The United States experienced a steep decline in refining capacity between 1981 and the mid-1990s. Between 1981 and 1989, the number of U.S. refineries fell from 324 to 204, representing a loss of 3 million bbl/d in operable capacity (from 18.6 million bbl/d to 15.7 million bbl/d), while refining capacity utilization increased from 69 percent to 87 percent. Much of the decline in U.S. refining capacity resulted from the 1981 deregulation (elimination of price controls and allocations), which effectively removed the major prop from underneath many marginally profitable, often smaller, refineries.
Refinery closures have continued since 1989, bringing the total number of operable U.S. refineries to 148 as of January 1, 2005. In general, refineries that have closed were relatively small and had less favorable economics than other refineries in their market area. Also, in recent years, some smaller, less-economic refineries that needed additional investments for environmental reasons in order to stay in business found closing preferable because they predicted that they could not stay competitive in the long term.
While some refineries have closed, and no new refineries have been built in nearly 30 years, many existing refineries have expanded their capacities. As a result of capacity creep, whereby existing refineries create additional refining capacity from the same physical structure, capacity per operating refinery increased by 28 percent over the 1990 to 1998 period. Overall, since the mid-1990s, U.S. refinery capacity has increased from 15.0 million bbl/d in 1994 to 17.1 million bbl/d in September 2004. As of November 4, 2005, utilization of operating capacity at U.S. refineries was averaging around 84 percent, down from 91 percent on September 16, 2005 following Hurricanes Katrina and Rita.

Twenty-five major U.S. energy companies reported overall net income (excluding unusual items) of $26.0 billion on revenues of $295.1 billion during the third quarter of 2005. This level of net income represented a 69 percent increase relative to the third quarter of 2004 (see EIAs "Financial News for Major Energy Companies "). Domestic upstream oil and natural gas production operations accounted for $8.5 billion of net income, with domestic refining and marketing operations earning an additional $7.0 billion. Foreign upstream oil and natural gas production operations accounted for $7.6 billion of net income, while foreign refining and marketing operations accounted for $2.0 billion.
Independent oil and natural gas producers, oil field companies and refiner/marketers reported a sharp increase in net income (up 139 percent) during the second quarter of 2005 compared to the second quarter of 2005 (see EIAs "Financial News for Independent Energy Companies"). This increase in net income was due primarily to large increases in the prices of natural gas and crude oil, and a rise in gross refining margins of 17 percent year-over-year.

On October 13, 2005, the Wall Street Journal (WSJ) reported that Occidental Petroleum Corporation had agreed to acquire Vintage Petroleum Inc. for about $3.5 billion of cash and stock. Other recent acquisitions reported by the Wall Street Journal include: 1) Valero Energy Corp. agreed to acquire Premcor Inc. for $6.9 billion in cash and stock (reported April 25, 2005); 2) ChevronTexaco Corporation agreed to buy Unocal Corporation for about $16.8 billion of cash and stock (April 5, 2005); and 3) Marathon Oil agreed to acquire from Ashland Corporation the 38 percent of the Marathon Ashland Petroleum refining/marketing joint venture that it did not already own (March 19, 2004). Marathon reportedly paid about $3 billion (about $1.1 billion of cash and stock and the assumption of about $1.9 billion in debt) for Ashlands share in the refining/marketing joint venture. In addition to acquiring full ownership of the Marathon Ashland Petroleum assets, Marathon also acquired 61 Valvoline Instant Oil Change outlets and other related assets currently owned by Ashland.

The United States consumed an average of about 20.6 million bbl/d of oil during the first nine months of 2005, the same amount year-over-year as in 2004. Of this, motor gasoline consumption was 9.1 million bbl/d (or 44 percent of the total), distillate fuel oil consumption was 4.1 million bbl/d (20 percent), jet fuel consumption was 1.6 million bbl/d (8 percent), and residual fuel oil consumption was 0.9 million bbl/d (4 percent). For 2005 as a whole, EIAs Short-Term Energy Outlook projects that U.S. petroleum demand will decline by 16,000 bbl/d, to an average 20.6 million bbl/d, in response to the combined effects of the hurricanes and high crude oil and product prices. EIA expects motor gasoline, jet fuel, and residual demand all to remain about flat -- at 9.1 million bbl/d, 1.6 million bbl/d, and 0.9 million bbl/d, respectively. EIA expects distillate demand in 2005 to grow by about 1%, to 4.1 million bbl/d. Finally, EIA forecasts demand for "other oils" (natural gas liquids, liquefied refinery gas, other liquids, etc.) to decline by over 4%, to 4.9 million bbl/d, in 2005.