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Drivers around the world are facing high fuel prices at refueling points, while the cost has also risen for home heating, power generation and industrial production.
Prices were high even before Russia launched its invasion of Ukraine on February 24. But since mid-March, fuel prices have risen even more, while crude oil prices have seen only modest increases.
The main reason seems to be the lack of adequate refining capacities, to process crude oil into gasoline and diesel.
What is the daily capacity of world refineries?
According to the International Energy Agency, the capacities are enough to produce 100 million barrels of oil per day, but about 20% of these capacities are not usable.
Most of this unusable capacity is in Latin America and other countries where there is a lack of investment. This makes the real capacity of the refineries to be around 82-83 million barrels per day.
How many refineries are closed?
The refining industry estimates that the world has lost a total of 3.3 million barrels of daily refining capacity since the beginning of 2020. About a third of these losses have occurred in the United States, then in Russia, China and Europe.
Demand for fuel fell sharply at the start of the pandemic, when people were isolated and worked mostly from home.
Prior to that, refining capacity had not declined in any year for at least three decades.
Will refining capacity increase?
Global refining capacity is expected to increase by 1 million barrels per day in 2022 and by 1.6 million barrels in 2023.
How much has refining decreased compared to the pre-pandemic period?
In April, 78 million barrels were processed daily – significantly less than the pre-pandemic average of 82.1 million barrels per day.
The International Energy Agency expects refining to recover over the summer to 81.9 million barrels per day.
Where has the refining capacity been reduced and why?
All refineries in the United States, China, Russia and Europe are operating at lower capacity than before the pandemic.
US refineries have reduced capacity by nearly a million barrels since 2019, for a variety of reasons.
Nearly 30% of Russia’s refining capacity was shut down in May, as many Western countries are rejecting Russian fuels.
The EU has formally approved the sixth package of sanctions against Russia
China, meanwhile, is making the biggest savings. Exports of refined products are allowed only according to official quotas, mainly for large state-owned refining companies and not for smaller independent companies.
What else contributes to high prices?
The cost of shipping products has increased, due to high global demand, as well as sanctions against Russian ships.
In Europe, refineries are under pressure from high prices for natural gas, which enables their operations.
Some refineries also depend on vacuum gasoline – as an intermediate fuel. Vacuum loss of Russian oil has prevented some from resuming operations./REL
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