Refinery Closures to Send US Product Inventories to 26-Year Low in 2026: EIA -- OPIS

The U.S. Energy Information Administration (EIA) has forecasted that inventories of the three largest transportation fuels—motor gasoline, distillate fuel oil, and jet fuel—will fall to their lowest levels since 2000 in 2026. This decline is primarily due to two pending refinery closures, which will reduce U.S. production of refined petroleum products. Combined with growing consumption, inventories for these fuels are expected to decline through 2026, reaching a combined 375 million barrels, the lowest since the 358 million barrels total at the end of 2000.

LyondellBasell is in the process of shutting its 290,000 b/d Houston refinery, with a target of completing the work by the end of the first quarter of the year. phillips 66 has said it will cease operations at its 139,000 b/d refinery in Wilmington, Calif., by the end of the year. These closures will lead to increased wholesale refinery margins for the three fuels, as market participants must meet demand by competing for a smaller pool of refinery production. However, these wider margins are partially offset by falling crude oil prices, leading to relatively smaller increases in retail fuel prices or even a decline in retail gasoline prices.



For gasoline, the EIA expects gasoline consumption in the U.S. to decline about 1% in 2026, following no year-over-year change in 2025, due to increased automobile efficiency and less employment growth. Even with reduced consumption, gasoline stocks are expected to fall from 237.7 million bbl at the end of last year to 229.6 million bbl by the end of 2026.

For diesel, the EIA forecasts that biodiesel and renewable diesel will comprise about 9% of U.S. distillate fuel oil consumption next year, up from 5% in 2021. Accounting for these fuels' stocks means that the United States will have around 10% more days of supply of distillate fuel than if we considered availability by only looking at petroleum distillate inventories. Even accounting for biofuels, inventories and days of supply will remain relatively low compared with historical averages.



For jet fuel, the EIA believes that jet fuel will face tight supply and demand conditions. U.S. consumption of jet fuel will rise to an all-time high next year, while reduced refinery production will decrease jet fuel inventories to low levels. When adjusted on a days of supply basis, the EIA forecasts U.S. jet fuel will decline to about 21 days of supply—the lowest since 1963. This could lead to increased competition for a smaller pool of refinery production, driving up wholesale and retail fuel prices. The aviation industry may face higher operating costs and potential disruptions in service due to fuel shortages or price increases.

In summary, the closure of LyondellBasell's Houston refinery and Phillips 66's Wilmington refinery will lead to reduced inventories, increased wholesale refinery margins, and potentially lower retail fuel prices for gasoline, diesel, and jet fuel in the U.S. However, the impact on retail prices will be partially offset by falling crude oil prices. The closure of these refineries will also lead to a decline in gasoline consumption and a tightening of supply and demand conditions for jet fuel, potentially leading to higher operating costs and service disruptions for the aviation and trucking industries.