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Most of Real Fuel Inflation Is Caused by Lost Refining Capacity

May 9, 2022 (EIRNS)—A Bloomberg op-ed today by Javier Blas reported that while the price of West Texas Intermediate crude oil has gone up 13% during the two months of the war in Ukraine, the wholesale prices of fuels at New York have risen as follows: gasoline 33%, to the equivalent of $155/barrel; diesel fuel 69%, to $175/barrel; and jet fuel (as well as home heating oil) 137%, to $275/barrel. The reasons are two: 2 million barrels/day of obsolete refinery capacity in the United States and Europe being closed down, while new capacity opens up only in China; and the NATO sanctions and “self-sanction” by corporations, against Russia. Russia has shut down an additional 1.5 million barrels/day of its refining capacity due to the latter.

This is part of a broader “Green New Deal” investment collapse which began roughly 2015. Until that year, global investment in finding, recovering and refining liquid fuels—crude oil and derivatives, natural gas—ran at about $800 billion/year. By 2018 that had fallen to $550 billion/year; and by 2021 it was $350 billion, cut to less than half by the green financiers of Mark Carney and Co.

So what is called the average “cracking spread,” at $55/barrel, is five times its average of recent decades and twice its previous record high. Large refiners such as Marathon Petroleum Corp. and Valero Energy Corp. are making huge profits. Martijn Rats, a frequently quoted Morgan Stanley oil analyst, is quoted by Bloomberg here: “Has the oil market hit the refinery wall? Unusually, the answer appears to be ‘yes.’ ” But more suggestive about the physical economy is the remark last week of Ben van Beurden, CEO of Shell: “Demand is not that easily destroyed.” “For that,” concludes Blas, “a recession will be necessary.”

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