Whatever happens, the U.S inflation is not going to come down even if 7 rate hikes are being done in CY-2022 and 2023. This inflation is not the one that we have seen in the history of the global economy. It's beyond demand and supply and a crunch of supply of goods and services. Food inflation will be one of the longest inflation which every economy will have to face and bear the heat. Well, you might be surprised with the same that how inflation could remain so high despite interest rate hikes. Crude may not touch $150 /barrel since china’s demand is being met by Russia and that’s too at a much-discounted price of around $89/barrel. But the U.S will face a significant heat of higher crude prices and high inflation.
The real problem of inflation is beyond the war between Ukraine and Russia. Even if they resolve the conflict the inflation will remain on the higher side and particularly the U.S will face more headwinds compared to any other economy in terms of inflation.
The U.S inflation which is linked to high crude prices is resultant of the cut down in funds and operations of oil refineries. Even the U.S President is out of ammunition to bring down the fuel inflation. In my recent interaction with a few U.S based clients, it’s well clear that Biden is nowhere to win the midterm elections. The current condition of the U.S economy and poor management of the same has created a significant loss of trust in his leadership skills even on the global issues and hence defeat is almost confirmed way before the November elections.
Several US gasoline refineries have shut down in recent years, or been converted to make other fuels. Some refineries just shut down because of lack of demand, and they’re not coming back on. The climate change impact has also compelled many the oil refineries to shut down their operations and got converted into other fields of operations. The U.S has lost well over a million barrels a day of refining capacity and has closed 5 refineries or retooled them for biofuels to appease the climate lobby.
ESG pressures and the Paris Climate accords made it very dangerous to invest in refineries because of the hostile regulatory environment. In the United States, operable refinery capacity was at just over 18 million bpd in 2021, the lowest since 2015, per EIA data. U.S. investment in fossil fuels averaged just $400 billion a year, down from $750 billion during fracking’s days. Most of U.S refineries have diversified and moved away from the business and got into logistics and retail segments, which has allowed the company to mitigate volatility in refining.
In a recent study, it has been found that 59% of executives cited investor pressure to maintain capital discipline as the primary reason they would restrain production growth despite high oil prices. U.S. energy producers also face labor, material, and equipment shortages, further contributing to slow U.S. crude oil production growth throughout 2021 and into 2022
Well, the benefit of this goes to all those countries where the new capacity of Oil refineries are coming and those who have the capacity to meet the U.S demand. For example, currently, Imports of Latin American fuel oil averaged 200,000 bpd in March and April, 49% up from the previous 12 months. Mexico’s share of US fuel oil imports rose to 27% in March and April, from 19% a year earlier.
There is nothing too happy about that the oil rigs count is picking up in the US currency since, In mid-May, there were 750 drilling rigs operating in the U.S., up from 453 a year ago but still down two thirds from the 2,000 running during the fracking boom. Hence0020it’s a long way to go.
India will stand out to be the second-highest contributor to Asia’s refinery CDU capacity by 2026. Yes, China will hold the No 1 spot for the same domain but India will hold a significant position on the Asian map of oil refineries.
China is expected to develop new-build refineries with a total CDU capacity of 3,060 thousand barrels per day (mbd) by 2026, while expansion projects account for the rest with 382 mbd. The Barmer and Nagapattinam II refineries account for the entire new build capacity additions in India, each with a capacity of 180 mbd. Followed by Vadinar refinery is the largest with a capacity of 515 mbd. This makes the total capacity for India to be around 1,607 mbd by 2026.
PE and other funding sources will focus on countries like India, China, and Indonesia where opportunities for refineries are high, and being an importer of the same makes them much wise to have significant opportunities for in-house refineries.
Posts
0 Comments:
Post a Comment