bathroom, we buy our drinking water from the supermarket, mexico's president, his vowed to continue to support efforts to supply water to various cities in northern mexico. but experts say the strategy is not sustainable. adding that the only real solution is rein. manuel, right below al jazeera monterey climate change, at least partly to blame for a massive swarm of jellyfish off a coast of israel footage from israel's parks on nature authority show. the jellyfish near haifa assuming is bought of an annual migration, but this year the population has exploded due to pollution and climate factors. ah cipher put check. the headlines here on al jazeera, italy's prime minister mario drago, has resigned. president matthew la says he has asked roggette to stay on as a caretaker leader. he won a confidence vote,

but 3 parties in his coalition. government refused to participate. adam rein, he's got more from around the president is going to be meeting political leaders in just a few hours here at the palace, and they're probably going to hash out some timeline for early elections. if they do come in the fall is what looks likely. it would be the 1st time since world war 2 that the times have voted it time, because usually in the fall, parliament passes a budget. and this year, facing so many crises, many italians are worried that if everyone's focused on this political crisis and electing a new government, many projects that many problems that need to be addressed won't be because there won't be a budget to prove sure. lanka has saudi, and ron wicker, m a singer as the new president, despite opposition from the protest movement, but forced his predecessor to step down. many shoreline can say he shed the blame for the ongoing economic crisis. iraq is holding a day of morning off to an artillery attack on a tourist town,

and the kurdish region killed 8 people and wounded 23 wrongs. prime ministers blaming turkey for the attack. but turkey rejects the allegations for the 1st time in its history. india has elected a tribal woman as its president, but a body murmured was the candidate of the governing b. j. p. potty. the role of president is largely ceremonial in india. yes, president joe biden is threatening to take executive action if congress doesn't pass legislation to tackle climate change. he's announced $2300000000.00 to help build infrastructure that can hold up against extreme weather and natural disasters. the speak of the us house of representatives is expected to visit taiwan next month. the move that's been met with fierce criticism from china. nancy pelosi strip would make her one of the highest ranking u. s. officials to visit ty, one, beijing as warn washington. it will take forceful measures if the visit goes ahead . and all 31 gas pipeline is back in operation after 10 day shut down from

maintenance work that we're fears. russia would cut gas flow through the pipeline completely in retaliation for sanctions imposed by europe. so those were the headlines that he's continues here on al jazeera, up to inside storage spreadsheet done to watch. i know, ah, the world has enough oil, but not enough with finery used to process it. that's the assessment from the biggest crude export a saudi arabia. so is this to blame for recall and higher fuel prices and one of the solutions. this is inside school. ah.

hello there, and welcome to the program. i'm this dossier. now global oil prices have hit record highs for months. the rise has been blamed on the war in ukraine and surging demand as economies recover from this pandemic. another reason there is a lack of refineries to turn crude oil, but dug up from the ground into useful products such as petrol, diesel, and jet fuel. well, the price of brent crude, the international benchmark, started this year and just below $80.00 a barrel. it went about $100.00 on february the 28th. as you can see, that 4 days after russia invaded ukraine and then reached a $128.00 a week later on march the 8th. the price has stayed above $100.00 a barrel since then, with the exception of just a few days. now for many of us, this leads to high prices and petrol pumps. oil producing countries have promised

to increase production to meet demand, but the world's biggest oil exporter, saudi arabia, says the focus should rather be on boosting refining capacity. today we don't see a lack of oil in the market. there is a lack of refining capacity, which is also an issue. so we need to invest more into refining capacity. and that's, that's a policy decision that the countries, especially consuming countries need to make to ensure that there is enough capacity to, to find the oil that is available. while speaking of capacity, the international energy agency says the world has a capacity to refine about a 100000000 barrels of oil a day. but 20 percent is not usable. that's due to a lack of investment and refineries in some countries, particularly in latin america. global output has fallen by 3300000 barrels a day since 2020. when the pandemic then flashed demand for fuel, the u. s. has the world's largest refining capacity, but activity that has slowed to 17900000 barrels

