>> these are the top stories. russia's foreign minister says moscow's military goals in ukraine have widened beyond the eastern donbass region. sergei lavrov said russian forces will also focus on southern ukraine's regions. dozens wild are burning across france, spain, italy and greece. thousands have been forced to flee their homes as a severe heat wave sweeps across europe. u.s. president biden is threatening to take executive

action if congress does not pass legislation to tackle climate change. he is announced a 2.3 billion dollars of funding for building infrastructure that can hold up to extreme weather and natural disasters. the italian prime minister's government may look like it because it is going to collapse. he won a confidence vote wednesday but senators from three of his main partners refused to cast ballots in a vote. the prime minister is blaming turkey for up to the re-strikes that killed eight including children. on correct has rejected the allegations. the attack happened in the mountains. turkey regularly carries out airstrikes in northern iraq targeting what it considers a terrorist group. turkey is blaming what it calls the terrorist organization for the attack. he was voted in bya majority of

mp's who ignored widespread opposition. protesters say he is partly responsible for the ongoing economic crisis. the news continues after inside story. you can keep up on aljazeera.com . ♪ host: of the world has enough oil, but not enough refineries to process at. that is the assessment from the biggest crude exporter saudi arabia. so is this to bring -- blame for record high prices, and what are the solutions? this is "inside story." ♪

hello and welcome to the program. global oil prices have hit record highs from months. the rise has been blamed on the war in ukraine as recoveries -- there is also a lack of refineries. the price of brent crude started this year at just below $80 a barrel. it went above $100 february 28, four days after russia invaded ukraine, then reached $128 a week later. prices stated above $100 since with the exception of just a few days. for many of us this leads to high prices. oil-producing countries have

promised to increase production but the world's biggest oil exporter, saudi arabia, says the focus should be on boosting refining capacity. >> today, we don't see a lack of oil in the market. there is a lack of refining capacity. we need to invest more in that. that is a policy decision that consuming countries need to make to ensure there is enough capacity to refine the oil that is available. host: speaking of capacity, the international energy agency says the world has the capacity to refine about 100 million barrels of oil a day but 20% is not usable due to a lack of investment in refineries, particularly in latin america. global output has fallen by 3.3 million barrels a day since 2020 when the pandemic slashed demand for fuel. the u.s. has the world's largest refining capacity but activity there has slowed to 17.9 million

barrels a day. output is also down and other major refining countries like china, russia and india. ♪ let's bring in our guests. in houston we have bob, an energy and oil analyst. in berlin we have thomas, an energy and geopolitical analyst, and a consultant on global energy systems. and also in houston is josh, the chief investment officer of an investment firm focused on publicly traded oil and gas companies. a warm welcome to you all. thank you for joining us. there is obviously a big difference between crude oil, which we have been looking at the price of, and what you are paying at the pump in terms of prices. what is actually to blame for the high prices that we are seeing? is it about refinery -- refining, supply, or both? >> yeah, i think you hit the

nail on the head. it also depends week to week, month-to-month. the u.s. is running at a very high capacity with refining. the refining capacity is down but utilization is basically matched out. 97% recently. china on the other hand recently has been running refineries of something like one third below max capacity. so there is a shortage of refineries in the world for what we have to do and when some are off-line like now in china, or look, venezuela has a couple of the largest refineries in the world but they have been off-line for a long time. iran similarly. so that is a problem. but supply of crude is the baseline problem here that is going to continue into the future. and it is wrong to them nor that. if the u.s. was not releasing one million barrels a day now we

would certainly have problems. host: you mentioned the strategic trillion reserves. the u.s. and allies have released these to try and cap the hughes rise we have seen in fuel prices. do you think that has made much of a difference, especially because we are mostly talking about crude? >> the spr release has made a big difference in the sense that the market is very tight. i agree there is a combination any short-term of a refining crunch as well as oil supply crunch. so what we have seen with china having reduced their refined product exports as well as russia having temporarily reduced substantially exports and now they are starting to export more. what we saw was we saw a tight market for refining but oil -- with where demand is right now, even with the refining crunch,

oil prices might have been much higher if the spr was not being released. host: i want to take a look at a graph. because u.s. president biden has accused refineries of raking in huge profits during a time of war, as we have referred to. the price difference between a barrel of crude and trillion products refined from it is called a crack spread. that is the refining margin really. usually it is just over $10 a barrel but it has jumped to over $55 a barrel. i was looking at numbers from pp, their margin is up from $7.7 to $35.7 over the past year. what do you think has driven that you'd margin increase? is it down to refining capacity? >> like our other gusts -- guests have said, it is a complete market upset that is going on right now where you have increasing demand after the

