00:00Before we dig into it, though, you are in Houston. I have a lot of family throughout the state of
00:04Texas. Such an important area when it comes to the U.S. energy and oil markets. What are the
00:10conversations that folks are having in the oil industry in Texas and Houston about the impact
00:17this war is having? Yeah, thanks for having me. As you can tell, we're having some lovely weather
00:23in Houston right now. I mean, one of the big conversations we're having here is how does it
00:29disrupt the oil or the price of oil that's flowing to the huge refining and petrochemical
00:35corridor that's just 20 minutes down the road from me here in Houston, Texas. And as we reported
00:41earlier today, we're seeing some of that impact on diesel prices. I mean, in America, we love to
00:48talk about gasoline. It's what millions of people every morning see when they're driving to work.
00:53But the pain point at the moment really feels like it's diesel which crossed the $5 threshold
00:59this weekend, which is a level we haven't seen since 2022 in the early days of the Russia-Ukraine
01:07conflict. What is the relationship to diesel's price and the inputs that make diesel diesel? Because
01:12these are not the highest oil prices that we've seen by any means. But like you said, it's only been,
01:18diesel's only been $5 a gallon at one point ever before. That was back in 2022. But oil prices have
01:25been higher than they were in 2022, back in 2008. So what is it about this environment that gets diesel
01:30up to $5 a gallon? Yeah. So across fuels, the biggest input is always oil. That's what drives the
01:37largest part of the gallon cost of either gasoline or diesel. But we came into this year, especially in
01:44the US with kind of low stocks compared to the 10-year average for diesel. So naturally when inventories
01:51are low, that can create a more volatile environment for the fuel. Another big factor is all oil isn't
01:58equal. We have lighter grades. We have heavier grades. In West Texas, we're pumping 13 million
02:05barrels a day of light crude that's really good for making gasoline. But what's being curtailed and
02:11constrained in the Strait of Hormuz are these heavier grades, which are generally better alongside
02:18Venezuelan and Canadian oils for making that diesel. So this conflict has affected the barrels
02:25that are better at making that fuel. And that's one of the reasons we've seen some higher price spikes
02:32for diesel than for gasoline. Nathan, as you guys, you and the team report out, given its ubiquitousness,
02:38diesel's rising costs create higher prices for just about anything further down the supply chain.
02:41Be it lumber hauled on railway, flat core cars, or green peppers shipped to your local grocery store.
02:47Like we have to think about how it filters through. Having said that, you do kick off the story,
02:54you guys do, and you quote somebody, a small business owner that said, this is going to cripple
02:59our economy. I don't think people think about how much the economy rides on diesel fuel. Tell us about
03:04this individual. Because by telling those small stories, or those small business owners,
03:08backbone of our economy, we kind of learn a lot. Yeah, I mean, if we if we think about in
03:14terms of
03:14numbers, in the US, we're consuming 4 million barrels a day of diesel. 75% of that goes into
03:21transportation. And that's not just your 18 wheelers trucking, you know, big logs across the
03:27Pacific Northwest. That's this person we spoke to who sells sells firewood in the northeast of
03:33England. Sorry, northeast of America. And so the impact we're seeing of this this fuel hitting $5 a
03:40gallon, it's it's it's not just these big industrial purposes, be it trucking or running tractors,
03:46it's going down to mom and pop stores. Another person we spoke to later in the story is a landscape
03:53contractor here in Houston. And he's got to buy that fuel for his trucks that carries
03:57his equipment and also buy fuel for for his lawnmowers and what he's actually doing his work
04:02with. Yeah, and this is this is exactly what the Fed was trying to figure out this week and what
04:07we've
04:07been trying to figure out if this landscaper has to spend more on fuel, if this producer of firewood
04:12has to spend $11,000 a month instead of, you know, $6,000 a month on this fuel, what does
04:18it mean
04:18for customers, but also what does it mean for how they're spending other money? How do you look at
04:23that in the way that the diesel prices ripple through the economy, not just in the context of
04:27they go through everything, but how people pull back on other things when when this stuff gets
04:32more expensive? Yeah, I think one of the landscaper's comments was really interesting,
04:36which is that for now, he's not adding costs to his services. He's not adding a fuel charge like
04:42some might because he sees this as an opportunity to to gain some market share. But down the line,
04:47there is a point he'll eventually have to. And I think that's really emblematic of the point
04:51we're in in the diesel price spike, which is that people are assessing their options and may ultimately
04:57be forced into raising their prices at some point down the line. But we're not necessarily necessarily
05:02there yet. Yeah, right. This is goes back to kind of what is the really the main focal point when
05:07we
05:07think about this US war in Iran, like how long this goes on. Interesting, because on a day when we've
05:14got
05:14CBS reporting that the administration might be thinking perhaps about putting or getting ready
05:20to put troops on the ground, like you don't you know, does that mean that that's a further escalation?
05:25Does that mean this goes on longer? Or is that a way, a means to bringing this to an end?
05:29And I guess
05:29that's what we have to all kind of figure out. But that's how you have to figure out, right? All
05:32these
05:33business owners, they must be just watching closely to figure out how long this goes on.
05:37Yeah, and I think the interesting thing is, if we compare gasoline and diesel again, a consumer can
05:43can cut down on their trips, right? If you're dropping your kid at school in the morning, you can
05:48tag on your shop, maybe that's going to cost some of your weekly mileage, the diesel, the average
05:52diesel consumer can't do that, you know, they have set trucking routes, they have set customers they
05:57need to meet. So that's kind of why we're so interested in this fuel as a as a barometer, because
06:02it's a harder one to to economize on in America.
Comments