Oil Shortages

[Jon Freise]

Hi Everyone,

Not great news.   

As the world's inexpensive oil depletes, the world has become more and more dependent on just a few major oil producers concentrated in Middle East.  And most of those need to ship oil via the Strait of Hormuz.

Places like Europe and China are past peak of production.  Which means that they still produce oil, but less than prior peaks.  And what oil they have left is getting ever more expensive to extract.  That makes it very difficult for them to grow production during a crisis like this one.

Fracking technology, which unlocked a lot of natural gas in the US, has also unlocked some expensive oil.  But fracked oil must escape through the tiny fractures, so it tends to be smaller hydrocarbon chains.  This is called "lighter" oil.

US Refineries were built to refine heavy crude coming from the Middle East.  They run less efficiently on light oil.

https://www.afpm.org/newsroom/blog/whats-difference-between-heavy-and-light-crude-oils-and-why-do-american-refineries

Tankers move slowly and take time to reach their destinations.  They are like a pipeline of oil moving across the ocean.  The tankers that loaded up before the US started the war have been travelling to their destinations.  The last of those tankers will soon be arriving.  After that the real shortages will begin.  And they won't stop until tankers refill, and then travel the whole distance.  So even if the war ended today, it would be 45 days until those tankers could arrive.

Once the tankers stop arriving, the Asian and European refineries will cut back to what supply they can still get.  And then gasoline and diesel fuel will run out.  Those nations will start trying to purchase refined fuel from anyone else who has some.  And who has some? The US.

US gasoline and diesel prices will then rise to the level demanded on world market.  If US consumers cannot pay, then the oil or refined product will be loaded on a tanker and shipped to the highest bidder.

The Republican administration and congress will then face a very difficult choice:  Block exports and anger the fossil fuel companies and Asian and European allies, or leave exports open and anger the US citizens just before the midterms.

Right now we are seeing France and the UK refuse to join the US blockade and instead they will form an international coalition that will escort tankers.

This may well be the end of the US alliance system.

No oil shock scenario I have ever seen has considered what would happen if Russia 11% of supply, and the Strait of Hormuz 20% of supply, and the Red Sea were all interdicted at the same time.  We live in unprecedented times.

We are about to leave the normal economy behind.  And once shortages start to happen and industries start to shut down, people will demand government action.

Locally, this will mean high prices.  I hope it means rationing so that farmers and essential goods transport can get diesel.  But this government is not competent.  So it might be wise to start figuring out how we can help farmers we know stockpile as much fuel as possible so they can complete the growing and harvesting season.  Organic food is fuel intensive even if it uses less petrochemicals.

Because propane can be shipped as an easy replacement for natural gas, one possibility is very high pressure on propane prices.

Again, I am not an energy or financial analyst.  Consult experts (if you can find one).  Government reports might be helpful.  Possibly not the US government.  Canada still has professionals.  The UK.  Australia.  Those are some English speaking sources I have found useful in the past.