U.S. gasoline prices have crossed $4 a gallon, presenting a political challenge for President Trump ahead of the November midterm elections

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HOUSTON — Top U.S. oil producers ExxonMobil and Chevron warned Friday that global supplies of diesel and other refined products will likely remain tight, leading to persistently high fuel prices in the second half of the year as the Iran war continues to cause major energy disruptions.

Both companies reported large jumps in second-quarter refining profits as declining fuel stockpiles combined with curtailed exports from China and refinery outages in Russia drove higher margins.

‘We’re Running Out of Time’

“We’re going to see some upward pressure on product pricing … into the third quarter and perhaps beyond that,” Chevron CEO Mike Wirth said during an earnings call, adding that demand for distillates including diesel and heating oil is unlikely to decline over the long term.

Wirth warned that the threat to oil supplies in the Middle East has expanded beyond the Strait of Hormuz at a time when global inventories are falling. Iran’s Houthi allies in Yemen have extended the conflict to the Red Sea, which has become a crucial alternative route for Saudi Arabia’s oil exports.

“The situation is under stress and I’m afraid it’s going to continue to do so,” Wirth told CNBC. “We’re running out of time. Every day that goes by, the situation gets more difficult.”

Exxon CEO Darren Woods said it is critical that shipping resumes through the Strait of Hormuz to supply more crude to the market. “The utilization that we’ve seen can’t be sustained for the long term. So I think this refining challenge is going to be with the world for a while,” he said on CNBC.

Soaring Profits Amid War

Chevron’s net income soared to $12 billion in the second quarter, a nearly 400% increase compared to $2.5 billion in the same period last year. Adjusted earnings came in at $6.06 per share, 50 cents higher than Wall Street’s estimates.

Exxon posted profits of $14.5 billion for the quarter, more than doubling from about $7.1 billion in the same quarter last year. Adjusted earnings of $3.52 per share missed analyst estimates by 8 cents, with Woods attributing the shortfall to difficulties in forecasting prices amid the disruption in global crude and products markets.

U.S. crude oil futures had an average closing price of $92.45 per barrel from April through June, a 27% increase over the first quarter. Chevron’s U.S. production hit an all-time high of about 2 million barrels per day, while Exxon’s upstream production reached its highest level in more than 20 years.

High Production, But Challenges Remain

Both companies said they are doing everything they can to keep output high. Exxon ran its U.S. refineries at high capacity and had a record second quarter for diesel production, while Chevron reported record throughput at its U.S. refineries of more than 1 million barrels per day.

However, refiners must complete necessary maintenance, and Chevron said downtime in the third quarter was expected to hit downstream earnings by $175 million to $225 million.

While Exxon’s adjusted downstream earnings rose to $4.1 billion, some investors may have expected even stronger refining results given the company’s large refinery footprint, RBC Capital Markets analyst Biraj Borkhataria said in a research note. Exxon narrowly missed consensus estimates for second-quarter earnings, while Chevron surpassed expectations. Exxon shares were down 1%, while Chevron was up about 2%.

Political Implications

The rising margins and profits are occurring as U.S. gasoline prices crossed $4 a gallon again last week, presenting a political challenge for President Donald Trump and the Republican Party, which will be campaigning to hold onto majorities in Congress in the November midterm elections.

On Thursday, U.S. prices stood at $4.10 per gallon, about 31% above year-ago levels, according to the American Automobile Association. Oil prices ricocheted from $68 to $115 a barrel during the quarter, driven by supply and demand dynamics amid the conflict.

The war between the U.S. and Iran has led to an unprecedented supply shock due to the virtual closure of the Strait of Hormuz, a critical chokepoint for global oil shipments. While a ceasefire had previously translated into sharply lower crude prices, the latest war escalations have sent prices surging again.