00:00Let's talk about crude. Cushions. Cushions matter. Clearly, we had a big cushion going
00:05into the initial war at the start of March, the end of February. How big is that cushion
00:08now to support this market? It's a thinning cushion, John. I'm increasingly
00:13worried that these tensions could eventually turn what's been a relatively orderly market,
00:19where prices have moved in a linear fashion, more or less, and we end up being pushed into
00:25a non-linear event, meaning that rather than just steady movements, we start to see spiky
00:31behavior. In fact, I think crude oil doesn't really tell the full story. The full story is
00:35being told by diesel. It's being told by gasoline prices. I mean, you see crude oil at 90, but look
00:41at diesel straining 150 plus dollars a barrel, gasoline approaching 150 dollars a barrel.
00:47We have a true petroleum product shortfall here. And even natural gas, not in the US,
00:52but globally starting to trend higher again, with prices hitting 60 euros a megawatt hour.
00:59So that's where the price pressures with the pain points are.
01:03Can we go through the potential risks in the future? The first one being the Red Sea.
01:06How much product could we see be taken off the market if the Houthis were to get involved
01:11and make it quite difficult for ships to go through the Bab el-Mandeb straight?
01:15Well, so it'll be another choke point. I think for product, it's maybe not as big. I think
01:21Bab el-Mandeb is a lot bigger for crude oil. And of course, for Saudi Arabia, which has been moving
01:26oil from east to west, has been one of the big relief valves for this Hormuz shutdown, has been
01:32rerouting through the other end of the Arabian Peninsula. But I think the issue with products is
01:38that we have Ukraine hammering Russian refineries, and we have to a third of Russian refining capacity
01:45being hit or being damaged by Ukrainian military activity. On top of that, we have obviously a lot
01:52of oil, petroleum products that go through the Strait of Hormuz. And then just to top that up,
01:57you have a lot of countries in Asia, starting with China, the world's largest refinery toolkit,
02:01with the US hoarding petroleum products and not being active in the export market in order to protect
02:07their domestic economy. So we have some of the biggest players in the world just hoarding,
02:12either hoarding back or being damaged by military action. So effectively, the US remains the place
02:18where you can come and buy your diesel and gasoline if you don't have any. So that's the iron of
02:22this.
02:22Hasn't China, though, sort of put a lid on all of this by softening their imports?
02:27They have, but they have softened their crude oil imports, not their gasoline or diesel exports,
02:34right? Remember, that's what China does. They import crude oil, and at the margin,
02:39they export some petroleum products. But yes, I mean, they've eased the pressure on the crude market.
02:45And they may have to come back, depending on the duration of this conflict, because right now,
02:50they're just drawing down inventory. That's what we're doing. We're drawing down inventories until
02:55until, you know, we get to rock bottom.
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