Smoke billows from a fire at oil refinery, owned by Russian oil producer Gazprom Neft, in Moscow, Russia, November 17, 2018.  REUTERS/Tatyana Makeyeva

Explainer: Why is there a worldwide oil-refining crunch?

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2022-06-22 12:00:08

Smoke billows from a fire at oil refinery, owned by Russian oil producer Gazprom Neft, in Moscow, Russia, November 17, 2018. REUTERS/Tatyana Makeyeva

June 22 (Reuters) - Drivers around the world are feeling pain at the pump with fuel prices soaring, and costs are surging for heating buildings, power generation and industrial production.

Prices were already elevated before Russia invaded Ukraine on Feb. 24. But since mid-March, fuel costs have surged while crude prices are up only modestly. Much of the reason is a lack of adequate refining capacity to process crude into gasoline and diesel to meet high global demand.

Overall, there is enough capacity to refine about 100 million barrels of oil a day, according to the International Energy Agency, but about 20% of that capacity is not useable. Much of that unuseable capacity is in Latin America and other places where there is a lack of investment. That leaves somewhere around 82-83 million bpd in projected capacity.

The refining industry estimates that the world lost a total of 3.3 million barrels of daily refining capacity since the start of 2020. About a third of these losses occurred in the United States, with the rest in Russia, China, and Europe. Fuel demand crashed early in the pandemic when lockdowns and remote work were widespread. Before that, refining capacity had not declined in any year for at least three decades.

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