One of the arguments I have heard repeatedly during the recent surge in diesel prices is that refiners created this problem themselves by shutting down refineries. Let’s examine this claim.
The United States had 135 operable refineries at the beginning of 2020. By January 2026, according to the Energy Information Administration, that number had fallen to 130. Refining capacity also declined, from a record of nearly 19 million barrels per day in early 2020 to about 18.2 million barrels per day at the beginning of this year. Since then, Valero has idled its Benicia refinery in California, removing additional capacity.
But there is an important distinction between saying refinery closures have tightened the market and saying refiners deliberately closed profitable facilities to manufacture scarcity. Those are two very different claims.
The first is true. The second generally misunderstands how refining companies operate.
A Simple Analogy
Imagine that you own a restaurant chain with 10 locations. Nine are highly profitable. The tenth barely breaks even and periodically loses money. It also needs a major renovation that could cost millions of dollars, and even after spending that money, you aren’t confident that location will produce an acceptable return.
Your restaurant company may be very profitable overall. But that doesn’t make the tenth restaurant a good investment.
You could use profits from the other nine locations to keep subsidizing it. Or you could close it and invest that capital somewhere with better prospects. Most businesses eventually choose the latter.
Refineries work much the same way, except the numbers are dramatically larger. A refinery can require hundreds of millions or even billions of dollars in maintenance, environmental compliance, upgrades and periodic turnarounds. Its economics depend on where it is located, what crude oils it can process, which products it can manufacture, what those products are worth in its market, and how efficiently it operates.
The relevant question for a company such as Marathon Petroleum, Valero or Phillips 66 isn’t, “Is our company making money?” It is, “Does putting another dollar into this particular refinery provide an acceptable return?”
What Actually Closed?
The refinery closures of the past several years illustrate how different those circumstances can be.
The largest recent loss was the Philadelphia Energy Solutions refinery, with capacity of about 335,000 barrels per day. But its history is instructive. Sunoco had already decided to exit the refinery business there by 2012, and the plant was rescued through a joint venture with private-equity firm Carlyle Group. That ownership group filed for bankruptcy in 2018, after which control passed largely to former creditors. The refinery continued to struggle under heavy debt and structural disadvantages before a massive fire and explosion in June 2019 finally pushed it over the edge.
In other words, this was not a case of a thriving refinery being shut down to tighten supply. Multiple owners and investors tried to make the facility work over a period of years. The fire was the final blow to an operation that had already demonstrated persistent difficulty earning an adequate return.
During the pandemic, the collapse in fuel demand led to several more closures. Marathon shut its 161,000-barrel-per-day Martinez refinery in California and its much smaller Gallup refinery in New Mexico. HollyFrontier stopped petroleum refining at its Cheyenne, Wyoming facility. Several of those sites subsequently became renewable diesel facilities rather than simply disappearing as industrial properties.
Phillips 66’s 256,000-barrel-per-day Alliance refinery in Louisiana is another instructive example. Hurricane Ida severely flooded the plant in 2021. Phillips 66 evaluated repairing it, but management concluded that the required investment wasn’t justified and converted the property into a terminal instead. The company didn’t destroy a healthy refinery to create scarcity; it decided not to sink substantial additional capital into a badly damaged one.
More recently, LyondellBasell ended refining at its 264,000-barrel-per-day Houston facility in 2025 as part of a broader strategic decision to exit the refining business and concentrate capital elsewhere. Phillips 66 stopped crude processing at its 139,000-barrel-per-day Los Angeles refinery later that year, saying the facility’s long-term sustainability had become uncertain amid changing market conditions.
These are not identical stories. Some refineries were damaged. Some were old or marginal. Some were converted to renewable fuels. Others no longer fit the owner’s strategy. That is exactly what we should expect in a competitive industry containing assets of very different ages, configurations, and economics.
