The Russian-Ukrainian war and sanctions imposed on Russia by Europe and the United States have caused chaos in global crude oil supply and demand. Although the rise in international oil prices has pushed up fuel costs, the price of gasoline and diesel terminals in Europe and the United States has risen faster and more fiercely than crude oil itself. Another important reason is the short supply of global oil refining capacity.
On the whole, global refining capacity should not be lacking mathematically. According to the International Energy Agency, total global refining capacity per day reaches 100 million barrels. However, 20% of global refining capacity is located in under-invested regions such as Latin America and is realistically unusable. Real production capacity that can be effectively operated is about 82 million to 83 million barrels per day.
In the past 30 years, global refining capacity has grown year by year until the global COVID-19 pandemic. With pandemic prevention and control, the world lost a total of 3.3 million barrels of refining capacity per day, one third of which was located in the United States. Global refining capacity fell to 78 million barrels per day in April. As global pandemic prevention measures were gradually lifted, production capacity has only begun to recover. Capacity is expected to recover 1 million barrels this year and 1.6 million barrels in 2023. However, this is still lower than the losses due to the pandemic. The International Energy Agency believes that global capacity will not recover to 81.9 million barrels per day until China's refining capacity gradually recovers over the summer.
Before the pandemic, the United States began to reduce its refining capacity for various reasons by 1 million barrels in 2019. The Russian-Ukrainian war sanctions caused Russia's oil refining capacity to idled, as much as 30% in May. China has the largest spare capacity, with state-owned refineries operating at 71.3% and private companies at only 65.5%. Although higher than before, it is still historically low. However, China has a quota for exporting refined oil products and, as a result, excess production capacity can only be left idle.
In Europe, refineries are also affected by natural gas supplies. Some refineries rely on diesel as an intermediary fuel but the Russian-Ukrainian war sanctioned Russia and Europe cannot obtain Russian diesel, causing some refineries to shut down their gasoline production lines.
Insufficient refining capacity has caused terminal fuel prices to rise sharply in Europe and the United States and refinery profits have also risen. Asian refineries are gearing up to grab market share. India is recklessly continuing to import Russian crude oil, with a daily refining capacity of 5 million barrels. It is expected to increase production by the end of the year to 450,000 barrels per day to facilitate exports and refineries in other Middle Eastern and Asian countries are also adding capacity to catch up with demand.
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