Drivers around the world are in pain as fuel prices rise sharply. Costs for heating buildings, electricity generation and industrial production are also rising sharply.
Prices had already risen before Russia invaded Ukraine on February 24th. But since mid-March, fuel costs have risen significantly, while raw crude prices are only moderately high.
A major reason for the increase in costs is the lack of refining capacity to process the raw material into gasoline and other fuels to meet the high global demand.
Crude oil is oil that exists on earth. It is not yet ready for use as fuel. Oil refining involves removing unwanted substances so that the oil can be used as a fuel.
Production per day
Information from the International Energy Agency (IEA) shows that the world can process about 100 million barrels of oil a day. A barrel contains 159 liters of oil.
But almost 20 percent of that can’t be used. Much of the unusable oil comes from places where there is a lack of investment.
refineries
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 those losses occurred in the United States, and the rest in Russia, China and Europe, experts say. Fuel demand collapsed at the start of the pandemic. Previously, oil refining capacity had not fallen in at least 30 years in a single year.
However, global refining capacity is expected to increase by 1 million barrels per day in 2022 and 1.6 million barrels per day in 2023.
In April, 78 million barrels were processed daily. That’s less than the average 82.1 million barrels a day before the pandemic.
The IEA expects refining to rise to 81.9 million barrels per day in the summer when Chinese refineries return to normal operation.
The United States, China, Russia and Europe are operating with lower-capacity refineries than before the pandemic. Nearly 30 percent of Russia’s processing capacity was halted in May, sources told Reuters. Many Western countries do not accept Russian fuel.
Other reasons for high prices
The cost of transporting products on ships abroad has risen due to strong worldwide demand and sanctions against Russian ships. In Europe, refineries are constrained by the high prices of the natural gas that feeds their operations.
Who benefits
Refineries that export a lot of fuel to other countries, such as US refineries, are taking advantage of the current situation. Global fuel shortages have increased profit margins from refining to historic highs. Companies such as US-based Valero and India-based Reliance Industries have made big profits.
The IEA said India, which refines more than 5 million barrels a day, imports cheap Russian crude oil for domestic use and export.
I’m Cathy Weaver.
Laura Sanicola told this story to Reuters. Gregory Stahl adapted it for VOA Learning English.
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Words in this story
raw – n. oil as it exists in the earth: oil that is not yet ready for use as fuel
refining – v. removal of unwanted substances in (something)
tsev – n. the amount of something in a barrel
global – adj. involving the whole world
sanction – n. action taken to compel a country to comply with international law by restricting trade or aid to the country
benefit – v. to be useful or helpful to (someone or something)
margin – n. the difference between the price of buying or making something and the price at which it is sold
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