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Bulwark Takes
GasBuddy Expert Warns: This Oil Crisis Could Last Over a Year (w/ Patrick De Haan)
00:14:28
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- [00:01]
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- [00:09]
Patrick DeHaan
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- [00:15]
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- [00:45]
Tim Miller
Hey everybody, it's Tim Miller from the Bulwark. Delighted to welcome somebody on that I've been following religiously for the past, I don't know, 40 days or so. He's the head of Petroleum Analysis, a gas buddy. He's analyzed and tracked oil markets and fuel prices for nearly two decades. You can find him on substack at Gas Price guide. It's Patrick DeHaan. How you doing, man?
- [01:04]
Patrick DeHaan
Hey, good to be with you. 40 days, huh? Man, that seems like a long time ago.
- [01:08]
Tim Miller
Loyal. I've been a loyal follower for 40 days. This is your moment in the sun, I guess, for better or worse, thanks to what's happening in the straight of Hormuz and elsewhere. Why don't you give people a little background on, you know, how you got into this, what it is that you're, what it is you're doing over there.
- [01:25]
Patrick DeHaan
I wish it was a moment in the sun. You know, I might not be as pasty white anymore. You know, it's been a wild last couple months. I've been doing this for almost 20 years at Gap GasBuddy that is analyzing markets, looking at oil prices, telling our members at GasBuddy whether or not prices are going to go up or down and trying to really stay ahead of the information. Of course, there's a lot of misinformation as well. Everyone's a journalist these days. So trying to parse out all the details on what comes next and I can't believe we've been doing this for now nine weeks. So it's been a while.
- [01:53]
Tim Miller
That's crazy. So we have some, like right before we got on, we have some breaking news, which is that Brent crude prices are surging above $119 a barrel at the time. What? We're taping this on Monday, late morning. This was after UAE announces that there was an Iranian drone attack that hit one of their petroleum facilities. So that's kind of breaking. I wonder if you have any kind of global thoughts on maybe Iran starting to re engage here, but also I think just maybe some basics for our audience. When you see things like Brent oil price going up, what does that mean as compared to some of the other stuff in the market?
- [02:26]
Patrick DeHaan
I mean, there's a lot to watch and I'm trying to look at the headlines here, even talking with you, to see how bad it is. I mean, obviously a drone strike on UAE facilities would be about as bad as it gets. You know, when we see these attacks, it's hugely impactful. More so from a psychological standpoint of it re escalates the situation, you know, and after a period of calm, I mean, nerves are becoming unsettled whenever you see something like this and it's going to have a lasting impact. All Iran really has to do to be successful in pushing oil prices up is kind of engage in a couple of attacks here and there. And unfortunately, that instability pushes oil prices up because of the lack of understanding how this could work in the weeks ahead. And it's certainly not going to be good news, but it puts a lot of pressure on oil prices. 65 days into this, we've already seen now a blockage of over a billion barrels of oil and now new attacks on infrastructure. Obviously this isn't going to end soon. The strait is not going to open soon and we're still in the escalatory phase. So certainly really bad news for motorists that have already been hit by gas prices surging to their highest levels in multiple years. Diesel prices in some states now at record levels. Jet fuel prices causing airlines to go broke.
- [03:44]
Tim Miller
Certainly very difficult time as people are seeing these numbers. And if they're like me, they're kind of new to this and a bunch of different indicators going around. Why don't you just give us kind of the basics? So you see this Brent crude price number that I just mentioned, There's a WTI you just mentioned diesel. What are the various factors at play here and just kind of explain what people are looking at.
