More on Oil
Brief review on the Oil Situation created by Trump and the US. Another week of consequential developments, including a potential new chair at the Fed and more war delivering higher prices.
“Who’d a Thunk It? We’re Bogged Down In a Middle-East War,” Jared Berstein substack
It has long been clear to me that Trump views his (and Netanyahu’s) strike on Iran as a Maduro-type intervention: go in quickly with massively superior force, decapitate the leader, declare victory. He was warned it was unlikely to play out that way, but his gut told him otherwise. Now thousands have died. The new regime seems at least as bad as the old one. The nukes question is unsettled. Most consequentially for the global economy, Iran has learned it has a strong card to play. It can disrupt the Chokepoint of Hormuz.
In terms of prices for consumers, here’s spot oil and gas prices:
Another week of consequential developments, including a potential new chair at the Fed and more war delivering higher prices. I’ve been remiss in posting on war-econ impacts so let me get back to that now.
The key point is that after sliding down some when the ceasefire took hold, both gas and oil are going up again, as the situation remains fluid, foggy, and volatile. Some version of a ceasefire remains in place, and, in a point that markets have been generally upbeat about, both sides seem to want to get to a resolution. The problem is that their resolutions are quite different, which is where negotiating comes in, but from what I’m picking up (and others will have more informed takes on this), they’re having trouble getting any traction with these talks.
Meanwhile, GS estimates that production in the Gulf is down from 25.4 m/bd (million barrels/day) before the war to 11.5 m/bd now. That’s hitting Asia and Europe a lot hard than us, but we’re feeling it too. Most of that non-production of crude oil is due to blocked passage, meaning very little is due to physical damage, though the latter is a bigger problem for LNG. That means at least crude flows could pick back up, given a durable resolution. Here’s GS on that point:
We find Gulf production is likely to mostly recover within a few months of reopening assuming
1) no renewed strikes on oil assets, and
2) a full and safe reopening of the Strait in coming months.
However, we see significant risks that the last leg of the recovery will take significantly longer and may not fully materialize, especially if the Strait were to remain closed for much longer.
Be prepared for higher prices for a long time to come. I am seeing and reading about layoffs as the economy appears to be slowing down. By all means if you see differently, I welcome better news.