American oil refineries are running full tilt to meet insatiable demand for gasoline and diesel at home and abroad.
Refineries processed a record-high 18 million barrels of crude per day in early July, according to government statistics. Full-year refinery activity is expected to hit a record in 2018 for the second year in a row.
The flurry of refinery activity reflects a big increase in driving this summer as the US and global economy strengthens.
"Gasoline demand is strong because of full employment. The economy is chugging along pretty well," said Matt Smith, director of commodity research at ClipperData.
The amount of motor gasoline delivered in the United States is expected to match the record-high of the last two summers, according to the US Energy Information Administration. A near-record 9.7 million barrels per day of motor gasoline was delivered in early August.
The good news for American drivers is that the surge of refining -- and a recent drop in oil prices -- has kept gasoline below $3 a gallon. The national average is currently sitting at $2.86 per gallon, according to AAA. While that's up about 22% from a year ago, it's down from the peak of nearly $3 ahead of Memorial Day weekend.
'Run as hard as they can'
Refineries have a major financial incentive to process as much oil as possible. The profit margin on gasoline -- the difference between crude oil and gas prices -- has risen sharply over the past year. Ditto for the profit margin on diesel.
"Profitability is strong. That is encouraging these guys to run as hard as they can," said Smith.
The US Gulf Coast, the epicenter of America's refineries, reached a new record in early July by processing 9.5 million barrels per day.
Some of that gasoline and diesel fuel is getting shipped overseas. That's despite the eruption of trade tensions and tariffs between the United States and major trading partners such as China and the European Union. The government said US exports of diesel and other fuels reached a four-week average of 1.2 million barrels per day in early August.
The spike in refinery activity wouldn't be possible without the US shale oil boom. The United States is pumping more oil than ever and may soon surpass Saudi Arabia and Russia as the world's No. 1 producer.
"There's no shortage of crude barrels to put into refineries and turn into valuable products," said Dylan White, an oil markets analyst at energy research firm Genscape.
Not hurting from Tesla
US refineries are not maxing out just yet. The EIA noted that refinery utilization as a percentage of capacity has yet to surpass the record set in 1998. Instead, the increase in activity reflects expansions made to existing refineries in recent years.
Refineries typically take a breather after August for scheduled maintenance as the summer driving season winds down. Last August, the Gulf Coast was hit by a wave of refinery outages following damage caused by Hurricane Harvey.
The fact that refineries have never produced so much gas shows that the industry has yet to get squeezed by the rise of Tesla (TSLA) and electric vehicles broadly.
Global sales of electric vehicle sales have more than tripled since 2014, but they still account for just 1.2% of total vehicle sales, according to the International Energy Agency.
"Electric vehicles are the future," said ClipperData's Smith. "It's just not going to happen in the next few years."
