With rates surging forward in terms of cost of living (prices for electricity production, material industry manufacturing, and even for heating apartments), it is already a gloomy time for residents around the world—now top of all that, drivers have to hesitate to arrive at gas stations because of the near exorbitant fuel prices.
As a result of the blatant lack of necessary refining capacity required to turn crude into diesel or petrol, there have been a bunch of rising issues. Fuel prices have a history of baffling highs, and this was before the Ukraine war, but since the second half of March, fuel rates have run in abundance. Meanwhile, crude oil hasn’t ranged past its average rate.
Russia, Europe, China, and the U.S. have half-functioning refineries due to the post-pandemic economy. Almost the capacity of one million bpd was shut down by the U.S. ever since 2019 due to tonnes of reasons.
Russia was no different in laying idle, as it lowered about 30% of its refineries’ capacity last month. The majority of Western countries refuse Russian trades, namely, fuel.
This leaves China as the one with the most usable refining capacity. Products from the process may be exported but strictly under official linings; meaning that larger refineries situated in specific states and owned by their individual companies can deal with their fuel, but not smaller and more independent companies that take up the country’s spare capacity.
Chinese state-centric refineries faced a low average of 71.3% last week, with independent refineries having 65.5%. It may be an upgrade from before but was low from the standards set every year before.
In the first quarter of this year, 78 million barrels were run under the mill every day, which is a clear-cut drop from the average of 82.1 million bpd maintained globally before COVID-19 times. Though now that Chinese refiners are bouncing back after their period of immense suffering, it is expected that the refineries may bring up to an 81.9 million bpd average this summer, according to the IEA.
Global refining capacity may exceed the mean average by a daily expansion of 1 million bpd this year, followed closely by 1.6 million bpd next year.
High global consumer demand would mean that the rates needed to export fuel products have risen, but it’s also because of the sanctions that limit Russian containers. European refineries are held back with natural gas being plastered at high rates, but it helps in processing their production units.
Since Russian sanctions are so severe, some struggle to bounce back their petrol manufacturing sources. This is because these refineries use vacuum gasoil as their intermediate fuel and the lack thereof is an issue that cannot be easily countered.
U.S. and Indian refiners have managed to turn the situation in their favor as they benefit from it. Worldwide fuel shortages due to various reasons have enhanced the refining polls to incredible levels, with the essential price tag of $60 per barrel. This has led to tremendous profits for Valero and Reliance Industries (RELI.NS), the former hailing from the U.S and the latter from India.
IEA has recorded that India refines above 5 million bpd. It has also been importing inexpensive Russian crude for local usage and overseas as well. IEA predicted the country’s output to fill the margin of 450,000 by December this year. Despite most of the countries struggling to gather resources for their refineries, the Middle East and Asia are set to have more refining capacity to be on the same page as consumers’ demand hikes enormously.