Understanding the market for oil

Here is a chart from geopolitical strategist Peter Zeihan providing a useful overview of the global market for oil and its physical and political vulnerabilities. It’s somewhat dated, but still good.

Analysts at JP Morgan say they expect the average price of gas nationally to hit $6 by the end of summer. This week it surpassed $4 for the first time ever. States with the largest populations are already way beyond $4:

California has become the first state to ever record an average gasoline price of $6/gal.

— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 18, 2022

if stabilize means prices shooting up nearly 50c/gal in a month, ooookay https://t.co/4rMWzmHxh8

— Patrick De Haan ⛽️📊 (@GasBuddyGuy) May 18, 2022

The supply chain industry rag FreightWaves said on Twitter last week that executives at the big truck stop chains Loves and Pilot are anticipating a bona fide shortage of diesel along the east coast. I have been trying to understand what is going on here, and the best I can find is commentary from this oil and gas trader from Houston. The price for diesel has already hit $8 in New York. A diesel shortage is something that will hit the price/availability of food for sure if it happens.

Significant social unrest is hitting Iran right now, as people are starving. With the collapse of Ukraine, the bread basket of the world, we are likely looking at another Arab Spring – though food conditions are frankly worse right now than they were back then. (First Arab Spring was under Obama; second one is under his former VP, Biden. Fun how that happens, right? Elect weak leaders and watch the whole world melt down at once.)

Meanwhile, hunger protests are spreading. Iran is brewing these days: pic.twitter.com/2z7pw5eNWk

— BashKarma (@Karmabash) May 18, 2022

“Down with the dictator.”
Anti regime protests in Golpaygan, #Iran. pic.twitter.com/7HxE0J5BHZ

— Alireza Nader علیرضا نادر (@AlirezaNader) May 17, 2022

It’s is worth noting that this is not only happening for oil. See also – Natural gas prices have already doubled this year. A hot summer could push them even higher. As I mentioned in my last post, natural gas is the main input in the price of fertilizer for growing crops.