pandemic. the u.s. and other oil industries recovering after the fall of the pandemic. all of the transportation issues. in the u.s. we have huge transportation issues. one of the reasons is refineries on the gulf coast, a lot of them can only refine heavy crude. since we are not importing heavy crude from venezuela or bunker field from russia it causes all kinds of upset antiques -- the thing most people don't realize about the oil and gas industry is it is very competitive. so if someone is price gouging so to speak, somebody will step into that space at a lower price if they can. so it is a market upset that will eventually stabilize right now there is so much going on with refinery capacity, with supply upset and the boycotts as mentioned earlier out of iran

and venezuela all causing these problems at the same time. host: given the market upset we are seeing now, why not make the most of the situation given the margins and increase refining output? i see a number of u.s. refining companies are already doing that, but others are operating at 90%, potentially 95% over the rest of the summer. in your mind, are they taking advantage of the situation? >> absolutely not. the spike that we saw in refining margins was directly correlated with the reduction in utilization of chinese and russian refiners. in particular when we saw almost one million barrels a day of russian refined product exports fall off, that is where we saw these margins go up a lot. so what is interesting is u.s. refiners are being actors and they have moved up utilization. taking risks in doing this. they moved up utilization from

90% to 95%. i think they are doing the right thing and it shows refining capacity is tight but the cause of it is not u.s. or european refiners price gouging. it is the opposite. they are doing what they can. it is that there is limited finding capacity and some of it has been off-line. host: what would it take to scale up refining capacity here? >> well, if you are going to do it in the united states you're going to have to expand existing refineries or build new ones. that is a little bit doubtful. there is the whole caribbean region. there is the issue of venezuela. i know the u.s. administration is working on trying to get the maduro administration to make some democratic concessions to legitimize lifting some sanctions and getting production going. perhaps doing something with refineries. there is a huge potential there.

it's not only coming off of covid, and as bob and josh pointed out, all the problems of adjusting. it is also this war in ukraine. it is the short term is very volatile and uncertain, both in crude and refined products. if you go out three years or more, i mean, this is a geostrategic document. -- judgment. the west and their allies in asia are going to take -- turn russia from -- sorry, from an energy superpower in oil and gas to a second rate player. that is exactly what the head of the iea said yesterday at a meeting. going forward after a few years pressure will be reduced to a second rate player. and that means there is going to be huge possibilities for developing oil, new crew development, new fields, but

also new refining capacity. russia was supplying $2.5 million -- that will all go away. they cannot just send that to asia. some they can, but there will be a big change. but in the meantime, who knows if there is going to be a recession, probably, and there are other problems. short-term it is very volatile, but longer-term there will be growth in the industry. there has to be. host: let's talk more about the impact of the ukraine war. i believe you need specific russian products to run some specific types of refineries. as you alluded to, you obviously need specific types of crude to produce some things. diesel, for example. we mentioned venezuela, the sanctions on iran. given that we have seen some bottlenecks around opec plus production, do you think that russian sanctions have really contributed to the crunch that we are seeing. >> i think it really has.

i don't disagree with those -- cutting off russian crude to punish putin for attacking ukraine but it does cause a huge upset. back in the 1990's in the states, a lot of refineries were modified to handle heavy crude because that is primarily what was being produced in the u.s. after the horizontal, unconventional drilling started in 2008, that crude is a slight, sweet crude gulf coast refineries cannot handle. under the obama administration, we began being able to export again, so we're actually exporting light, sweet crude and importing heavy crude that the refineries can handle. so the solution is to build new refining capacity or modified back to where we can handle the higher gravity crudes. but that's part of the issue.

we're exporting and importing refined product and we are importing and exporting crude, because all oil is not equal. it has to match the facility it is being shipped to. host: looking in terms of the margins, the prices we are seeing, partly due to the ukraine war, refined oil products have risen between 30% and 140% since russia invaded ukraine in february. that is compared to less than a 15% increase for a bottle -- a barrel of crude. should we expect that margin to increase further? >> no. i think it's already started to compress. i think they might have gotten over 70 briefly, a $70 barrel margin. it's already down below $50. i think we might be getting to

$40 or so recently. so i think there is this trend which is, as it russian refined product exports are back up and asked chinese teapot refineries ramp up as well, and as export quotas are increased, i expect more normalization, compressed refining margins, and potentially higher oil prices as more oil is consumed in refining to then deliver these oil products. host: the teapot refineries you are talking about in china are the nonstate refineries that exist there. i do want to talk about china, because it is the world's second largest refiner, but potentially becoming the largest soon. from the figures, it does not like to export products. last year according to its own customs agency, it shipped about 1.21 million barrels a day of refined. fuel, oil, gasoline, jet fuel.

