Energy Transition and the Refinery Utilization Paradox: Navigating Sector Shifts in a Diverging Market

The U.S. Energy Information Administration's (EIA) weekly refinery utilization rate has long served as a barometer for the health of the oil and gas sector. Yet in 2025, this metric has taken on a paradoxical role: while utilization rates hover near record highs (93.3% as of August 30), they signal a structural decline in refining margins driven by the energy transition. This divergence between operational capacity and profitability is reshaping investment strategies, with capital flowing away from traditional refiners and into sectors poised to benefit from shifting demand patterns.

The Refinery Utilization Rate: A Double-Edged Sword

The EIA's data reveals a steady climb in utilization rates from 90.5% in early August to 93.3% by month's end. On the surface, this suggests robust demand for refined products. However, the reality is more nuanced. The 18% adoption rate of electric vehicles (EVs) in U.S. auto sales has eroded gasoline consumption, while overcapacity in refining operations has compressed margins. Major refiners like Valero (VLO) and Marathon Petroleum (MPC) have responded by shifting capital from expansion to asset divestitures and mothballing older facilities.

Historical data underscores this trend. In 2020, Marathon's stock plummeted by 27.38% amid pandemic-driven demand collapse, while Valero's shares mirrored the sector's struggles. By 2021–2022, both companies rebounded as refining margins improved, but 2024–2025 brought renewed volatility. Marathon's stock, for instance, peaked at $213.36 in April 2024 but closed 2025 at $161.73—a 17.26% annual gain but a far cry from its earlier highs. This volatility reflects the sector's struggle to adapt to a world where refining margins are increasingly decoupled from utilization rates.

The Airline Sector's Counterintuitive Resilience

While refiners grapple with margin compression, the airline industry has emerged as an unexpected beneficiary. The EIA's utilization rate of 93.3% in 2025 has kept gasoline prices in line with crude oil, avoiding the spikes that historically hurt airline margins. Delta and American Airlines, for example, improved net margins by 4–6 percentage points in 2025 through strategic fuel hedging. United Airlines' $1.5 billion investment in sustainable aviation fuel (SAF) further positions it as a leader in the energy transition.

The iShares U.S. Airlines ETF (IAA) has outperformed the S&P 500 Energy Index by 12% year-to-date in 2025, a trend rooted in historical patterns. When utilization rates drop below 90%, capital typically shifts from refiners to energy transition plays. The 42-day market reaction window following such a “miss” has historically triggered bearish moves in oil and gas and bullish momentum in aerospace. For instance, a 2015 utilization rate of 95.1% coincided with a gasoline price spike that cut airline margins by 4–6 percentage points. In 2025, however, the high utilization rate has stabilized fuel costs, allowing airlines to capitalize on hedging and SAF investments.

Strategic Reallocation: From Refiners to Energy Transition Plays

Investors are advised to underweight oil refiners, particularly those in overutilized regions like the Gulf Coast, and overweight industrial conglomerates and energy transition beneficiaries. Caterpillar and 3M, for example, are seeing renewed demand for emissions-control technologies and retrofitting services. Energy transition ETFs, such as the iShares U.S. Airlines ETF, and biofuel producers like Renewable Energy Group, are also gaining traction.

However, the path to a green future is not without risks. While airlines tout ambitious SAF goals, many projects remain unfulfilled. Of 165 SAF initiatives announced since 2012, only 36 have materialized, with technical and feedstock challenges persisting. United Airlines' recent termination of a contract with World Energy highlights the sector's fragility. Political uncertainties, such as the potential return of a Trump administration, could further complicate regulatory support for green energy.

Conclusion: Navigating the Arithmetic of the Energy Transition

The EIA's refinery utilization rate is no longer a simple indicator of sector health—it is a lens through which to view the broader energy transition. As refining margins compress and demand for ICE vehicles wanes, capital is reallocating to sectors that align with decarbonization goals. Investors must balance optimism for energy transition plays with caution regarding execution risks. Overweighting airlines and industrial decarbonization firms, while underweighting overleveraged refiners, offers a compelling strategy in this diverging market.

In the end, the key to success lies in understanding the arithmetic of the energy transition: where demand is shifting, and who is best positioned to capture its value.