a day. that's the. 1 lowest since 2014 output is also down and other major refining countries, such as china, russia, and india. the. well, let's not bring an out gas in houston. we have bog cabinet, use, and energy, and oil analyst and an industry veteran. in berlin, we have thomas o'donnell. he is an energy and geopolitical analyst and also a consultant on global energy systems. and also in houston is josh young. he's the chief investment officer of bison interest. that's an investment firm focused on publicly traded oil and gas companies. a warm welcome to you all gentlemen, thank you for joining us today on inside story. there's obviously a big difference between crude oil, which we've been just looking at the price of and what you're actually paying at the pump in terms of price is what is actually to blame for the high prices that we're seeing. thomas, is it about refining or supply or both? it seems to me potentially both. well, i yeah,

i think you hit the nail on the head and it also depends week to week, month to month. united states is running in a very high capacity with the refineries. as your story pointed out, the refining capacity is down, but the utilization is basically messed out. 9497 percent recently. but china, on the other hand, recently has been running the refineries. you know, something like a 3rd below max capacity. so there is a shortage of refinery in the world for what we have to do and when some are offline like now in china or for example, look, venezuela has a couple of the world's largest refiners, but they've been offline for a long time. what about iran similarly, so that is a problem, but the supply of crude is sort of the baseline problem here. that's going to continue into the future. and that's wrong to ignore that if the united states was reaching a 1000000 barrels a day. now for the strategic reserve,

we certainly have problems. we'll come to, you mentioned the strategic petroleum reserve that the u. s. and their allies have released these to try to cap the huge rise we've seen in fuel prices. just let me ask, do you think that's made much of a difference, especially because we're mostly talking about crude here. yes. so the, the s p r release has made a big difference in the sense that the market is very tight. and, you know, i agree that there is a sort of combination in the short term of a refining crunch as well as will supply crunch. and. ready so what we've seen with china and having reduce their refine product exports as well as russia, having temporarily reduced substantially their exports and now they're starting to export more. so what we, what we saw was a, we saw a tight, a tight market for refining, but oil would have been, i mean, with where demand is right now. even with the refining french oil prices might have

been much, much higher if the s p r wasn't being released right now. well, at this point i, i want to take a look at a graph because u. s. president joe biden has accused, refinery is a breaking in huge profits during a time of war, as we've referred to. now the price difference between a barrel of crude and petroleum products refined from that is called a crack spread. so looking at this graph, that's the refining margin really now, usually it's just over what? $10.00 a barrel. but it's jumped over at $55.00 a barrel. and i was looking at some numbers from b p. they're refining. mark a margin is up from 7.7 dollars a barrel to $35.00 over the past year. let me ask you, then bob, what do you think has driven that huge margin increase? is this just down to refining capacity? i said, it's like our other guy said it's really just a complete global market upset. that is, is going on right now where you've got increasing demand after the panoramic,

the us, the other or oil industry recovering after the ball during the band to make. and then all of the transportation issue in the u. s. we have huge transportation issues. one of the reasons is the refineries on the gulf coast. a lot of those can only process only refine heavy crews. and since we're not importing heavy crude from like been as well, or, or bunker fuel or gasoline from russia, it causes all kinds of upsets and keeps that crack spread very, very wide. and then it will eventually come down. and the thing is, the thing that most people don't really realize about to guess industry is that it is very competitive. and so someone is price gouging, so speak. somebody is going to step into that space at a lower price if they can. so it's a, it's a market upset, it'll eventually stabilize. but right now there's so much going on with refinery capacity with the supply upset and the board kotch. it was mentioned earlier out of

