Crude prices spike as Saudi pipeline closes and Libyan protests stifle supply

00:00 Josh

Oil’s on the move again today. What happened? What was driving this leg higher?

00:03 Speaker B

That’s exactly right. You see Brent prices back around $108 a barrel, WTI, the US benchmark, trading around 105 right now after pulling back overnight. Really two headlines out of the Middle East leading that. We need to go back to the weekend. We saw Saudi Arabia shut down its east-west pipeline, which was getting oil out of the Persian Gulf to the Red Sea, shut that down after attacks from Tehran-backed militia groups in Iraq. This morning,

00:41 Speaker B

Reuters reporting that Saudi Arabian officials have started telling European buyers they’re going to have to suspend loadings from the port that pipeline comes out to in the Red Sea in September, threatening those future supplies. We also got a headline that Libya has had to shut down production in several of its fields after protest activities. Basically, this is the story we’ve been telling. The pressures are growing and growing and growing. Every time it looks like maybe the market’s going to get just a little bit of reprieve, something else happens with no

01:21 Speaker B

pressure coming off and pushes those prices ever higher.

01:25 Speaker B

When we often talk about oil markets, what we usually talk about are the futures prices. That’s that Brent benchmark, the WTI benchmark. What the futures curve is predicting where the market believes oil will be trading in the future, where you would buy a a cargo of oil in July, in August, or in December, looking further out. The physical prices on Brent, what we call dated Brent. That’s what you actually are buying and selling oil for

01:59 Speaker B

right now, what the oil trading houses and traders are actually buying and selling that barrel for. That’s the actual market clearing price. If Josh needs a barrel of oil right now, he’s not paying $108 a barrel for Brent, he’s paying 130. And when those prices are this dislocated, one of them has to be right. And the thinking increasingly is that at some point the futures curve is going to have to come up to meet the physical prices because there is no off ramp for oil right now. There is no way for

02:34 Speaker B

pressure to lessen. We see the pressure on refined products too. Gasoline hitting record highs, diesel prices hitting record highs. That’s what impacts what you’re buying because you’re right, the average American consumer is not buying a barrel of crude oil. Nobody’s really buying crude oil to use it. They buy it to turn it into things, diesel, gasoline. But the problem you keep running into, refining around the world is running at 100% capacity. If you can’t create more diesel, create more gasoline, create more jet fuel because the system’s already maxed out,

03:06 Speaker B

those prices have nowhere to go but up.