A Massive Energy Break Coming Soon

Chapters

1. 0:00

   The Imminent Oil Crisis

   Since the Iran War started, 13 million barrels per day of Persian Gulf crude remain unproduced or unexported. We are well past the point where pre-war export tankers reached their destinations. Everyone is burning through stocks rapidly. By June or early July, we will reach minimum operating levels for inventories in half the world, if not more. This represents about one and a quarter billion barrels of crude that haven't been delivered yet.

2. 1:08

   Temporary Relief Factors

   Two factors have delayed the crisis so far. First, strategic reserve releases approved by the IAA two months ago helped Europe significantly. The United States is a net exporter of crude and refined product by a large margin. Roughly two to two and a half million barrels a day of crude from our strategic petroleum reserve are just crossing the Atlantic and helping out the Europeans.

3. 2:01

   China's Petrochemical Substitution

   Chinese petrochemical producers are substituting naphtha with processed liquefied coal to avoid feedstock shortages. This substitution is wildly inefficient and expensive, but it prevents runaway price increases in Asia. The Chinese petrochemical sector uses about 4 million barrels a day of product, of which about half is naphtha.

4. 3:10

   The Upcoming Break

   All current relief measures will evaporate over the next three to six weeks. If we get into a hot war situation again, Iranians can hit any part of the export infrastructure from the Persian Gulf that bypasses the Strait of Hormuz. We are ironically in probably the best that can be hoped for right now. When feedstock runs out, prices go through the roof causing demand destruction. Prices rise to a point that some parts of the economy simply can't afford the crude derived products at all. Their demand is destroyed until such time as prices fall back into line. Northeast Asia will be at the top of the list because they import well over 90% of their crude. Until recently, all of that crude has really come from the Persian Gulf. Europe is second worst where they also import 90% of their crude.