the end of 2026, the lowest level since 2000, when inventories stood at 358 million barrels.

This decline is being driven by a combination of increasing fuel consumption and reduced domestic production, exacerbated by the closure of two major refineries.

Refinery closures to hit fuel supply

Two significant U.S. refineries are set to shut down, reducing the country’s refining capacity and further straining fuel supply:

• LyondellBasell Houston refinery – The 263,776-barrel-per-day (b/d) facility began shutting down on 27 January 2025, with full closure expected in February.
• Phillips 66 Los Angeles refinery – This 138,700-b/d refinery is scheduled to cease operations by the end of 2025.

As a result, U.S. refinery output is forecast to decline by 190,000 b/d in 2025 and a further 180,000 b/d in 2026. With fewer refineries in operation, the U.S. will have to rely more on fuel imports and existing stockpiles to meet demand.

Rising demand and supply pressures

Despite advances in vehicle fuel efficiency, demand for distillate fuel oil and jet fuel remains strong. Industrial growth and increased air travel are expected to drive further consumption, making the supply situation even tighter.

To offset declining refinery capacity, U.S. refineries are expected to operate at high utilisation rates, while net fuel exports may be reduced to prioritise domestic supply. However, these measures may not be sufficient to prevent further inventory depletion.

Potential impact on prices

With a tightening fuel supply and rising demand, fuel prices could come under upward pressure, impacting both consumers and businesses, the EIA projects. Petrol prices are forecast to decline slightly, averaging USD3.10 per gallon in 2026, but any supply disruptions could push prices higher.

In addition to domestic factors, global oil market trends, including OPEC+ production policies and geopolitical risks, could further influence U.S. fuel prices.

With fuel inventories reaching historic lows and refinery closures reducing domestic production, the U.S. faces increasing supply constraints in the coming years. Unless new refining capacity is added or demand slows significantly, fuel supply challenges are likely to persist, potentially leading to further price volatility and economic impacts.