Despite recent geopolitical shocks and high demand for fuel, Western oil refinery closures are projected to continue. North America and Europe are expected to lose further capacity for converting crude oil into petrol, diesel, and jet fuel, primarily due to investor reluctance to invest in new projects.
Analysts predict that European refinery capacity will decrease by approximately 20% by 2035, falling to just over 9 million barrels per day from 14 million barrels per day at the beginning of the 21st century. Similarly, U.S. oil production capacity is forecast to decline by 7% over the next decade, reaching 16.7 million barrels per day by 2035. This trend contrasts sharply with the continued growth of oil refining capacities in Asia, Africa, and the Middle East.
The closures are driven by several factors, including strict state-level environmental mandates and rising operational costs, particularly in the U.S. California, for instance, has seen significant refinery closures, forcing parts of the West Coast to rely on more expensive imports. While existing refineries in the U.S. and Europe are currently operating at near-full capacity and generating substantial profits, investors are shying away from new investments due to the anticipated long-term decline in fuel demand, partly fueled by the rise of electric vehicles. Companies like Valero and PBF Energy have not announced plans for new refining capacity, with their capital spending largely focused on maintaining or upgrading existing units.
Global conflicts have exacerbated existing capacity issues, taking over 6 million barrels per day of refining capacity offline worldwide, according to Industrial Info. The closure of the Strait of Hormuz by Iran and Ukraine's drone attacks on Russian refineries have significantly disrupted refined product supplies. Despite these disruptions and the resulting high refining margins—with U.S. diesel "crack spread" reaching a record $102.20 per barrel—the long-term outlook for Western refining capacity remains negative. U.S. and European refiners are strategically repositioning, often converting older assets toward lower-carbon business models or becoming more reliant on fuel imports.
