Refineries brace for crude drought
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How is the current geopolitical situation affecting crude oil supply?
There's a lot going on right now. Mounting economic inequality, threats to democracy, environmental disaster, the sour stench of chaos in the air. I'm Brooke Gladstone, host of WNYC's On the Media. Want to understand the reasons and the meanings of the narratives that led us here and maybe how to head them off at the pass? That's On the Media's specialty. Take a listen wherever you get your podcasts. navigating the pipelines of the global oil economy. Plus, let's squeeze in some winter sports before the season is done. From American Public Media, this is Marketplace.
From Minnesota Public Radio in St. Paul, I'm Kimberly Adams in for Kai Risdahl. It's Thursday, March 12th. Good to have you along. We're going to start today's program by looking at oil and the global economy right now. The president's war in the Middle East is restricting the supply of crude to the rest of the world. And Iran said today that it will keep the Strait of Hormuz closed, so oil prices jumped. And Brent crude, which is the specific kind of oil that's no longer flowing out of the Mideast, topped $100 a barrel. Even with more than 170 million barrels of oil being released from the Strategic Petroleum Reserve, some of the refineries that convert crude oil into the energy we consume just don't have access to the raw material they need.
And as Marketplace's Justin Ho reports, the war could end up causing many refineries to shut down production. The kind of oil that's getting cut off by this conflict mostly goes to Asia. A lot of that crude goes to China. Malaysia, Singapore, India is very important also. That's Anna Mikulska, head of analytics at CGCN Group. She says some Middle Eastern crude also heads to refineries in California. So California has imported a lot of its crude from Iraq, for example. This is a lot of barrels that California will have a problem replacing. Refineries there can't just switch to the heavier sulfur-rich oil that comes from Western Canada because they aren't set up to handle it. You have to build the infrastructure.
You need the desulfurization infrastructure there. And that takes a long time. And more importantly, it takes a lot of capital investment. Hugh Daigle is a professor of petroleum engineering at the University of Texas. He says even though the U.S. produces a lot of its own oil around the Gulf of Mexico, California isn't connected to that supply. The easiest way to move crude oil around domestically, obviously, is in pipelines. There's not a lot of pipeline infrastructure to get from Texas to California, believe it or not. There's none, in fact. Refineries in California and Asia still have oil they can refine in the meantime. But Mark Broadbent with Wood McKenzie says there is a point when that will start to dry up.
You need to keep a certain amount circulating through your units in order to keep them online. At that point, you'll be looking at refineries that are going to shut units down because there's simply not enough material to keep them running. Bradbent says even if the war were to suddenly end and oil started flowing through the Strait of Hormuz again, it could take a while for those refineries to come back online. He says if they partially shut down, it could be one or two weeks. And if you're looking at the whole refinery down, then yeah, that becomes more like a month to one to two month process in terms of starting up the entire refinery. Broadbent says refineries would likely want to turn the lights back on as quickly as possible because demand for fuel is still high and so are prices, which means refinery profit margins are up.
So that's a huge incentive for refiners to keep running as much as possible. Broadbent says energy prices are likely to stay high even if the war ends suddenly. I'm Justin Ho for Marketplace. Wall Street today, once again, the markets are following the constantly shifting dynamic of this war and its impact on oil prices. We'll have the details when we do the numbers.
So on the show yesterday, we were talking about how the inflation numbers revealed a drop in egg prices, but that those savings have been kind of offset by rising meat prices, especially beef.
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Chapters
4 chapters
1
How is the current geopolitical situation affecting crude oil supply?
0:01–5:58
2
What challenges do California refineries face without Middle Eastern crude?
5:58–17:09
3
How do refinery shutdowns impact fuel availability and prices?
17:09–22:51
4
What are the implications of rising construction costs in the housing market?
22:51–26:19