How Washington's refining plan could end the scarcity behind Big Oil's boom

Petrol prices are once again a fixture of America's political weather, and they are high for a reason that is easy to misread as bad luck or foreign mischief. American refining capacity is scarce, and it is scarce by design: the residue of four decades of steady closure. In the first half of 2026 that scarcity minted money. Marathon Petroleum, the country's largest refiner, earned $17.73 a share in the second quarter against $3.96 a year earlier; Valero earned $12.54, beating a consensus of $10.13. Both stocks have more than doubled since January. It is at the peak of this windfall that the White House has chosen to intervene, weighing a plan to expand refining capacity under the Defense Production Act. The remedy is aimed at the scarcity. The trouble is that the scarcity is the making of the windfall — and that, for years to come, the remedy would most plausibly pay the people pocketing it.

A scarcity four decades in the making

The numbers tell the story of a shrinking industry. Operable US refining capacity stood at 18.2 million barrels a day at the start of 2026, about one per cent lower than a year before. Three closures account for most of the fall: LyondellBasell's Houston refinery (264,000 b/d) in March 2025, Phillips 66's Los Angeles plant (139,000) in October, and Valero's Benicia refinery (145,000), which stopped refining in March 2026. The number of operable refineries, which peaked at 254 plants in 1982, has slipped toward 130. California expects to be down to eleven by the end of the year, against 23 in 2000.

None of this is an accident, and only some of it is policy-driven. Refining has for years been a poor business: capital-heavy, brutally cyclical and now freighted with the risk that the underlying demand for fuels simply fades. A large new refinery is a 30-year bet on a market the future increasingly distrusts. Small plants shut for want of margins; genuine "grassroots" refineries are all but a thing of the past in the developed world. Retiring capacity was the rational corporate answer to an industry with too much of it.

The result is a market that now runs flat out. Refineries have operated above 95% of capacity for eleven straight weeks, the longest such stretch in more than a quarter-century, and refining margins have topped $50 a barrel — more than double the ten-year average. The firms that own the remaining plants capture the scarcity entirely.

The state offers a remedy — and pays the winners

Enter the Defense Production Act, a statute built for wartime procurement and now enjoying a busy retirement in energy policy. On 20 April 2026 the White House issued a determination under section 303 declaring petroleum production, refining and logistics "industrial resources" essential to the national defence, citing an "unusual and extraordinary threat" to the economy and national security. The determination waives much of the act's usual requirements and instructs the energy department to make purchases, purchase commitments and "financial instruments" to expand capability. The DPA fund, supplied with several billion dollars over recent years and topped up with $1bn in the big budget law, underwrites the effort with loans, loan guarantees, grants and offtake agreements.

The honest reading of that machinery is that its nearest effect is to subsidise the people already profiting. The cheapest "new" capacity is capacity that already exists: restarting idled plants, widening bottlenecks, reviving sites the market had written off. Marathon idled two of its refineries years ago; Valero idled Benicia this year. Government backstops, plus the removal of the commercial downside of running a plant hard, lower the cost of turning those assets back on. Call it capacity policy; it resembles a subsidy to incumbents at a moment of record margins.

The administration is not naive about this, and it is not the whole story. The DPA also carries real powers to direct output — prioritising jet fuel and diesel, ordering plants to keep running even when maintenance or margins would say otherwise — and since 2025 the energy department has offered antitrust cover for refiners that co-ordinate under its supervision. That is the state inserting itself into the running of an oligopoly, with all the legal friction such an intrusion invites; California is already suing over a related attempt to restart an offshore oilfield.

A wager against the windfall

The deeper tension is about the future. For the scarcity rents to survive, capacity must stay scarce. Yet the entire logic of the DPA intervention is to make capacity less scarce, to bring down the fuel prices those rents depend on. If Washington's money ever persuades anyone to build a large new refinery — or simply keeps running the plants it has revived for decades — the effect, eventually, is the return of the normal, thinner margins that killed refining as a growth business.

For an investor that is the whole question of time. Nothing now on the books threatens the near-term arithmetic. The plants run flat out, maintenance is being deferred to protect output, and the structural lack of capacity keeps margins high even if geopolitical tensions fade. Marathon and Valero's shareholders collect the windfall while their consensus — AInvest's aggregate signal labels both stocks a Buy — catches up with the boom. That is precisely the point at which windfalls become fragile: when the easy gains are priced in and the policy climate turns against them.

The American state has decided, in effect, to make a long-term bet against the scarcity that currently enriches its largest refiners — and to pay those refiners, in the meantime, to help it happen. Both sides of that transaction, the subsidy today and the competition tomorrow, fall on the same handful of companies. Investors should read the DPA not as a repair of an accident but as the first organised resistance to a windfall, funded by the winners' own tax dollars. The scarcity made refining's fortune; Washington now wants to end it. The only questions are who gets paid to do so, and how long the scarcity holds out.