Drivers around the world feel pain as fuel prices rise sharply. The costs of building heating, power generation and industrial production are also rising sharply.
Prices were already rising before Russia invaded Ukraine on February 24th. But since mid-March, fuel costs have risen sharply, while crude oil prices are only moderately high.
One of the main reasons for the rising costs is the lack of refining capacity to process crude oil and other fuels to meet high global demand.
Crude oil is oil as it exists in the soil. It is not yet ready to be used as fuel. Refining oil involves removing unwanted substances so that oil can be used as fuel.
Production per day
Information from the International Energy Agency (IEA) shows that the world can refine about 100 million barrels of oil a day. One 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 early 2020.
About a third of those losses occurred in the United States, and the rest in Russia, China and Europe, experts say. Fuel demand crashed early in the pandemic. Prior to that, oil refining capacity had not fallen in any year for at least 30 years.
However, global refining capacity will expand by 1 million barrels per day in 2022 and 1.6 million barrels per day in 2023.
In April, 78 million barrels were processed every day. This is lower than the pre-pandemic average of 82.1 million barrels per day.
The IEA expects refining to increase over the summer to 81.9 million barrels a day, when Chinese refineries return to normal operations.
The United States, China, Russia and Europe operate refineries with less capacity than before the pandemic. Nearly 30 percent of Russia’s processing capacity stopped in May, sources told Reuters. Many Western nations do not accept Russian fuel.
Other reasons for high prices
The cost of transporting products to ships abroad has risen due to high demand around the world and sanctions on Russian ships. In Europe, refineries are limited by the high prices of natural gas, which boosts their operations.
Who benefits
Refineries that export a lot of fuel to other countries, such as American refineries, benefit from the current situation. Global fuel shortages have increased refining profit margins to record highs. Companies like Valero, based in the United States and Reliance Industries, based in India, have made big profits.
The IEA said India, which refines more than 5 million barrels a day, has been importing cheap Russian crude for use and export to the country.
I’m Caty Weaver.
Laura Sanicola reported this story to Reuters. Gregory Stachel adapted it for VOA Learning English.
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Words in this story
cru – n. oil as it exists in the soil: oil that is not yet ready to be used as fuel
refinar – v. remove unwanted substances in (something)
barrel – n. the amount of something in a barrel
global – adj. involving the whole world
sanction – n. an action taken to compel a country to obey international laws by limiting trade or aid to the country
benefits – v. be useful or helpful to (someone or something)
margin – n. the difference between the cost of buying or manufacturing something and the price at which it is sold
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