What I don’t get is why prices aren’t already rising more than they have. It seems like literally everyone except the Trump administration itself expects the strait of Hormuz to remain blocked for a long time, so shouldn’t that be priced in already?
Global oil reserves. Created and maintained to prevent just such a thing. It’s part of the dance the the oil industry has been doing for decades to prevent fuel hardships and price hikes, and keep people choosing to stick with their cars, instead of using public transport or alternative fuels. And it’s worked since the Arab oil embargo of the 70’s… (I was there… it was fucked up how fuel was ratioined and expensive…)
Those reserves are what the article is pointing out.
They’re coming close to hitting the level that means there is literally not enough oil to maintain the pipeline pressure that keeps it moving to the refineries. Nor is there enough oil being pumped in the US to maintain the global supply. This is BIG. Once that internal pipeline pressure drop happens, it’s going to be the price increases from hell and shortages galore.
Makes me supremely glad I can ride my bike to work.
And specific cap on oil prices is because depletion of those reserves have been so rapid, together with less China imports (they have their own high reserves). This can make the latest wolf cry for imminent peace more likely true, if reserves are on the brink.
Normally you would see the massive shortfall where ~15% of global oil demand needs to be destroyed by price increases, and you would then assign the risk that happens, and take the integral over your risk distribution times your pricing scenarios.
However, two things are going wrong:
markets wildly overestimate Trump’s words and ability to resolve this, so are mis estimated risk
oil execs are happy with the extra income
So they’ve put off the price increases entirely because of hubris.
they’ve put off the price increases entirely because of hubris.
They also don’t want to bite the hand that feeds them. They know that oil prices are the only thing that the majority of Americans really care about when it comes to politics. They also know that the trump administration is more than willing to cut down any government regulation or energy competitors they want. Keeping the public happy domestically and selling exports overseas for significant profits works out fine for them. They know who butters their bread.
What I don’t get is why prices aren’t already rising more than they have. It seems like literally everyone except the Trump administration itself expects the strait of Hormuz to remain blocked for a long time, so shouldn’t that be priced in already?
Global oil reserves. Created and maintained to prevent just such a thing. It’s part of the dance the the oil industry has been doing for decades to prevent fuel hardships and price hikes, and keep people choosing to stick with their cars, instead of using public transport or alternative fuels. And it’s worked since the Arab oil embargo of the 70’s… (I was there… it was fucked up how fuel was ratioined and expensive…)
Those reserves are what the article is pointing out.
They’re coming close to hitting the level that means there is literally not enough oil to maintain the pipeline pressure that keeps it moving to the refineries. Nor is there enough oil being pumped in the US to maintain the global supply. This is BIG. Once that internal pipeline pressure drop happens, it’s going to be the price increases from hell and shortages galore.
Makes me supremely glad I can ride my bike to work.
And specific cap on oil prices is because depletion of those reserves have been so rapid, together with less China imports (they have their own high reserves). This can make the latest wolf cry for imminent peace more likely true, if reserves are on the brink.
Normally you would see the massive shortfall where ~15% of global oil demand needs to be destroyed by price increases, and you would then assign the risk that happens, and take the integral over your risk distribution times your pricing scenarios.
However, two things are going wrong:
So they’ve put off the price increases entirely because of hubris.
They also don’t want to bite the hand that feeds them. They know that oil prices are the only thing that the majority of Americans really care about when it comes to politics. They also know that the trump administration is more than willing to cut down any government regulation or energy competitors they want. Keeping the public happy domestically and selling exports overseas for significant profits works out fine for them. They know who butters their bread.