American oil executives spent months warning that a prolonged closure of the Strait of Hormuz would cause a fuel crisis. At an energy conference in Austin on Friday, they said it has arrived.
Chevron (CVX) chief executive Mike Wirth described what has run out: “All these mechanisms helped to mitigate the price and supply risk. Those have largely now played out, and we don’t have nearly the buffers in the system that we did when it began.”
Asked where prices go, he was candid about not knowing, and candid about the direction of the uncertainty: “I wish I could tell you that I saw some reason why things would ease, but it’s difficult right now to see that happen.”
What’s actually depleted
Commercial fuel stocks around the world have been drawing down for more than six months, and strategic crude reserves cannot be tapped much further. Attacks last week shut a crucial Saudi pipeline that bypassed the strait — the east-west line running from the Abqaiq field to Yanbu al-Bahr on the Red Sea — stranding at least 2.5 million barrels a day from an already tight market, analysts estimate.
The result at the pump: diesel at a record $6.23 a gallon, and gasoline back to $4.32 after slipping below $4 this summer. U.S. crude has jumped 22% in three weeks to near $106; Brent rose 2.9% on Tuesday to $108.75.
China is part of the squeeze. The world’s largest oil importer had for months leaned on its own stockpiles for nearly half of daily consumption, giving the market a reprieve. In recent weeks it has resumed bigger purchases from international suppliers.
Dan Pickering of Pickering Energy Partners adds the seasonal problem: diesel supplies are tight because of refinery outages following conflicts in the Middle East and Russia, and demand is about to rise as farmers enter harvest season. “Diesel has no easy solution.”
The tripwire, tested in public
This is the part that matters most for anything already owned here, and it is worth stating precisely.
The published tripwire on the refining position — Valero Energy (VLO) — has never been the fuel price. It has always been a policy move toward restricting diesel exports, because that would cap a U.S. refiner’s best market at exactly the moment its margins are widest.
At the Houston conference on Monday, Interior Secretary Doug Burgum was asked directly about persistent speculation that the White House is weighing a temporary ban on U.S. exports of refined products. He rejected it. The administration, he said, does not believe such a move would quell prices: “We will do anything that helps the price at home. But we’re also going to be smart about it, and not just have some idea that if we stop exporting, that somehow magically is going to help the prices.”
So the condition was put to the people who would have to make the decision, and they said no. That is not a guarantee — policy reverses, and an administration that promised lower pump prices is under real pressure. But a written tripwire is only useful if you actually check it, and this week it was checkable.
What the White House is doing instead
Two levers, per the Journal: boosting production in Venezuela, and increasing U.S. fuel-making capacity. Officials met with U.S. refining executives in early September about the second, and are said to be pleased with progress on both.
Burgum’s framing was insistent: “If you want to write about the prices, make sure you include the word ‘temporary’ because this is a temporary disruption.”
The executives are less sure. Wil VanLoh of Quantum Capital Group offered the observation that should give anyone modelling a quick resolution pause: “The advantage in most negotiations usually goes to the side that has time on their side, and is willing to be patient.” Iran, he said, “is willing to suffer. Their people have already suffered a lot for many decades.”
Energy in a portfolio is insurance against precisely this, and insurance is bought before the weather turns rather than during. The sleeve already owned does its job; it does not get added to at the spike.