- [04:07]
Patrick DeHaan
Yeah, a lot of folks look at these benchmarks too, and they look at futures prices thinking that oil prices are not reacting now, but if you buy in May, it's going to be reacting then. The reality of it, futures markets are really dictated by the spot price and what is happening currently. So you might see futures contracts, but everything that's happening now is getting factored into those futures and the way retail prices work and the way the world works is that information as we know it is being used and traded on and people are buying and selling oil even at today's prices. Brent is more of a global benchmark. That oil on the Brent contract can be delivered virtually everywhere in the world. Where WTI crude oil is a benchmark for oil delivered in the middle of the US In Cushing, Oklahoma. Now, a lot of that time that oil can flow through pipelines and out of this country. But that's kind of the differentiator here between Brent being a global benchmark, the delivery points already basically on the water and wti. And you want to look at the contract expiry date as well, because when there's so much happening to interrupt the flow of oil, there's a heavy premium being placed on the barrels that can be delivered earliest. For those that watch markets, there's an assessment that's also called dated Sprint, dated Brent, which is for in delivery in like a week. And it's a special assessment. You have to pay for the data. But there's a lot of ways to look at data. But oil markets, what they're telling us is obviously the new escalations are certainly a further blow to the imbalance of supply and demand and that there's a huge premium for oil where you can find it. And US Oil companies are now, in result of this, exporting record amounts of oil and petroleum products out of the United States. And that's putting a lot of upward pressure on our prices. At the same time, it's helping the world meet demand with our ability to supply the market.
- [05:51]
Tim Miller
Yeah, let's talk about that a little bit, because you hear from the President, his defenders, that look, we have plenty of oil, we have record number of exports. Now that's good for the country that at this point, sure, maybe there's some problems over there, but that's going to be an issue for Asia. It's not going to be an issue at home because we've got plenty of supply and we've got all the liquid gold and we'll just be relying on that more and more. You kind of just alluded to it there, which is that we're exporting a lot rather than just keeping it here. But explain why the oil market doesn't work that way.
- [06:27]
Patrick DeHaan
Oil can just be slapped on a ship and sent overseas, just like the highest bidder. If I were to sell the laptop I'm on right now, I would take the highest offer, whether that's somebody next door to me or overseas. I mean, shipping can happen Oil can move globally. So it doesn't matter if we produce a lot of oil. A lot of that oil can just end up overseas. And increasingly that's exactly what's happening, putting upward pressure on prices. Oil's a global market because unlike electricity, where you can't just slap it on a boat. Right. Oil is liquid. So it can be put on a vessel, it can be shipped anywhere in the world. And that's why it is a very global price for oil. Because the oil you and I are consuming can easily be sent by an oil company over to Asia, to Europe, to Australia. It doesn't really matter. And oil companies are accepting the highest bids for what they have to produce. They're a company. Just like if I put my house in the market, I'm not going to take the lowest offer. Right. That'd be foolish. I take the highest offer. And that's increasingly essentially more hands in the cookie jar are driving up prices for everyone.
- [07:26]
Tim Miller
So to that point we had, this is, according to your reporting, a new record in the national average price of gasoline for the second day of May. That was, I guess over the weekend. So talk about like how bad the situation is and kind of what you're projecting out.
- [07:42]
Patrick DeHaan
Yeah, you know, just to give a little context, it's the most expensive May 2nd we've ever seen. Oil prices briefly, gas prices briefly in June of 2022 hit records over $5. So we still have a little bit of ways to go, but work. We're very quickly seeing the gap being closed to those record setting prices in 2022. And we're certainly not done with seeing increases. Just before I hopped on here, I sent out some messages that areas of Kentucky, Tennessee are seeing gas prices go up. And it's very quick to happen. I mean, Great Lakes prices due to some refining issues have gone up literally a dollar from last week to where we are today. And refining issues, along with the Strait of Hormuz being closed, are still actively pushing prices up. People are often asking, well, how bad is it going to get this summer? That's hard to know because I don't know when there's going to be an agreement between the United States and Iran, if there will even be an agreement. So, you know, the sky's the limit. We could see the national average hitting 5. It could set new records. It could even head for $6 a gallon. On the other side, if the strait reopens, we could see the national average by later this summer falling back below $4. But all I know is that 65 days into this skirmish between the US and Iran, it's probably gonna take 65 weeks or longer to see global oil inventories fully recover. If and when the Strait reopens.
- [08:59]
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- [10:14]
Tim Miller
Talk about the Midwest a little bit. You referenced this, but it does feel like they're getting the hardest right now with the gas price increases. Why is that?
