00:00I want to bring up the picture of that map again that showed how compromised the Red Sea was now,
00:04how compromised the stratiform was, too.
00:06And now you see the east-west pipeline compromised, too.
00:09You start to wonder, Stephen, just how much crude is getting out right now, and how is it getting out?
00:14Yeah, absolutely. The reports are certainly sketchy here.
00:17Now, there have been verifiable anecdotes that oil is getting through the horror moves,
00:22as Secretary White did correctly point out, that the trend is upwards.
00:27But how is it getting out?
00:29It's coming out under guard. It's coming out, ship transfers, which take time, increase logistics.
00:36So the oil is trickling out, but it's nowhere near, and it's still a fraction of where it was prior
00:41to the start of hostilities.
00:44What is not being said right now is regardless of the east-west pipeline, and of course that being down,
00:50is significant, and the export facility, Yambou, only has about five to seven days' worth of inventory of export cover.
00:59So obviously the east-west pipeline is down for more than a week, then we are looking at yet another
01:03shortage.
01:04But keep in mind, the Houthis now have control of that export outlet.
01:08The Bab al-Mandib, which is the other choke point in the region, is now effectively in Iran's control.
01:14So Iran is squeezing Saudi Arabia on both the east and the west through Hormuz and through the Bab.
01:20So regardless of when the pipeline gets up and running, which, again, could be, if the reports are to believe,
01:27four to five weeks,
01:28we do not have the export cover in storage on the end of the pipeline.
01:39Given all this, Stephen, do you even think Brent is reflecting the realities you just walked through?
01:46It is, but not the Brent we're looking at.
01:49Keep in mind, we are looking at the futures price.
01:52So we are looking at paper contracts for delivery next month, two months from now,
01:57whether it's the Brent market or the WTI market.
01:59What we're seeing in the physical market, dated Brent, these are North Sea cargos that already have a schedule to
02:06load.
02:06Those are trading at significant premiums.
02:09And this is the way oil trading works.
02:11It's not, if I'm an oil company, a refiner, I'm not buying the futures price.
02:16I'm buying a cargo that is based in the futures price is a derivative, and I trade at a premium
02:23to that futures price.
02:24And what we're seeing in the dated Brent market, the Dubai market, the physical markets,
02:28they're trading at double-digit premiums to what the futures price is.
02:32So if we're looking at Brent at, say, $110, it's actually, the physical cargo is trading at $125, $130 a
02:40barrel.
02:41So we are back to levels not seen since the start of the war, and we are, again, in a
02:45very precarious situation.
02:47Where do we have insurance?
02:49Because yesterday we spoke to the energy secretary about how low the SPR is, the lowest going back to the
02:54mid-1980s, and he said that they will refill it.
02:57I mean, it's hard to think that they're going to refill it at these prices.
03:00Where in the world are there strategic inventories to draw down on?
03:05It's an excellent point because, yeah, the SPR at some point in the future, i.e. 5 to 10 years
03:10from now, will be refilled.
03:12It's not going to happen before the holidays.
03:15It's not going to happen with Venezuelan crude oil, I think, as we spoke last time.
03:20So it will be.
03:21But essentially, the SPR now in the United States is drawn down, will be drawn down by November to its
03:27operational limits.
03:28So we've gone to that well, and that well is virtually dry.
03:32And we'll say the same thing with Western Australian Petroleum Reserves and even China now.
03:37China was seen as an aggressive buyer in the physical market for the past two weeks because speculation is, because
03:43you don't get a lot of data out of China, is that, one, their economy did slow down significantly as
03:49refiners were told to stop buying or stop manufacturing.
03:52And they've drawn down their own strategic petroleum reserves.
03:54And this is why we are really at, you know, we'll go back to a little bit of our high
03:58school calculus.
03:59We're at that DY over DX moment here where we've drawn down our strategic petroleum reserves.
04:05We've played that card.
04:06The well is effectively dry.
04:08We're seeing it now reflected in the futures market, not in the spot price, but in the term structure, the
04:14forward curve, the price for November over December, the December premium over January.
04:19And we're now trading at significant levels where if you have the supply, you are paying to draw that supply
04:25out of inventory, the demand in the spot market.
04:29The problem is we've played that card already.
04:31So we really don't have a plan C at this point.
04:35So when we say that inflection point, something is going to give in the next few weeks because both the
04:42United States and Iran are playing a game of chicken at this point.
04:47And right now it would appear with the strain on the straight of Hamus and the Bab al-Mandib that
04:54Iran now has the upper hand at this juncture in the war.
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