iran and that as well, all causing these problems. same time or given the market upset, we're seeing now why not make the most of the situation given the margins and increased. we're finding out what i see. a number of us refining company is already doing that, but others are already operating at what 90 percent potentially going up to 95 percent over the rest of the summer. josh, in your mind all day taking advantage of the situation. absolutely not. so the space that we saw on refining margins was directly correlated with the reduction in utilization, chinese and russian refiners. and in particular, when we saw almost a 1000000 barrels, a day of russian refined product exports fall off. that's where we saw these margins go up a lot so. so what is interesting is that you. busy refiners actually being good actors and they've moved up their utilization. they're taking some risks and doing this. they're moved up there utilization from 90 to 95 percent. so i think they're

actually doing the right thing. and it does show that refining capacity is tight, but the cost of it is not u. s. or european refiners price gouging. it's the opposite. they're doing what they can, is that there is sort of limited refining capacity. and some of it, particularly in russia and china, has been offer at thomas. what would it take to scale up refining capacity here? well, if you're going to do it those days are going to expand the existing refineries or build new ones. that's a little bit doubtful, but you know, there's a whole caribbean region, there's the issue of venezuela, and i know the administration, united states administration is working on trying to get the maduro administration to make some democratic concessions to legitimize raise, you know, lifting some sanction and getting production going on, perhaps doing something with the refineries. i mean there's

a huge potential there. and i mean, it's not only coming off of coated and is a bob pointed out and josh full, all the problems of adjusting. it's also this war and ukraine. so it's a very funny situation, it's a short term that's very volatile and very uncertain both in crude and refine products. but if you go out 3 years or so, or more, i would say, i mean this is a g o strategic judgment. the west and their allies in asia, japan, taiwan, and so forth. are going to take, turn russia from a 1st world, sort of, i'm sorry, from sort of an energy superpower in oil and gas. the sort of a 2nd rate player. that's exactly what fatty rolled ahead of the i. e said just yesterday at the meeting going forward after a few years. russia will be reduced to a minor, you know, player, a 2nd ray player. and that means there's going to be huge possibilities for developing oil, new crude development, new new field,

but also new refining capacity. russia with supply 2 and a half 1000000 barrels a day of refined diesel to northern europe. that's all going to go away and they can't just send that to asia, that much oil, some of it they can, but there's going to be a big change. but in the meantime, who knows if there's going to be a recession, a probably, and there's other problems. so short term, it's a little if the, it's very volatile, but longer term there's going to be growth in the industry. there has to be, well, i can talk a little bit more about the impact of the ukraine will, i believe, but you need specific russian products or to actually run some specific types of refinery isn't. as you alluded to that you obviously need specific types of crew to then efficiently produce certain things. diesel for example. now we've mentioned venezuela, the sanctions on iran as well. and given that we've seen some bottlenecks around opec cross production. do you think that russian sanctions have really contributed to the crunch that were thing?

oh, i think i think it probably has. i mean, i don't disagree with the, with those those kind of cutting off the rushing crude to punish food for attacking your brain. but it does cause you just, you know, we were back in the ninety's late eighty's, early ninety's in the states. a lot of refineries were built or, or modified to handle heavy crews because that was primarily what was being produced in the us after the horizontal, unconventional drilling started back in the, to 2000, 2070008. that crude is a slight sweet crude. the gulf coast refineries can't handle. so under the obama administration, we began being able to export again. so we're actually exporting lights. we us light, sweet crude, importing heavy crude. the refineries can handle. so the solution to that obviously is to build new refining capacity or to modify back to where we can handle the, the higher higher gravity cruise. but that is part of the issue of having to move,

we're moving, we're exporting and importing refined products. and we're in boarding and exporting crude because it's all not equal. it has to match the facilities is being shipped to. well then just looking in terms of the margins of the prices that we're saying, partly due to the ukraine war. refined, well products have risen. what between fancy and nearly a 140 percent since russian invaded ukraine back in february, and now that's compared to less than a 15 percent increase for a barrel of crude. josh, do you think that we should expect that margin to increase even further as the war drags on? no, no, i think i think it's a, it's already started to compress a. so crack spreads, i think i over 60, i think that might have even gotten over 70 very briefly, which is a $70.00 per barrel margin for refineries and refine products versus the input of crew. it's already down below 50. i think we might be getting to 40 or so

