Javier Blas on Why Oil Could Go Much, Much Higher

Episode Summary

Executive Summary: The episode examines why the Strait of Hormuz crisis has not yet produced panic-level oil prices, despite severe physical disruptions and rationing in parts of Asia. Javier Blas argues the shock is still early, buffered by inventories and oversupply, but refined products, not crude, are where the real stress is emerging. He also explains why U.S. gas remains insulated, why food risks are limited for now, and how the crisis could accelerate coal use and electrification without decarbonization.

Main Topics: Why oil prices are high but not yet panic-level (Priority: 5/5): The hosts puzzle over the gap between geopolitical severity and market pricing. Blas says the crisis is huge but still relatively short-lived, and markets have not fully repriced because buffers are absorbing the shock. Physical market stress vs. financial quotes (Priority: 5/5): The discussion highlights a disconnect between quoted prices and actual barrels moving through the Gulf. In some cases, prices are academic because cargoes are not physically getting out, especially for products tied to the Middle East. Refined products are the real pressure point (Priority: 5/5): Blas emphasizes that gasoline, diesel, jet fuel, and other refined products matter more than crude for consumers and inflation. Singapore diesel/jet fuel benchmarks are showing far more extreme moves than Brent. Regional geography and the east/west of Suez split (Priority: 4/5): The crisis is hitting Asia first because it is closer to Hormuz and more dependent on Middle East supply, while Europe and the Americas are more insulated and will feel effects later due to longer shipping times. Natural gas, electricity, and the uneven energy shock (Priority: 4/5): U.S. natural gas remains detached from global turmoil because LNG export capacity is limited. Electricity and European gas were the epicenter in 2022, but this crisis is more concentrated in oil and refined products so far. Food and fertilizer risks are real but not yet systemic (Priority: 3/5): Blas says fertilizer prices, especially urea, could become a fiscal burden for governments like India and Pakistan, but global food supply is currently better positioned than in 2022 thanks to high inventories, especially rice. Longer-term shifts: coal, electrification, and oil de-risking (Priority: 4/5): The crisis may push Asian countries to reduce dependence on Middle East oil, increasing coal use in the near term while also accelerating solar, batteries, and EV adoption over time—potentially electrification without immediate decarbonization.

Key Arguments: The crisis is severe in size but not yet in duration; markets often take weeks or months to fully reprice a major supply shock. Oil prices are cushioned by inventories, strategic stock releases, and floating storage from an oversupplied market before the crisis. East of Suez markets are feeling the shock first because shipping times are shorter and dependence on Middle East crude is higher. Crude benchmarks like Brent are less informative than refined-product prices for consumers and inflation. Refined-product markets are tighter than crude because global trade in products is smaller and some Middle East refining capacity has been lost. U.S. natural gas is insulated from the global crisis because LNG export capacity is still constrained, keeping domestic prices low. Food risk is limited for now because the Middle East conflict does not hit a breadbasket region the way Russia-Ukraine did, though fertilizer costs could strain government budgets. Ukraine’s attacks on Russian oil infrastructure may remove additional supply, worsening the global shortage. A long-term Iranian toll-booth arrangement in Hormuz would be a dangerous precedent and unlikely to be fully acceptable to regional powers. The crisis could accelerate a mix of coal in the short run and solar/batteries in the longer run, creating more electrification without immediate decarbonization.

Data Points: Brent crude start of year: around $60/barrel - Joe and Tracy describe the move in Brent before the crisis intensified. Brent crude before war: around $70/barrel - Referenced as the level before the conflict escalated. Brent crude at time of recording: about $115/barrel - Used to illustrate the large but not unprecedented rise in crude prices. Saudi oil shipping time to India: a few days to at most a week - Blas explains why Asia feels the shock earlier. Saudi oil shipping time to the Philippines: about 15 days - Illustrates longer exposure for more distant Asian buyers. Saudi oil shipping time to Europe: around 3 weeks - Shows why Europe is somewhat delayed in feeling the crisis. Saudi oil shipping time to the United States: about 40 days - Explains why U.S. markets are more insulated in the short run. Global crude oil market size: about 100 million barrels/day - Blas uses this to frame the scale of the market. Globally traded crude volume: around 60 million barrels/day - Shows how much of crude is exposed to international pricing. Singapore diesel benchmark: approaching $200/barrel - Blas cites this as evidence that refined-product stress is extreme. U.S. shale producer selling price six weeks earlier: about $60/barrel - Used to show how much incentive producers now have at $100 oil. U.S. natural gas price: below $3/MMBtu - Blas notes U.S. gas remains near a six-month low despite global turmoil. U.S. natural gas in 2022: roughly $3.50-$4 to almost $10/MMBtu - Contrasts the current insulation with the prior energy crisis. European TTF gas move since crisis start: up about 70% - Shows Europe has felt some impact, but not a 2022-style spike. German electricity one-year forward in 2022: nearly 1,000 euros/MWh - Blas uses this as a benchmark for the prior energy crisis. German electricity one-year forward now: around 90 euros/MWh - Indicates electricity markets are far calmer than in 2022. Russia/Ukraine wheat and barley exports in 2022: around 25% of global exports - Explains why the 2022 war was a major food shock. Russia/Ukraine corn exports in 2022: around 15% of global exports - Shows the scale of the earlier agricultural disruption. Rice benchmark in Asia: about a 19-year low - Supports Blas’s view that food markets are currently better supplied. Potential Russian oil loss: up to 1 million barrels/day - Blas says Ukrainian drone strikes may be taking significant Russian supply offline.

Pivotal Quotes: "The size is huge. And then it's the length of that disruption, how long it goes." — Javier Blas: Explaining why oil prices have not yet reached panic levels despite the severity of the crisis. "Forget about the price of a barrel of oil. No one cares about the price of oil unless you are someone producing oil in Texas or Saudi Arabia, or you are someone who owns a refinery." — Javier Blas: Arguing that refined products matter more than crude for consumers and inflation. "The refining wall is acting as a buffer in between crude oil that is not there and consumers that have not yet realized that the crude oil is not there." — Javier Blas: Describing how refinery bottlenecks are transmitting the shock into product markets.

Implications: Listeners should watch refined-product prices, not just Brent, because diesel and jet fuel are where inflation and shortages may show up first. If the crisis lasts, Asia faces the earliest pain, governments may ration more, and energy policy could shift toward coal now and electrification later.