Fewer Refineries Doesn’t Necessarily Mean Much Less Capacity
There is another reason simply counting refineries can be misleading. The EIA data show a dramatic long-term decline in the number of U.S. refineries. There were more than 300 in the early 1980s, compared with only 130 at the beginning of 2026.
Yet U.S. refining capacity did not decline substantially. That’s because modern refineries became much larger and existing facilities repeatedly expanded. The EIA notes, for example, that Marathon’s Garyville, Louisiana refinery opened in 1977 with capacity of about 200,000 barrels per day. Today it can process more than 600,000 barrels per day. ExxonMobil similarly completed a major expansion of its Beaumont refinery in 2023.
Moreover, the EIA says small expansions at surviving refineries partially offset the approximately 400,000 barrels per day lost when LyondellBasell Houston and Phillips 66 Los Angeles shut during 2025.
So, the industry hasn’t simply been dismantling U.S. refining capacity. It has also been concentrating production in larger and generally more competitive facilities.
California Is the Exception Worth Watching
California is where refinery closures become considerably more consequential. Phillips 66 shut its Los Angeles refinery in 2025, and Valero finished idling its Benicia refinery this April. Together, those two facilities represented about 17% of California’s refining capacity before they closed.
California is especially vulnerable because its fuel market is relatively isolated. Unlike much of the country, California isn’t connected by major refined-product pipelines to the enormous Gulf Coast refining center. The state also uses unique gasoline specifications, limiting the number of outside refineries that can quickly replace lost production.
That means replacement fuel increasingly must arrive by tanker, often from Asia. The EIA has specifically warned that refinery closures therefore have a much larger potential price impact in California than an equivalent amount of capacity lost along the Gulf Coast.
But even California demonstrates why high local fuel prices don’t necessarily make every refinery an attractive investment. Refiners there face high operating and regulatory costs while long-term petroleum demand is under pressure from electric vehicles, efficiency improvements and policies encouraging renewable fuels. An owner deciding whether to invest hundreds of millions of dollars in an aging refinery has to look beyond current refining margins and consider what that market will look like 10 or 20 years from now.
Why Not Close Refineries to Raise Prices?
There is also a basic economic problem with the idea that an individual company would deliberately close a highly profitable refinery merely to increase fuel prices.
If Valero shut a perfectly good refinery producing 200,000 barrels per day, fuel supplies would tighten somewhat and refining margins might rise. But ExxonMobil, Marathon, Phillips 66 and every other refiner would enjoy those higher margins too. Valero, meanwhile, would have sacrificed the profits from 200,000 barrels per day of its own production.
That isn’t a very attractive strategy. A company generally makes more money by running a profitable refinery than by closing it and hoping the resulting reduction in national supply raises margins enough to compensate for all the production it surrendered.
That doesn’t mean refinery closures have no impact on prices. They clearly do. Every closure reduces the system’s spare capacity and makes the market somewhat more vulnerable when something unexpected happens. And plenty is happening unexpectedly today.
Russian refinery outages, attacks associated with the Ukraine war, disruptions across the Middle East and restrictions on fuel exports have simultaneously removed substantial quantities of diesel from global markets. With fewer marginal refineries available to pick up the slack, those disruptions can translate into larger price spikes.
The Big Picture
It is reasonable to ask why profitable refining companies close refineries, particularly when consumers are paying record prices for diesel. But company profitability and refinery profitability aren’t the same thing. A company can be highly profitable while owning an individual refinery that is old, inefficient, badly located, damaged, facing major capital requirements or simply unable to earn an adequate return.
U.S. refinery closures since 2020 have reduced the cushion in the system, and California in particular faces even bigger concerns as more refining capacity disappears. Those closures deserve scrutiny because a less flexible refining system is more vulnerable to the next supply disruption.
But that is very different from concluding that refiners are shutting good, profitable plants simply to manufacture scarcity. The explanation is much less sinister: Companies eventually stop putting money into assets that aren’t earning enough of it.
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