recently. and so i think, i think that there is this trend which is as russian refine product exports are back up. and as chinese cheaper refineries ramp back up as well. and as their export quotas are increased, i expect more sort of normalization, compress refining margins, and potentially higher oil prices. as more oil is consumed in refining to then deliver the soil products and just to expand javier as the tape refineries are talking about in china. the non state and refinery is that, that exist there. i do want to talk about china because it's currently what the world's 2nd largest refiner, but potentially going to become the largest very soon. but from the figures it really doesn't like to export its product. so last year, according to its own customs agency, it, it shipped about $1.00 point to $1000000.00 barrels a day of refined fuel. so fuel, oil, gasoline, diesel, jet fuel,

that's what 7 percent of its total refining capacity. and now it's been cutting exports even further. thomas, why is it doing that given the space of the wild economy? well, you know, if they've got a market for their home, you know, why would you generally speaking, why would you export resign products if you have a market for it at home? and i think things are a little bit complicated right now. i in china, you know, everybody thought that they were recovering and then they went through this whole series of black downs again. so now you have a situation where, you know, everybody expects recession. so demand is going to soften, so that should ease all this stuff out. ok, that should ease the demand out. but at the same time, china is coming off of these locked down and there's going to be some expansion there. so even though you're kind of going to a recession, you're going to have some expansion in china, and it's a complicated situation. i wouldn't expect china to export, you know what?

anything that's not surplus. what i wish they would do is use more of the refining capacity so they could have kept exploiting during this last cobra, shut down, but that isn't what they did. and you're sitting in houston. how do you think the u . s. is viewing the limit that china has put on it's on it's refined oil exports is biden keen to see that increase. what i think in the states where the industry in any way the industry believe this is going to work through over the next couple years. for instance, i was looking at the non mix w t i crew curve this morning. you know, we're like $9495.00 a barrel in the new month. in december of $23.00, it's $77.00. so it's almost $20.00 less than 2 years out. so the expectation is this is going to stabilize. i think we're,

we're focused. i believe that the industry talks about any way is being able to import more crude so that as well as close to being and that's another 2 and a half 1000000 barrels today. it will come up immediately, but that will help. and that helps our refining capacity. stay full with the heavy crew to come from venezuela. china, i think, is using their refinery capacity like they use everything else on their economy as a weapon against countries like the u. s. and then the, the, and i think that, so that's got to be something that we consider all given the state of play. let's look at where we go from here. then given the current situation. so in order for oil refining margins to drop and for prices to come down, there needs to be more capacity. and for that, you know, to see need investment. should we be expecting fresh investments in oil refining, given the margins. josh, would you be encouraging people to invest in this? yes, so i think the challenge for refining in the u. s. is more related to environmental

regulations and permitting, than it is desire to expand. so x on has been expanding refineries here to that are process light, sweet crew coming from coming from shale and west texas. and you know, they've had all kinds of issues and there's just kind of this tremendous sort of regulatory and tax burden. one thing i do want to address the, the status of the forward curve. i think there's that there's a lot of misconceptions around it. and it being in backward ation. so oil being $100.00 right now and 70 dollars 2 years from now is actually an indication of a very tight oil market. and it does, it incentivizes oil to get pulled out of storage right now. and historically, when it's been in that sort of circumstance, oil prices have actually gone up over time, not down so, so when you look at the incentives there, there is an incentive to invest both in upstream as well as in refining. and what

we're seeing is that is a very tight market. there's a lot of tennis in the service capacity to be able to do these expansions, but specifically for finding specifically in the u. s. there are huge regulations and taxes that get well given that we are talking about this green transition and president biden is obviously said he wants to focus on renewables and i see a number of the refineries that have gone offline are actually switching further towards biofuels. thomas, do you see that trend continuing, or will there be some kind of a, a shift given the current state of affairs? well, i think ever since the ethanol revolution, which wasn't a revolution after all, there was never, so you lastic ethanol. i think the idea of biofuels, per se, is, you know, really not going to take off what everybody looks at is electric vehicles. now,

