Energy Inventory Update, and Some Geo-Political Thoughts

I guess it is no surprise that pump prices are rapidly rising... now standing at 11.5% above year ago levels.

How high could it go? That gets very complicated and depends on...

Past crude oil disruptions

Nothing really compares to the current situation. The 1973 Arab Embargo, targeted the U.S. and a few other countries, which were mostly unaffected. Notably, the U.S. experienced shortages and significant price hikes. The 1980 Iranian revolution impacted the global prices, but not the Straits of Hormuz. Again this impacted the U.S. with spot shortages and sharp price rises. 

That latter crisis did result in our current spot pricing structure, which ensures inventory across the different regions of the country.

The duration of closure of the Straits of Hormuz.

This is the determinant of future crude prices, natural gas prices, etc. As these are global commodities, the U.S. is not immune, as a net exporter of crude and LNG.

The 2nd part of the puzzle is shipping costs, which are usually included in those futures pricing. There are a lot of tankers, fully loaded and sitting stationary in that Gulf. Additionally, tankers are starting to pile up at the entrance into the Gulf. All those tankers are basically removing shipping capacity from the equation. 

We can all remember the high prices at the pump in 2008, which was caused by a much weaker dollar AND limited transport capability, due to our extreme dependence on imports at that time. 

Some basic math. 

Currently about 20 million barrels of crude passes through the Straits of Hormuz, each every day. Of that, less than 1 million barrels is shipped to the U.S. 3 million barrels are from Iran and generally goes to China. That leaves 16 million barrels for the rest.

The bulk of U.S. Imports are from Canada, which is largely captive by their government policies and is therefore highly dependant on the U.S. importing their product.

Certainly U.S. exports can rise, but a dramatic uptick in shipping would be hard to achieve, imo. U.S. Pump prices will most certainly rise, dependant upon duration of Straits of Hormuz closure, but there should be no shortages at the pump for at least 3 months. That might not be the case in other countries. 

Other overlooked factors

Deducting the 3mbpd exported by Iran to China, there remains 17mbpd of crude not passing through the Straits of Hormuz. That is approximately $1.3B per day of lost revenue to the exporters in that area.

With no ships entering the Straits of Hormuz, countries that are heavily dependent on food imports will experience possible sharp rises in prices, as well as potential shortages.

Summary

As someone that drives very little, an extreme jump in pump prices can be absorbed. As natural gas is a factor in electricity prices, I would expect an uncomfortable jump in that. With diesel prices jumping faster than gasoline and reliance on transportation of products... it will increase things I use on a regular basis.

For me... inflation is the story, NOT shortages, unless it would be shortage of money.

A Bit of Update on the Energy Market, and a Few Political Opinions.

 The winter weather is the likely culprit for the drop in overall consumption. Only time will tell.

The overall inventories are still in good shape.

Now on to politics and MY OPINION.

GREENLAND...

I think we all understand the earth is not flat, but when discussing Greenland, somehow the average mind forgets that fact, and focus on the flat map. Get a globe to understand. With the potential opening of trade routes in the Arctic, who is to control those routes?

Those trade routes would cut the distance between the Asia Pacific Countries in half and more depending on Suez or Panama route. That has HUGE implications on volume of goods, container ships, cargo rates, etc. I would remind everyone of the Houthis's disruption of trade moving through the Suez Canal and the battle with China over the control of the Panama Canal. 

This is huge and could become a big geo-political nightmare in the coming decades. 

STARMER...

The UK Prime Minister has messed up. If you are not familiar, then step aside. The excuse being run up the flag pole... is the Mandelson appointment was made to placate or negotiate with you know who, in the White House. How weak has the U.K. become... to protrate themselves to a leader of another country. How can Starmer now attempt to play the moral outrage card, after all that.

This is quite laughable, although extremely serious if you are a  Brit, which I am not. However, I do feel sorry for them.