Overview of Javier Blas on Why Oil Could Go Much, Much Higher
This Odd Lots episode (recorded March 31) features Bloomberg energy/commodities columnist Javier Blas explaining why the current Middle East disruption — centered on the Strait of Hormuz — could push oil and refined-fuel prices much higher. He emphasizes the difference between the size and the duration of the shock, why refined-product markets (jet fuel, diesel) are already under extreme stress even if headline crude benchmarks look “contained,” and which buffers are currently cushioning the market. He also discusses regional impacts, the limited short-term relief U.S. production can provide, implications for food/fertilizer, Russia-related supply hits, and longer-term geopolitical and structural effects.
Key takeaways
- Two crucial variables: the size of the supply disruption (very large) and its duration (so far short — ~1 month). Price trajectories depend heavily on how long it lasts.
- Headline crude benchmarks (Brent ~ $115 at recording) understate pain in some markets. Refined products — especially jet fuel and diesel in Asia — are trading at extreme premiums (Singapore diesel/jet approaching ~$200/barrel).
- Buffers (commercial inventories, strategic reserves, and floating storage) are currently cushioning markets; their exhaustion would force much higher prices.
- Geography matters: the market is effectively split east-of-Suez (Asia, closer to Middle East flows and affected sooner) vs west-of-Suez (Europe/Americas, impacted later).
- A severe prolonged closure could produce export bans and a situation where oil cannot be bought “at any price” in some markets.
- U.S. shale can add supply and profits at $100+ oil, but cannot fill the multi-million-barrel-per-day shortfall within months.
- Natural gas in the U.S. remains cheap (below ~$3/MMBtu) because of limited LNG export capacity, insulating U.S. industry from the global energy shock.
- Fertilizer (urea) prices are rising and present fiscal pains for subsidy-dependent countries (e.g., India) more than an immediate global food shortage — but longer duration raises risks (monsoon/weather sensitivity).
- Russian export infrastructure attacks (Ukraine strikes on terminals) may further remove ~1 million b/d from supply, compounding the gap.
- Longer-term, the crisis could accelerate more coal and more rapid electrification in Asia (i.e., “electrification without decarbonization”) and prompt policy shifts — but not a near-term move away from dollar invoicing of oil.
How the oil market works (relevant basics)
- Benchmarks: Brent is shorthand for an Atlantic-basin averaged barrel (North Sea + some Atlantic imports). Middle Eastern crude is better represented by Oman/Dubai benchmarks.
- Global crude market size: ~100 million barrels/day produced; ~60 million b/d traded internationally. Refined-product global trade is much smaller and therefore more sensitive to localized disruption.
- Time-to-delivery matters: shipments from Saudi Arabia reach India in days, the Philippines in ~15 days, Europe in ~3 weeks, and the U.S. Gulf in ~40 days — so impacts are staggered geographically.
Why refined products are already spiking
- Refineries in the Middle East supply a large share of exported jet fuel/diesel; some of that refining capacity is offline or cut off from trade.
- The refined-products market is smaller than crude trading, so modest disruptions can cause extreme price moves (Singapore diesel/jet fuel >> 2022 highs).
- Refineries are also reducing crude intake in places, creating a “refining wall” between crude shortages and end consumers; the only market signal to reduce demand is much higher refined-product prices.
Buffers moderating the shock
- Commercial inventories (refineries, traders)
- Strategic petroleum reserves (U.S., Europe, Japan, China — some releases underway)
- Floating storage (tankers holding oil awaiting buyers) These have blunted immediate panic; if the disruption persists, those buffers will deplete and force much higher prices.
Regional and commodity divergences
- East Asia: already facing rationing measures and very high refined-product prices due to proximity to the Strait and reliance on Middle East barrels.
- Europe: will be affected later; gas/EU energy situation is less severe than 2022 but TTF has risen ~70% since the crisis began (then came off).
- United States: insulated for now — natgas is low (near six-months lows, under $3/MMBtu), LNG export bottlenecks trap gas domestically; electricity prices are not flashing a systemic crisis.
- Coal and electricity: many Asian countries are increasing coal use in the short term, even as solar and batteries are the medium-term response; possible “electrification + more coal” outcome.
Food and fertilizer implications
- Urea and other fertilizer prices are rising toward 2022 highs; this is a fiscal/affordability problem in heavily subsidized markets (e.g., India, Pakistan) rather than an immediate global food supply shortage.
- Global grain inventories (wheat, rice) are relatively healthy versus 2022; rice inventories are at multi-year highs.
- Main agricultural risk hinge: if the crisis lasts months and poor weather (e.g., a weak monsoon in India) compounds stress, food problems could materialize.
Russia/Ukraine overlay
- Ukraine has struck Russian export terminals (including far-north terminals), potentially taking ~1 million b/d offline — adding to global supply losses and complication.
- This adds to the uncertainty already created by Middle East disruptions.
Geopolitics and structural questions
- Iran’s law signaling a “toll” on the Strait of Hormuz raises the specter of a permanent new constraint; while countries might accept a small fee on paper, the political/security precedent is destabilizing.
- Oil invoicing in non-dollar currencies is still limited: producers value liquidity, convertibility, and established reserve-status of the dollar — a major switch away from the dollar is not imminent.
- Crisis could accelerate both short-term coal use (to reduce oil dependence) and medium-term investments in solar/batteries and electrification; risk of higher emissions in near term.
Notable quotes from Javier Blas
- “No one cares about the price of crude unless you’re a producer or a refinery. What matters is the price of refined products.”
- “We are losing so much oil that either the conflict ends soon or prices need to move much, much higher.”
- On extreme scenarios: “I can see a scenario in which no matter how much you are paying for a barrel of oil, you may not find a buyer.”
What to watch next (indicators and timelines)
- Duration: does the Strait-of-Hormuz disruption persist beyond several weeks/months? Duration is decisive.
- Singapore jet fuel/diesel prices and margins (real-time indicator of refined-product stress).
- Oman/Dubai benchmarks and physical Middle East export flows (actual cargo movements vs quoted prices).
- Inventory drawdowns: commercial, strategic, and floating storage levels globally.
- Russian export volumes and damage assessments to terminals (satellite imagery / shipping data).
- LNG cargo flows, new liquefaction capacity ramp-up, and European TTF movements.
- Fertilizer tenders (India, Pakistan) and monsoon/weather forecasts for South Asia.
- U.S. shale production response (speed of ramp-up) and diesel/gasoline price trends domestically.
- Central bank cross-checks: inflation data (via energy channels) and any policy reaction.
Bottom line
The shock to oil markets is large and could become much worse if it persists. Headline crude prices give an incomplete picture; refined-product markets (jet fuel/diesel) and geographic proximity to the Strait of Hormuz are where the pain is most acute today. Buffers have so far prevented a full-blown panic, but their depletion and further supply losses (including from Russian terminal damage) would force oil and refined-fuel prices materially higher — with major fiscal, political, and energy-structural consequences worldwide.