if you look at, i think we need a dose of reality here and there was a big problem. let's see the last decade, but also even during corona, of sort of official optimism or something, you know, 94 percent of everything that moves here in germany. jeremy, as opposed to one of the green is countries around if you listen to the government, but 94 percent of everything that moves, moves and oil, the storage. and you know, it's about the same in the united states, everywhere in the world. you can look at how many electric car plants have been built in the world, how many they're producing. i mean, i haven't looked at it really close in the, in the year or 2, but if you look at the rate of increase that you expect just from the expansion of population and well, in china and india and africa, you see how many more current, how many more vehicles to be on the road, you'll be lucky if electric car can take up that those new cars much less the whole base of a continuing basis. oil fuel cars that are still out there. so companies are

under a lot of pressure to look like they're doing everything to transform to some new world. but the vehicle simply aren't there, the electric vehicles out there, there's major problems with batteries in those supply chain. and somehow this has to be balance that people can work on that without carrying, carrying the width out of, you know, the companies and shaming the companies into not investing. and that's what happened the last few years by not investing. i mean there is also corona but by not investing. now we're stuck and you'll see opec has been raising their quarter by and ask them to raise their quarter. well, certain sense. it doesn't do any good. they can't make meet. there are a couple 1000000 barrels behind what they're supposed to have produced over the last several months. so a lot of investments are needed and a stable situation, a more realistic, pragmatic policy here. well, in terms of pragmatic policy, we're talking also about very specific kinds of distillate in demand for those right. bob, let me ask you about the trade off that exists for refiners by my understanding,

let's say there's a shortage of diesel, like we're seeing now. you reject things to produce more diesel. that means you end up producing potentially less jet fuel. and then ed travel also rebounding post pandemic. so trying to then produce both reduces the output of petrol. what should be the focus here in your mind? well i think with what you said it is, this is correct. also, the challenge that we have in space is getting different fuels to different parts of the country. for it, for instance, we, we import gasoline in california because it because it's easier to import it and rather than shipping it from the gulf coast because of the transportation issues. and so there's all these different different issues that we have to deal with in terms of getting the right fuel in the right place. and i agree with thomas on the whole electric vehicle issue. i don't think we can replace the, the,

the actual power, the vehicles with like electric vehicles fast enough, especially with manufacturing battery issues, the recycling of those batteries in. and we haven't talked about our grid, the power grid as of the other gigantic challenge. especially right now in texas, and so all those different things floating around. the most important thing is to keep commerce moving, which is primarily jet fuel diesel gasoline. well, if oil refineries in the u. s. aren't necessarily coming back on line. we're not necessarily saying the investments that's required to do that. i see more refineries are being built in the middle east and asia just very briefly. how soon do you think that could make a difference? yes, it said there are. there are projects or ongoing. i think the bigger thing is just the ramp up in the independent refineries in china, the teapots as well as ramp up in russian refined product exports. and so between the 2 of those,

it does look like refining the refining market is coming into balance in the short term. i'm not sure there's going to be a balance over the next few years. i think there's probably insufficient refining capacity right now. that's reliable relative to the likely demand increase. i agree with the other panelists that i don't see the electric vehicle transition coming on austin us to be able to address this shortage of oil and refine to our capacity. so i think it makes sense to be considering expanding additional refining capacity even though this short term sort of super squeeze and refining margins is starting to speak clearly or something that isn't going to be resolved anytime soon. well, thank you to all of our guests. bob have not thomas or donal and josh young and thank you to for watching. you can see this program again any time by visiting our website that's out there a dot com. and for further discussion do go to our facebook page. that's facebook dot com, forward slash ha inside story. you can also join the conversation on twitter.

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