U.S. Refinery Runs Plummet: Gulf Coast Thrives as East Coast Struggles

The U.S. Energy Information Administration (EIA) reported a sharp decline in refinery crude runs in late 2025, , 2026. This marks the third consecutive weekly decline, signaling a structural shift in the refining sector rather than a cyclical dip. The data reflects a broader realignment of energy markets driven by the energy transition, regional infrastructure disparities, and evolving capital flows. For investors, this trend opens asymmetric opportunities in energy and logistics sectors, particularly in Gulf Coast infrastructure and renewable energy plays.

The Structural Decline in Refinery Runs

The EIA's data reveals a stark divergence in regional refining activity. Gulf Coast (PADD 3) refineries, with their modern infrastructure and export-oriented operations, . In contrast, , hampered by aging facilities and regulatory pressures like California's 2026 capacity cuts. This regional bifurcation is not merely a function of maintenance cycles but a reflection of long-term capital reallocation.

The decline in crude runs is accelerating due to a combination of factors:
1. : Refinery closures in California and the Midwest, such as Phillips 66's Los Angeles plant and Valero's Benicia refinery, are reducing domestic refining capacity.
2. : Transportation fuel inventories are projected to hit levels not seen since the early 2000s, tightening wholesale markets and widening crack spreads.
3. : A $2/barrel spread between U.S. and European crude prices has boosted profits for logistics firms, while refineries reliant on imported crude face margin compression.

The energy transition is reshaping capital flows, creating clear winners and losers. Gulf Coast infrastructure firms, such as Kinder Morgan (KMI) and Schlumberger (SLB), are well-positioned to benefit from sustained high utilization and demand for maintenance and upgrades. These companies are also insulated from domestic demand volatility due to their export-driven models.

Conversely, East Coast and Midwest refiners face structural headwinds. Legacy operators like LyondellBasell and Dow are pivoting toward low-carbon innovation, but their traditional refining margins remain under pressure. Investors should underweight these assets unless paired with long-term retrofitting strategies.

Renewable energy and logistics ETFs are gaining traction as capital shifts toward decarbonization. NextEra Energy (NEE) and Renewable Energy Group (REG) are outpacing traditional refiners, . Meanwhile, logistics firms like CMA CGM and Hapag-Lloyd are capitalizing on arbitrage opportunities between U.S. and European crude markets.

OPEC+ production decisions and geopolitical tensions continue to influence crude prices, which in turn affect refining margins. A prolonged decline in U.S. refinery throughput could delay Federal Reserve rate hikes by softening gasoline price pressures, creating uncertainty for energy-dependent sectors like airlines and automakers. Additionally, hurricane activity in the Gulf Coast remains a wildcard, with potential to disrupt supply chains and drive volatility.

Investment Strategy: Align with the Transition

For investors, the key is to overweight assets aligned with the energy transition while hedging against refining sector risks. Gulf Coast infrastructure and renewable energy ETFs (e.g., Energy Select Sector SPDR (XLE) and Industrial Select Sector SPDR (IYE)) offer exposure to margin-expanding plays. Conversely, legacy refiners and automakers face structural challenges and should be underweighted.

Conclusion

The sharp decline in U.S. refinery crude runs is not a temporary blip but a harbinger of a broader energy realignment. As the refining sector contracts and capital flows shift toward renewables and logistics, investors must adapt their portfolios to capture these asymmetric opportunities. The Gulf Coast's infrastructure resilience and the rise of renewable fuels will define the next phase of energy market dynamics. Those who act now to realign with this new paradigm will be best positioned to navigate the volatility ahead.