that is 7% of its total refining capacity? now it has been cutting exports further. why is it doing that, given the state of the world economy? >> if they have a market for it at home, generally speaking, why would you export refined products if you have a market for it at home? things are a little complicated right now. in china, everybody thought that they were recovering and then they went through this whole series of lockdowns again. now you have a situation where everybody expects a recession so demand is going to soften. so that should ease all this stuff out. at the same time, china is coming off of these lockdowns and there will be some expansion. even though you are going through a recession you're going to have some expansion in china and it is a complicated

situation. i would not expect china to export anything that is not surplus. what i wish they would do is use more refining capacity so they could have kept exporting during the last covid shut down but that is not what they did. host: you are sitting in houston, how do you think the u.s. is viewing the limit china has put on its refined oil exports? is biden keen to see that increase? >> i think in the states, the industry, anyway, the industry believes this is going to work through over the next couple years. i was looking at the wti crude this morning, we are like, $95 a barrel. in december of 2023, it's $77, almost $20 less two years out. the expectation is this will stabilize. i think what the industry talks

about anyway is being able to import more crude. that is another 2.5 million barrels a day. it will help our refining capacity stay full with the heavy crude from venezuela. china i think -- like they use everything else in their economy -- they use as a weapon. that has got to be something we consider. host: let's look at where we go from here given the current situation. in order for oil refining margins to drop, and for prices to come down, there needs to be more capacity. and for that we need investment. should we be expecting fresh investments in oil refining, given the margins? would you be encouraging people to invest in this? >> 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, exxon has been expanding refineries here to better process light, sweet crude coming from shale and west texas. and they have had all kinds of issues and there is just tremendous regulatory and tax burden. the status of the forward curve, there are a lot of misconceptions around it. being $100 right now and $70 two years from now is an indication of a very tight oil market. it incentivizes oil to get pulled out of storage right now, and historically when it has been in that sort of circumstance, oil prices have gone up over time, not down. so when you look at the incentives, there is an

incentive to invest in upstream as well as refining. and what we're seeing is there is a very tight market in the service capacity to do these expansions. specifically for refining in the u.s. there are huge regulations and taxes. host: given we are talking about this green transition and president biden has said he wants to focus on renewables, i see a number of the refineries that have gone off-line are switching further towards biofuels. do you see that trend continuing, or will there be some kind of a shift given the current state of affairs? >> i think ever since the ethanol revolution, which was not a revolution after all, i think the idea of biofuels, per se, is not going to take off. what everybody looks at is electric vehicles. now i think we need a dose of

reality here and there was a big problem, let's say the last decade, but even during corona, of official optimism or something. 94% of everything that moves here, it's supposed to be one of the greenest governments around, but 94% of everything that moves moves on oil. it is about the same in everywhere in the world. you can look at how many electric car plants have been built in the world or how many they are producing. i have not looked at it close in a year or two but if you look at the rate of increase you expect just from the expansion of population of wealth in china and india and africa, see how many more vehicles will be on the road you will be lucky if electric cars can take up those new cars much less the whole base of the continuing base of oil fueled cars that are still out there. so oil companies were under a

lot of pressure to look like they are doing everything to transform to some new world, but the vehicles are simply not there. there's major problems with batteries and those supply chains. somehow this has to be balanced, that people can work on that without scaring the wits out of the companies and shaming the companies into not investing. that is what happened the last few years. there was also corona, but by not investing, now we are stuck. opec has been raising their quota. well, in certain since it doesn't do any good. they are a couple million barrels behind than what they have supposed to have produced. a lot of investments are needed here. host: in terms of pragmatic policy, we are talking about very specific types of demand for those. let me ask you about the

trade-off that exists for refiners. by my understanding, lesh -- let's say there is a shortage of diesel. if you produce more diesel you produce potentially less jet fuel and apple true -- and air travel also rebounds so trying to use both reduces the output of petrol. >> i think what you said is correct. also the challenge we have is getting different fuels to different parts of the country. we import gasoline into california because it is easier to import rather than shipping it from the gulf coast. there are all these different issues we have to deal with in terms of getting the right fuel in the right place. i agree with thomas on the electric vehicle issue. i don't think we can replace the

petrol powered vehicles with electric vehicles fast enough specially with manufacturing battery issues, the recycling of those batteries and we have not talked about the power grid. the power grid is a gigantic challenge, especially in texas. with all those things floating around, the most important thing is to keep commerce moving, which is primarily gasoline. host: if oil refineries in the u.s. are not coming back online, we are not seeing the investment required to do that, i see more refineries are being built in the u.s. and asia. how soon do you think that could make a difference? >> there are projects ongoing. i think the bigger thing is the ramp up in the independent refineries in china, as well as the ramp up in russia exports. between the two of those, it

looks like the refining market is coming into balance in the short term. i am not sure there is going to be a balance over the next few years. i think there is probably insufficient refining capacity right now that is reliable relative to likely demand increased. i agree with the other panelists, i don't see the electric vehicle transition coming on fast enough to be able to address this shortage of oil and refined capacity. it makes sense to be considering expanding additional refining capacity even though this short-term super squeeze in refining market. host: something that will not be resolved anytime soon. thank you to all of our guests. and thank you, too, for watching. you can see this program again any time by visiting aljazeera.com. and for further discussion, go to our facebook page. you can also join the

conversation on twitter, our handle is @ajinsidestory. for me and the whole team here in doha, bye for now. ♪

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