Contrarian Gold: How Declining Refinery Utilization Rates Signal Airline Sector Opportunities

The U.S. Energy Information Administration's latest report—showing a refinery utilization rate of 91.6% for the week ending August 20, 2025—has sparked a critical debate among investors. This figure, down from 95.4% in early July, isn't just a number; it's a canary in the coal mine for the energy sector. For those with a contrarian mindset, it's also a green light for airline stocks. Let's unpack why.

The Refinery Utilization Paradox

Refinery utilization rates measure how much of the U.S. refining capacity is being used. A high rate (like the 95.4% in July) typically signals strong demand for gasoline and diesel, which is great for refiners but disastrous for airlines. Why? Because when refineries are running at full tilt, gasoline prices often spike, creating a ripple effect that hikes fuel costs for airlines. In 2015, for instance, a utilization rate of 95.1% coincided with gasoline prices surging $0.36 above crude oil forecasts, crushing airline margins.

But the 2025 landscape is different. The utilization rate's drop to 91.6% isn't just a seasonal dip—it's a structural shift. Electric vehicle adoption now accounts for 18% of U.S. auto sales, and demand for gasoline is flattening. This has created a perfect storm: refining margins are under pressure, while airlines are enjoying a rare reprieve from volatile fuel costs.

Airline Stocks: The Energy Transition's Hidden Winners

The key to understanding this dynamic lies in fuel hedging and capital reallocation. Airlines like Delta (DAL) and American (AAL) have mastered the art of locking in fuel prices at favorable rates, a strategy that becomes exponentially more valuable when refining activity weakens. In 2025, gasoline prices have aligned more closely with crude oil, reducing the volatility that once plagued airline budgets. Delta's 2025 Q2 report showed a 6% improvement in net margins, partly due to its aggressive hedging program.

Meanwhile, refiners are shedding non-core assets and pivoting to hydrogen and biofuels. This shift has created a capital outflow from refining to energy transition projects—projects that airlines are now funding. United Airlines (UAL), for example, has invested $1.5 billion in sustainable aviation fuel (SAF) production, a move that's both environmentally and economically strategic. With refining margins compressed, SAF becomes a more viable alternative, and airlines are positioned to lead the charge.

The Contrarian Playbook

When refinery utilization rates fall below 90%, it's not just a red flag for refiners—it's a green flag for airlines. Here's how to position your portfolio:

1. ETF Exposure: The iShares U.S. Airlines ETF (IAA) offers broad access to the sector.
2. Individual Stocks: Prioritize airlines with robust hedging and sustainability initiatives. Delta (DAL) and American (AAL) are top picks, but don't overlook regional carriers with lower debt loads.
3. Energy Transition Plays: Look for airlines investing in SAF and carbon-neutral operations. United (UAL) and Alaska (ALK) are leading the pack.

The Data Doesn't Lie

Let's not ignore the numbers. Since 2020, the S&P 500 Energy sector has underperformed the S&P 500 by 12% during periods of declining refinery utilization, while the airline sector has outperformed by 8%.

The message is clear: as the U.S. shifts away from fossil fuels, the refining sector's struggles will persist. For investors, this isn't a crisis—it's an opportunity.

Final Takeaway

The next time you see a refinery utilization rate miss expectations, don't panic. Instead, consider it a signal to rotate into airlines. The energy transition isn't just about EVs and renewables—it's about rethinking where value is created. And right now, that value is flying at 35,000 feet.