Connect with us

Hi, what are you looking for?

News

Why is there a worldwide oil-refining crunch?

RAWPIXEL

Drivers around the world are feeling pain at the pump with fuel prices soaring, and costs are surging for heating buildings, power generation, and industrial production. 

Prices were already elevated before Russia invaded Ukraine on Feb. 24. But since mid-March, fuel costs have surged while crude prices are up only modestly. Much of the reason is a lack of adequate refining capacity to process crude into gasoline and diesel to meet high global demand. 

HOW MUCH CAN THE WORLD REFINERIES PRODUCE DAILY? 

Overall, there is enough capacity to refine about 100 million barrels of oil a day (bpd), according to the International Energy Agency (IEA), but about 20% of that capacity is not usable. Much of that unusable capacity is in Latin America and other places where there is a lack of investment. That leaves somewhere around 82–83 million bpd in projected capacity. 

HOW MANY REFINERIES HAVE CLOSED? 

The refining industry estimates that the world lost a total of 3.3 million barrels of daily refining capacity since the start of 2020. About a third of these losses occurred in the United States, with the rest in Russia, China, and Europe. Fuel demand crashed early in the pandemic when lockdowns and remote work were widespread. Before that, refining capacity had not declined in any year for at least three decades. 

WILL REFINING PICK UP? 

Global refining capacity is set to expand by 1 million bpd per day in 2022 and 1.6 million bpd in 2023. 

HOW MUCH HAS REFINING DECLINED SINCE BEFORE THE PANDEMIC? 

In April, 78 million barrels were processed daily, down sharply from the pre-pandemic average of 82.1 million bpd. The IEA expects refining to rebound during the summer to 81.9 million bpd as Chinese refiners come back online. 

WHERE IS MOST REFINING CAPACITY OFFLINE, AND WHY? 

The United States, China, Russia and Europe are all operating refineries at lower capacity than before the pandemic. U.S. refiners shut nearly one million bpd of capacity since 2019 for various reasons. 

Nearly 30% of Russia’s refining capacity was idled in May, sources told Reuters. Many Western nations are rejecting Russian fuel. 

China has the most spare refining capacity, refined product exports are only allowed under official quotas, mainly granted to large state-owned refining companies and not to smaller independent companies that hold much of China’s spare capacity. 

As of last week, run rates at China’s state-backed refineries averaged around 71.3% and independent refineries were around 65.5%. That was up from earlier in the year, but low by historic standards. 

WHAT ELSE IS CONTRIBUTING TO HIGH PRICES? 

The cost to carry products on vessels overseas has risen due to high global demand, as well as sanctions on Russian vessels. In Europe, refineries are constrained by high prices for natural gas, which powers their operations. 

Some refiners also depend on vacuum gasoil as an intermediate fuel. Loss of Russian vacuum gas oil has prevented certain from restarting certain gasoline-producing units. 

WHO IS BENEFITING FROM THE CURRENT SITUATION? 

Refiners, especially those that export a lot of fuel to other countries, such as U.S. refiners. Global fuel shortages have boosted refining margins to historic highs, with the key 3-2-1 crack spread nearing $60 a barrel. That has driven big profits for U.S.-based Valero and India-based Reliance Industries 

India, which refines more than 5 million bpd, according to the IEA, has been importing cheap Russian crude for domestic use and export. It is expected to boost output by 450,000 by year-end, the IEA said. 

More refining capacity is set to come online in the Middle East and Asia to meet growing demand. — Laura Sanicola/Reuters

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

News

PHILIPPINE STAR/ MICHAEL VARCAS WASHINGTON D.C. — The United States is seeking to form a coalition of countries to drive negotiations on a global...

News

Buildings are seen along EDSA in Quezon City. — PHILIPPINE STAR/ MIGUEL DE GUZMAN By Diego Gabriel C. Robles  THE WORLD BANK (WB) upgraded...

News

Heavy traffic is seen on the southbound lane of EDSA in Cubao, Quezon City. — PHILIPPINE STAR/ MIGUEL DE GUZMAN THE PHILIPPINE auto industry’s...

News

REUTERS THE BANGKO SENTRAL ng Pilipinas (BSP) may deliver a second off-cycle rate hike in early November when the US Federal Reserve is expected...

News

Vendors arrange their goods at a public market in Manila. — PHILIPPINE STAR/ RUSSEL A. PALMA THE ASIAN Development Bank (ADB) is planning to...

Editor’s Pick

With the reversal of the 1.25% rise in National Insurance Contributions happening on the 6th of November, employers across the nation have an opportunity...

You May Also Like

News

BW FILE PHOTO GROSS BORROWINGS by the National Government reached P2.6 trillion as of end-September as it continued to raise funds to respond to...

News

KARASOLAR.COM TENA, Ecuador — Ecuador’s rainforest Achuar people say their ancestors long dreamed of a “fire canoe” or “electric fish” that would let them...

News

REUTERS By Luz Wendy T. Noble, Reporter The country’s foreign exchange buffers slightly increased as of end-October as the value of the central bank’s...

News

COVID-19 has had a significant impact on the mental health of Filipinos across different groups all over the archipelago. From frontline workers, parents balancing...

Disclaimer: Respect Investment.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2022 Respect Investment. All Rights Reserved.