Bullets:
Over 8 million bpd of refining capacity is offline, damaged by wars in the Persian Gulf and Europe.
American refineries are running at nearly 100% capacity, and are taking advantage of record-high crack spreads for diesel and other fuels.
But no new refinery expansion is planned for heavy crude, which is what Canadian drillers in Alberta send South for refining.
New shipments from Venezuela are expected, which will create even more bottlenecks at US refiners.
Canada is building new pipelines to the Pacific, for offtake to China, India, South Korea, and Japan, who are desperate to source new supplies.
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Report:
Good morning.
The War on Iran, and the trade wars with everyone else, are wiping out long-standing trade relationships, and kickstarting some new ones. Canada is rapidly expanding their capacity to export crude oil to Asia, and investing heavily in new pipelines, and in upgrading their old ones. The Trans Mountain Pipeline will add 90,000 barrels per day of capacity in Q4 of this year, and by the end of 2028 will add another 210,000 barrels. That will bring total capacity to about 1.2 million barrels per day.
Canada is the 4th largest producer of crude oil in the world, and output is at record highs, and rising. The United States takes most of that—4 million barrels per day go to heavy-crude refineries, mostly in the Gulf Coast states.
And that has been a huge win for the American oil industry. Crude coming down from Canada trades at a steep discount to American crude. The Western Canada Select is the benchmark for crude out of Alberta, and it trades at $14.75 per barrel below West Texas Intermediate. So the Canadian crude is more difficult to refine, but costs far less to buy.
American refineries are set up to handle the heavy crude, so for decades they have been the logical first choice for Canadian producers, even with that steep discount to other North American grades.
But Asia also has refineries that process heavy crude, and the Iran war is causing those refiners to make phone calls to anyone with heavy crude to sell. Ships going from Canada to Asia don’t go through the Strait of Hormuz, or through the Red Sea. So Asia wants to buy, and will take whatever comes to Pacific ports through those pipelines, as soon as they get built. Westridge Marine Terminal is in British Columbia, and two-thirds of the tankers outbound there are coming here. China is the biggest buyer, with high demand also coming from Japan and South Korea, who also have heavy-crude refineries.
At the same time that Asia is anxious to find new sources of crude supply, all that Canadian crude heading south is hitting bottlenecks at American refineries. The United States isn’t building new refineries; the newest large-capacity refinery came online in 1977, at 200,000 barrels per day. So they are running all-out. Refinery utilization nationally was over 96% in July, and refineries in the Midwest and Mountain states were operating at 100% capacity utilization—literally zero slack, in other words.
Meanwhile, crude oil stocks in the United States are at the lowest points in years: the Strategic Petroleum Reserve is at levels last seen in the 1980’s.
Industry experts worry that there is no margin for error, across the entire energy complex. American refiners cannot keep up with extra demand caused by the damage to refineries across the Persian Gulf and Europe, in the wars there. And even the United States has less capacity overall, compared to last year, by 250,000 barrels per day. So high demands are placed on refiners, and even with production at all-time highs, it’s still far short of overall demand.
Naturally that leads to record profit margins for the refineries that have not been bombed. Crack spreads are over $50 per barrel on average, and for diesel it’s over $100 per barrel. So every day any refinery is taken down for routine maintenance on their equipment, it represents a huge opportunity cost; lost refining runs and lower profits. That’s a gamble, though—deferred maintenance means higher risk of catastrophic equipment failure, especially at such high utilization and run rates.
That begs the question, as to why oil companies don’t simply build more refinery capacity. That’s what the White House is pushing them to do, and if at all possible, before the midterm elections a few weeks from now. But refiners are already near 100%, so it’s not a matter of asking their crews to put in some more overtime.
The only answer is to build new refineries, and that takes years, and is not even under consideration. They’re making lots of money, today, but investors know that after spending billions of dollars for a new plant that will come online years from now, these happy days will probably be over, and crack spreads will revert to the historical mean. Nobody is even thinking about it, and even marginal increases in production is a long time off, and nobody’s even considering that, except in one case, which we’ll get to.
This is a basic fact of the oil industry today. And it also gives us a good perspective of the problems with taking on all that Venezuelan oil that is supposed to be coming in. There’s just no capacity to do the refining work. Eight million barrels a day of global refinery capacity is offline: 7 million bpd in the Middle East, and 1.4 million barrels a day in Russia.
