There was a law passed that made refinery construction or rebuilding cost prohibitive. America lost over half of its oil refining capacity over twenty years or so.
It simply isn't true.
US refinery capacity was at 18.6 million barrels a day in 1981, it's was at 17 million barrels in 2004.
The number of refineries has dropped sharply, with small ones being closed, but capacity hasn't declined much, as the larger ones have been expanded.
And that comes at a time when oil production in the US has declined very sharply. In 1994, the US was capable of refining 1.83 times it's own oil production. In 2004, the US could refine 2.35 times it's own production.
Refinery capacity isn't the problem. The problem is a large rise in demand, and production has taken some time to catch up. On top of that, uncertainty is driving prices higher, as there is no spare production capacity, and any disruption in supply (eg Iraq, Iran) will lead to much higher prices.