- [10:20]
Patrick DeHaan
Yeah, it's all about refineries. You know, a lot of Americans kind of forget that. It's really, you know, we all talk about the price of oil, but if you don't have any oil refineries to be able to process that oil, the product prices can be certainly much higher. And that's what we're seeing in the Great Lakes. There's been a spat of refining issues. This is normally the time of year that you can see some of these issues develop. There's just not enough refining capacity. I mean, you know, there is until there isn't. Right? If you have a fleet of cars and they all break down at the same time, it's like, well, I have a bunch of cars, why don't I have more? But it's always easy to look in hindsight. But refinery issues in the Great Lakes. Several refineries are going down for maintenance and other related issues. And that's causing the price to temporarily surge in the Great Lakes. And this is going to be something on the west coast that becomes problematic as well because California has lost two refineries in the last year, permanently shut down. And there could be issues with jet fuel availability on the west coast because now the west coast is relying more on bringing fuel in because it doesn't have enough refining of its own.
- [11:17]
Tim Miller
Let's talk about the Project Freedom that they're working on announcing today, which is, I guess the goal here is to free some of the ships that are stuck in the Gulf. Just talk about what the impact of that could be on gas prices. I mean, the idea that they're bringing out a handful of ships, you know, at obviously a slower pace than when the strait was open. Is that, do you think, going to mitigate things? Is that more of a long term issue?
- [11:45]
Patrick DeHaan
Yeah, I mean it's all about the degree of how, how open is the strait and how much confidence do ships have on going through on their own. And right now escorting ships on a one by one basis when there's thousands of ships stuck isn't really going to do a whole lot. It really, again, all of this really just stems down to whether ships have the confidence to be able to traverse through the strait on their own. There's not enough military assets in the world to handhold every single one of these vessels through the strait. And I don't know that the US Military could be successful in shooting down an army of drones if Iran chooses to launch them. So this is kind of like lip service to a market that's panicked. Holding my hand through a gun ridden neighborhood is not going to really build my confidence in saying, yeah, I'm okay through this.
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Tim Miller
Right.
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Patrick DeHaan
So. And that's kind of what this is.
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Tim Miller
Yeah. You mentioned the 65 days means 65 weeks. So just doing some quick math in my head. There's 52 weeks in a year. So 65 weeks takes us past May into next summer. So that is that really kind of the rule of thumb here? What is that based on? Like a day of closure of the strait leads to kind of a week of disruption.
- [12:56]
Patrick DeHaan
Every day that goes by, we're missing out on 18 million barrels more of oil. Cumulative total now is over a billion barrels. And you know, time is our worst enemy because every day that goes by it's going to take in my calculation, I'm just throwing out an estimate, maybe a week or longer to recover from. So there will be a big drop in price of fuel if and when the straight definitively reopens. But beyond that, beyond that initial drop, it could take 65 weeks to see a pre war decline to Those lower those sub $3 prices that many Americans saw. And remember some states over the winter saw sub $2 prices. So. So we're not going to see any of that return potentially until global inventories can start improving and rising back to their pre war levels. And like I said, that could take a really long period of time now to build back and the US and our strategic reserves are being drained. What if other countries suddenly want to build their own reserve? Right. There's going to be a lot of catching up to do if and when this rate does reopen.
- [13:54]
Tim Miller
Other impacts, just obviously gas prices affects us and our tank that you're filling up. But you follow those. You mentioned the airlines, jet fuel prices up, diesel. A lot of goods get shipped across the country on diesel, whether it be food and otherwise. What are the other ancillary effects you're watching besides just the price of the pump in everything?
- [14:13]
Patrick DeHaan
I mean, trains, tractors and trucks all use diesel. I mean airlines, jet fuel, I mean, it swallowed Spirit Airlines. The price of jet fuel is really hard to predict that it was going to nearly double. So at the grocery store, Americans are going to be hit with higher diesel prices. Everything in this economy moves via semi truck, right. Or it may go via train and both of those consume diesel. And that's really the impacts that Americans really haven't felt yet. Diesel prices going up have started to have an impact on consumer price indexes. But I think that by June and July, for those people that are going to barbecue on July 4th, there's going to be a little bit of sticker shop. When you buy that barbecue, when you buy those husks of corn, you're going to see dramatically higher prices that are going to hit here in the weeks and months ahead.
- [14:59]
Tim Miller
All right, I appreciate it. You're getting just the facts from him. So if you want to know what's happening in the oil and gas world and how that's going to impact you as a consumer, check out Gas Price Guy on Substack, Gas Buddy on X. And I appreciate it, man. We'll stay in touch.
- [15:12]
Patrick DeHaan
Thanks. Thanks for having me. I appreciate it.
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