The construction of the sole new refinery in the United States was just announced; the first since 1976. The facility planned for Brownsville, Texas does have weird implications for Canada, and for Americans who are looking for relief from high gas prices. The refinery will process 60 million barrels per year of light shale crude, which is not the heavy crude that Canada sends down.
What’s more, under the offtake agreement, the fuels will go to India. Reliance Industries in the largest private energy company in India, and they have first call on the refinery production for the next 20 years.
That means that if Canada does increase crude production, American refineries cannot take any of it, anyhow—they’re already at 100%, and the only new refinery coming will be processing light crude for export to India, where it will ironically be competing against Canadian heavy oil coming in from the new pipelines. Reliance Industries is very friendly with the White House, after paying $10 million in development fees for the right to put Trump’s name on a property in Mumbai.
So the relationship today between the Trump Administration and Reliance Industries, in India, is much more friendly than the one they’ve got with Canada. So while refineries in the United States are already choking on the crude that’s coming in, crude oil producers in Alberta are naturally looking for new markets for their increased production.
Besides the expansion of the Trans Mountain Pipeline, Canada is planning another, which will add another million bpd to Canadian oil exports. Remember that Canadian oil going to the United States is heavily discounted, against American crude. Any barrels that Canada can get to Asia will go out at a far higher price per, compared to what goes South.
That changes the economics of the Canadian oil industry. It’s expensive to build a new refinery in the United States, and it’s expensive to build pipelines across Canada.
But the only possible takers for new Canadian oil supply are in Asia, not in the United States, who can’t take in more crude from Alberta even if they wanted to. So the pivot means huge new export markets for Canada, and lower energy costs for Asia.
Be Good.
Resources and links:
Canada’s Oil Pivot to Asia Is Starting to Materialize
https://oilprice.com/Latest-Energy-News/World-News/Canadas-Oil-Pivot-to-Asia-Is-Starting-to-Materialize.html
Discount on Western Canada Select widens
https://boereport.com/2026/08/07/discount-on-western-canada-select-widens-56/
The World’s Largest Oil Producers
https://www.statista.com/chart/16274/oil-producing-countries
Asia is poised to take up 70% of Canadian oil exports, pipeline executive says
https://www.reuters.com/business/energy/asia-is-poised-take-up-70-canadian-oil-exports-pipeline-executive-says-2026-09-08/
Canada’s Oil Exporting Future: Trans-Mountain, China, Asia, and Beyond
https://www.asiapacific.ca/publication/canadas-oil-exporting-future-trans-mountain-china-asia-and-beyond
U.S. refineries running at near-record highs
https://www.eia.gov/todayinenergy/detail.php?id=36872
U.S. Refinery Utilization Reaches 96.2% as Global Fuel Markets Tighten
https://pro.edgex.exchange/en-US/news/article/us-refineries-96-percent-capacity
Is the U.S. Refining System Being Pushed Too Hard?
https://mansfield.energy/2026/09/03/is-the-u-s-refining-system-being-pushed-too-hard/
When was the last refinery built in the United States?
https://www.eia.gov/tools/faqs/faq.php?id=29&t=6
Why Oil Majors Don’t Want to Build New U.S. Refineries
https://oilprice.com/Energy/Crude-Oil/Why-Oil-Majors-Dont-Want-to-Build-New-US-Refineries.html
America First Refining is building the first new oil refinery in the U.S. since 1976. Here is what it means for the Gulf Coast.
https://www.bicmagazine.com/industry/refining-petrochem/america-first-refining-is-building-the-first-new-oil-refinery-texas/
India’s Reliance Industries paid Trump $10 million before he took office. It keeps getting wins from Trump.
https://www.citizensforethics.org/reports-investigations/crew-investigations/indias-reliance-industries-paid-trump-10-million-before-he-took-office-it-keeps-getting-wins-from-trump/
Reliance Joins $300B Texas Refinery Project Announced By Trump; 20-Year Fuel Deal Signed
Truth Social, Donald Trump on VZ oil deal
https://truthsocial.com/@realDonaldTrump/posts/117175567133618952
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