00:00That's right. So I think that we've got a divergent market here. So crude oil is trading on the headlines
00:07and the geopolitics. And it's moving on this idea that maybe there's going to be a deal to eventually emerge.
00:14You've got more ships flowing through the Strait of Hormuz, things like that, that are sort of putting the brakes
00:20on crude, as you mentioned. But diesel is in a different territory. It's pricing on physics and fundamentals.
00:27And there's some real shortfall in the product markets that is causing that $6.50 a barrel or gallon diesel
00:36price that you're seeing at the pump here in America. And that's consistent with a much higher theoretical crude price.
00:42So you've just got two markets. They're telling you very different stories. And so crude declining, in theory, should bring
00:50diesel down a little bit. But I'd expect a long lag. And really, the markets have not been that synchronized
00:55lately.
00:55What's a long lag, Rob?
00:59Months.
01:01Months.
01:01Weeks and months, right?
01:02Just in time for the heating oil season here in the Northeast, because heating oil is basically diesel. I mean,
01:08they're the same price, right?
01:10Yeah, they're pretty much analogous products.
01:13Okay.
01:15Yeah, diesel looks very tight. If you look, there are some specific conditions on diesel that are helping give you
01:22that high price.
01:23Because Ukraine has attacked refineries in Russia. Russia has a diesel export ban. The crude market, there is some oil
01:33getting out. But the Middle East region used to have refineries that were helping meet jet fuel, diesel, all these
01:40products.
01:40And so in a lot of regions around the world, you simply just do not have enough diesel right now.
01:45And so you're seeing that scarcity reflected in the product price.
01:50All right. I'm always thinking about side gigs, whether it's raising cattle or drilling for oil. But I think it's
01:55building refinery.
01:56So if I want to go down to the Gulf Coast, like Louisiana, how long would it take me to
02:00build a refinery?
02:00I love that you're obsessed with this question. And the timeline for bringing new refining capacity on has to be
02:08thought of in years, maybe even decades.
02:12So there is no near-term solution. The near-term solution is to get the existing refineries back online and
02:20get the products flowing the way it was prior to the crisis.
02:22And that's what's happening in the U.S., right? The refineries are working, it feels like, overtime. They're just going
02:28flat out.
02:29But that also means that they put off regular maintenance, which could create some problems later on, too.
02:34Yeah, absolutely. The typical refinery in the U.S. and the West right now, they're all running at about 100
02:41% right now.
02:42So there is no slack in the system. And they're doing the best they can.
02:47But if there is deferred maintenance or anything like that that makes a refinery trip offline, that would be consequential
02:55and not good news for the product markets.
02:57Talk to us about demand destruction from higher price.
02:59Yes.
03:00Mike McGlone talks to us about that all the time. Is that a thing here with the refined products?
03:05You absolutely are seeing some demand destruction in the marketplace, but it's not nearly as much as people would have
03:13thought.
03:14The economy around the world continues to hum along.
03:18And so we're continuing to use the products.
03:23I think maybe you've seen, like, in the aggregate, maybe a few percentage points decline in demand, but nothing that
03:32shocking.
03:32So 20% of the global oil supply, something like that, was flowing through the Middle East, Gulf region prior
03:39to the conflict.
03:41And there's a lot of complications with getting that out.
03:44It hasn't been a full reduction, but the demand response has been pretty minimal because prices haven't gone high enough
03:51to really kill demand.
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