{"text":[[{"start":5.92,"text":"The writer is co-founder and director of market intelligence at Energy Aspects"}],[{"start":10.8,"text":"A cursory glance at international benchmark oil prices belies the extent of the crisis under way in global energy markets."}],[{"start":18.512,"text":"Prices for West Texas Intermediate and Brent crude in futures contracts are just below $100 per barrel. Yes that is high but the prices do not reflect the huge scale of the disruptions to crude oil flows through the Strait of Hormuz."}],[{"start":36.32,"text":"Energy Aspects estimates that crude and condensate production losses are now at 13mn barrels a day, or 15 per cent of global supply — the biggest in history and parallel to the scale of losses in demand we saw during Covid-19. In many ways, this is the reverse of the impact of Covid with production shortfalls likely to hit demand rather than the other way around."}],[{"start":58.51,"text":"If one looks at actual physical crude prices, the disparity is mind-boggling. Dated Brent — the price of the physical cargoes of crude in the North Sea — traded above $140 per barrel prior to the ceasefire and other Atlantic basin cargoes are trading above Dated Brent."}],[{"start":77.44,"text":"Once the elevated cost of shipping is added, these cargoes are being delivered to Asia at anywhere between $150-170 per barrel. This is why refineries around the world are struggling to make the products we consume such as gasoline, diesel and jet fuel profitably."}],[{"start":94.88,"text":"While diesel and jet fuel prices on exchanges soared above $200 per barrel before the ceasefire (they have come down since), other products are factoring in prices for physical crude lower than the current prevailing levels. For example, gasoline prices in Europe are trading $30 per barrel below the price for a cargo of Forties (North Sea) crude. That is a discount that is four times greater than levels seen during peak Covid."}],[{"start":121.84,"text":"Globally, average benchmark product cracks — the difference between prices for refined products and crude — are similar to 2022 highs when Russia invaded Ukraine. But the differential between physical crude costs and benchmark crudes is five times higher, pushing refiners to make cuts in production even if they are able to source the crude."}],[{"start":146.38,"text":"Importantly, this is not just happening in Asia – the region most exposed to the blocked transit as 90 per cent of the flows through the Strait of Hormuz head there. Asian refiners, prioritising security of supply rather than economic margins, are vacuuming up all Atlantic basin crudes."}],[{"start":165.297,"text":"US crude exports to Asia, which are usually 1mn b/d, are set to jump to over 2mn b/d for April and May. We forecast such elevated US crude exports will mean inventories in the key Gulf coast regional market — known as the Petroleum Administration for Defense District 3 — will fall to around 205mn barrels by the end of May — down 35mn barrels year-on-year. By the end of June, levels will be critically low, even after accounting for the approved releases from the US Strategic Petroleum Reserve."}],[{"start":203.057,"text":"So pressure is mounting on European and some US refiners from increased competition for crude. Asian refiners usually procure crude two months in advance. That compares to one month out for Europe companies and just weeks or days for US refiners owing to access to pipeline crudes. If the Hormuz disruptions are prolonged, refiners globally may have to pay more to secure crude and shift their buying patterns to coincide with Asian cycles. Otherwise they will risk being left without sufficient supply."}],[{"start":236.72,"text":"This could come as a shock to policymakers who haven’t necessarily appreciated enough how global oil markets are. The biggest producer of oil right now, the US, is not immune from crude shortages because the region with the largest needs, Asia, is willing to pay up for US crude."}],[{"start":255.639,"text":"To avoid shortages in the US, policymakers will have to accept a higher price or consider dramatic market interventions like restricting exports which would have the perverse impact of shutting down refinery operations and upstream production along the US Gulf Coast. Most of this production is geared to exports and difficult to reroute domestically because of the geographical and infrastructure split of the country."}],[{"start":280.48,"text":"The futures price is giving those in charge a false sense of security. The real price of oil is the price refiners and sellers are transacting at and that they will ultimately pass through to consumers."}],[{"start":293.024,"text":"US average retail gasoline prices have already risen sharply, and diesel prices are nearing record highs even if futures prices have remained relatively benign. Moreover, holding down futures prices will be an exercise in futility if the war does not end quickly."}],[{"start":313.68,"text":"The lower the futures price is today, the higher it will need to get down the line as it is not sending the appropriate market signals today to balance demand with much-curtailed supply."}],[{"start":327.04,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776219158_1084.mp3"}