Physical Oil Goes Over $250 / Barrel

Real, Not Digital, Oil

Crude oil exports through the Strait of Hormuz remain down 90+% from the start of the Iran War.

Tweet volumes are different from crude oil movement volumes.

Figure 1 - Oil Exports Through Strait of Hormuz; source: S&P/Kpler / @crudeoil231 x.com

Global oil inventories (both stored and in-transit) are seeing a continued 15 million (M) barrels draw-down every day impacting first, and on a compounding basis, Asian countries that are heavily dependent up Persian Gulf oil production.

But the oil market is largely global and Asian countries continue to bid for oil delivery as not just a decline in economic activity but general social chaos and death can result from insufficient oil imports.

Oil tankers heading for Europe are turning mid-transit and heading to Asia and we can see why.

Physical Oil Bid Over $250 / Barrel

Yesterday, HSBC Group’s CEO, Georges Elhedery made the following comment (FT.com also reported the comment) in a Bloomberg interview on the cost for delivered physical oil:

“… What worries me is not the headlines. I mean, oil headline is above $100, $110. Realistically, if you are now trying to get oil from the Middle East, you may be paying $140, $150.

Realistically, if you try to get oil from the Red Sea, you are paying more than $30, $40 for shipping. Insurance costs, which used to be 25 basis points, is more like 5%, and war insurance has been scrapped — you’re paying 5% without even the war insurance component.

So the barrel of oil door to door or the barrel of refined oil door to door is way above the headline price of oil. The highest I’ve seen, and I’m hoping we don’t see more of that, but the highest I’ve seen is $286 for a barrel of oil that reached Sri Lanka. This is not a country and an economy that can easily afford these kind of prices sustainably. …”

Sri Lanka was 100% dependent on oil deliveries from the Persian Gulf before the War. And as deliveries have slowed and their stockpiles started to be drawn-down, Sri Lanka is raising its bid for oil delivery to sustain itself. And this is just the beginning.

Oil pulled from delivery to other markets (Europe, US, etc. - yes, the US imports and exports oil) will, with time, see the price of physical oil surge there as well as oil is drawn away. And it will take many months for oil flows to be restored after this conflict is stopped.

The systematic deconstruction of our societies that we’ve seen over the past several decades is now greatly accelerating.

Accumulated societal wealth and systems built over centuries that sustain a high quality of life are being wrecked.

Follow the actions of political leaders - not their words - to determine their intentions.

What is today was inevitable and visible from a long way off when this war of choice was started and as it is continued each day.

Remember, ‘You will have nothing. And you will be happy.”

NOT.

Got silver, gold?

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“In politics, nothing happens by accident. If it happens, you can bet it was planned that way.”

― Franklin D. Roosevelt

Best regards,

David Jensen