this seems only side of the coin. A better version will divide countries in two - one who can pay more and keep their supplies secured like USA, Canada, Europe, Japan, south Korea
then there are other emerging countries like India, China, Vietnam who cant afford with such a unexpected huge deficit in their budget eventually leading to demand destruction.
and altogether all pieces of the story will create a inflation shock (not transitory)
South Korea aside, someone somewhere must be consuming less oil. You have yet to give an account of how the new equilibrium is possible. Was there a surplus of oil before the war that's painlessly disappeared now? Are oil producers elsewhere pumping more? Reserves? Substitution? Questions abound.
Lastly, why is Trump desperate to open the Strait without accomplishing any of his goals vis-a-vis Iran?
Is the Russian invasion of Ukraine comparable with the US-Israeli attack on Iran?
In the former istm that oil and, to a lesser extent, gas was not really removed from the market, just re-routed, with Russian exports going east rather than west.
In the latter, production in the gulf has been cut or stockpiled, admittedly with Saudi rerouted ~ 5m boepd through its pipeline to the Red Sea. Prices have been cushioned by large inventories that are being rapidly drawn down.
There is a lot of commentary that those stockpile drawdowns will really start impacting prices June through September at the same time as seasonal demand increases.
The reroute-versus-removed framing is the right axis to watch. That $380 Brent call in 2022 also assumed removal, and the barrels simply found buyers in the east instead. Iran only breaks that pattern if the drawdowns force genuinely lost production rather than another reshuffle, and the Saudi 5m bpd through the Red Sea suggests rerouting is still the path of least resistance.
The Chinese did not need to maintain their buying levels as prices rose and availability dropped.
The Chinese energy security system is more than stockpiles and reserves management. They have created supply diversification in their hydrocarbon supply chains and hydrocarbon optionality in their energy and industrial value chains.
This supply chain diversity and value chain optionality is a common theme across all their supply-processing security systems. From Energy, food, critical minerals and beyond.
The $380 Brent forecast that bank floated in 2022 assumed buyers were trapped, that demand was a fixed quantity someone had to pay any price for. China's optionality is the rebuttal to that whole genre of forecast: a buyer who can substitute or step back caps the upside long before $200. The scary numbers always model panicked supply and forget that the largest importer has an exit.
One clarification: how should we reconcile this conclusion — that Brent did not spike because “this shock just isn’t that big” — with your recent Brookings article on “the timing of the impending crude crisis”?
Is the distinction that the Brookings piece was a conditional stress case based on gross Hormuz-exposed flows and temporary buffer exhaustion, whereas the newer South Korea data suggest the realised net shock was much smaller because trade substitution worked better than expected?
In other words, has the probability of the “impending crude crisis” scenario now fallen materially, or were the two pieces addressing different questions?
Worth separating the two objects: a conditional stress case and a realized net shock can both hold, since they measure different things. Robin's own $380 Brent example cuts deeper though. A loud enough stress forecast shifts behavior (buffers, substitution, risk-averse governments) and can lower the odds of its own realization. The forecast that "did huge damage" may be part of why the crisis kept not arriving.
this seems only side of the coin. A better version will divide countries in two - one who can pay more and keep their supplies secured like USA, Canada, Europe, Japan, south Korea
then there are other emerging countries like India, China, Vietnam who cant afford with such a unexpected huge deficit in their budget eventually leading to demand destruction.
and altogether all pieces of the story will create a inflation shock (not transitory)
South Korea aside, someone somewhere must be consuming less oil. You have yet to give an account of how the new equilibrium is possible. Was there a surplus of oil before the war that's painlessly disappeared now? Are oil producers elsewhere pumping more? Reserves? Substitution? Questions abound.
Lastly, why is Trump desperate to open the Strait without accomplishing any of his goals vis-a-vis Iran?
Obviously I know nothing but...
Is the Russian invasion of Ukraine comparable with the US-Israeli attack on Iran?
In the former istm that oil and, to a lesser extent, gas was not really removed from the market, just re-routed, with Russian exports going east rather than west.
In the latter, production in the gulf has been cut or stockpiled, admittedly with Saudi rerouted ~ 5m boepd through its pipeline to the Red Sea. Prices have been cushioned by large inventories that are being rapidly drawn down.
There is a lot of commentary that those stockpile drawdowns will really start impacting prices June through September at the same time as seasonal demand increases.
The reroute-versus-removed framing is the right axis to watch. That $380 Brent call in 2022 also assumed removal, and the barrels simply found buyers in the east instead. Iran only breaks that pattern if the drawdowns force genuinely lost production rather than another reshuffle, and the Saudi 5m bpd through the Red Sea suggests rerouting is still the path of least resistance.
The Chinese did not need to maintain their buying levels as prices rose and availability dropped.
The Chinese energy security system is more than stockpiles and reserves management. They have created supply diversification in their hydrocarbon supply chains and hydrocarbon optionality in their energy and industrial value chains.
This supply chain diversity and value chain optionality is a common theme across all their supply-processing security systems. From Energy, food, critical minerals and beyond.
The $380 Brent forecast that bank floated in 2022 assumed buyers were trapped, that demand was a fixed quantity someone had to pay any price for. China's optionality is the rebuttal to that whole genre of forecast: a buyer who can substitute or step back caps the upside long before $200. The scary numbers always model panicked supply and forget that the largest importer has an exit.
Because we have less genders than we had under the Joe Cadaver Biden fraud regime.
Robin — a very helpful piece, thank you!
One clarification: how should we reconcile this conclusion — that Brent did not spike because “this shock just isn’t that big” — with your recent Brookings article on “the timing of the impending crude crisis”?
Is the distinction that the Brookings piece was a conditional stress case based on gross Hormuz-exposed flows and temporary buffer exhaustion, whereas the newer South Korea data suggest the realised net shock was much smaller because trade substitution worked better than expected?
In other words, has the probability of the “impending crude crisis” scenario now fallen materially, or were the two pieces addressing different questions?
It would be great if Robin would respond to his readers! He never does.
Worth separating the two objects: a conditional stress case and a realized net shock can both hold, since they measure different things. Robin's own $380 Brent example cuts deeper though. A loud enough stress forecast shifts behavior (buffers, substitution, risk-averse governments) and can lower the odds of its own realization. The forecast that "did huge damage" may be part of why the crisis kept not arriving.
The anticipated truce & stock market rally appears to be a continuation of episodes of speculation by the insider market. What are your thoughts?