Can you talk a- about that a little bit in whether you think that will make a difference, uh, particularly with, with prices, uh, or what the effects might be, uh, y- of, of that if that does in fact happen?

Well, it, it'll make the refining industry apoplectic because they're running their refineries and they're operating them at high rates and very, very profitably because we can export over a million barrels a day of diesel and sometimes about a million barrels a day of gasoline.

We've become, I don't know if you remember the old ADM, uh, ads about grocer or supermarket to the world.

We are the supermarket to the world for refined products.

But the problem is, you know, now that it's under the microscope in the United States, people want to put some bans or some sort of speed bumps on it, and I suspect we'll see something.

But in the end, that would mean that a lot of refineries who have been, uh, dependent on foreign buyers to basically sustain their operations, they would have to cut their refining runs.

We'd probably have more expensive prices for gasoline.

Yeah.

So can we talk a little bit more about the shutdown of Saudi Arabia's East-West Pipeline, and then, um, how that- Impacts things potentially here in the US, and then also how the Red Sea plays into that.

Well, the first casualties of the East-West closure, and we're not sure how long that closure's gonna last.

I mean, Secretary of Energy Chris Wright said days, but he might be talking 40 or 50 days.

We're not sure.

But while it's closed, you know, Saudi Arabia suspended its exports or its loading for September to Europe.

Europe is really the first casualty and, and Asia is a tremendous casualty as well.

Now that, that pipeline wasn't just a detour to move another four million barrels of Saudi oil to market.

Are we looking closer to $10, uh, per diesel in terms of a gallon?

What is with this spike then?

Well, diesel is the most active product internationally.

We use about 30 million barrels a day across the planet.

You know, gasoline is about 26, but every country depends on diesel.

And, you know, here's the problem with it, Jake.

We know that when gas prices get up to $4.50 or $5, the people stop driving as much and we get demand destruction.

We don't know really where that will occur with these prices.

Do you see that happening?

How significant are these attacks for global oil supplies, and could Americans see an impact at the gas pump?

They're very significant, but it could have been worse.

The Houthis attacked a Jizan refinery in the Red Sea.

There's another terminal airport there called Gambu that has a larger refinery and also ferries about 5 million barrels of crude to market.

So it could have been worse, but it's demonstrative of the fact that the theater of war is widening from the Persian Gulf to the Red Sea.

And we've still got a lot of things happening in Russia that are reducing refining capacity.

With the attacks in the Middle East and, of course, this new Venezuela deal all happening at the same time, what do you expect to see regarding gas prices heading into the fall?

I think we're through the worst of it with gas prices.

On Friday, we got wind of this agreement with Venezuela to tap... what like 17 oil fields with billions and billions of barrels apparently available what does that do for us if anything tom

well you sound like carl sagan with the billions and billions but it's billions and billions of barrels of oil but it's very very difficult to extract uh it has the viscosity of let's say molasses and it costs a bunch to bring it up to the surface then you need to have upgraders you have to have stable government stable utilities so we're a long way from seeing a lot of that production we may see an increase and we may get back to where we used to import about 2 million barrels a day of Venezuelan oil back early in the century.

But boy, it's a tall order.

I mean, it's a big deal.

It's very, very ambitious, but it's going to be a long time coming, I believe.

All right, and then just looking beyond Labor Day, I guess the price of gasoline on a basic and selfish level, I guess, for us as consumers depends on the full and safe reopening of the Strait of Hormuz, and I guess to a certain extent, Russia slash Ukraine?

Yeah, not so much the Strait of Hormuz.

I think the market for crude oil has made the adjustments to less crude coming from the Strait of Hormuz.

If we consider the US's, uh, promise via the Treasury Secretary, Scott Bessent, to unleash a, a new campaign of unprecedented economic isolation against Iran, do you interpret that to mean potentially putting secondary sanctions on buyers of Iranian crude? What would that mean for global energy markets?

Well, I, I think it certainly means we're not gonna have full and un- unfettered access to crude oil, whether it comes from the Persian Gulf or the Red Sea or come from the Caspian or Russia.

You know, the crude oil, uh, uh, flows are gonna be suppressed.

But like I said, if you've got seven or eight million barrels a day of global refining that's down, and in some cases it's gonna be down into 2027, you don't have as much demand for crude oil.

So I really think the refined products, and particularly the diesel side of it, you know, America goes crazy about gasoline prices, but diesel is really the world product.

It's the one that you use 30 million barrels a day or so globally, versus about 26 for gasoline.

Um-

Yes

Where are we going from here? Like, what could it be if we have a major hurricane that threatens the Gulf Coast?

Well, well, y- you know, let's talk about it in terms of dollars per barrel.

Everybody knows crude oil is, you know, somewhere in the 80s right now.

The price of diesel is about $180 a barrel on world markets.

Not with tax, not with any addition, but just the wholesale spot price for diesel.

And it could certainly go above $200 a barrel if we had some sort of tropical disturbance in the Gulf of Mexico.

And the United States is actually in great shape.

What are your thoughts there?

W- um, what do you make of this?

Well, Gordon, I, I've been doing this for 50 years, and I've seen many, uh, Justice Department investigations and many state investigations.

I can't recall one of them that was successful or really found anything that was, uh, malfeasant.

So, uh, you know, I understand what he's trying to do.

And you have to give him credit for this.

He's been able to talk down the price of crude oil.

I mean, if you look at the crude oil, uh, you know, kind of inside baseball statistics, people are afraid to, uh, to buy crude oil on the premise that it's gonna be higher six months from now.

Uh, do say the producers or refiners feel some sort of, uh, consumer pressure here to lower prices?

So given all that, oil analyst Tom Closes says let's not get carried away here.

I would think that we're seeing some irrational exuberance that's sending the price of oil lower, sending the price of gasoline lower.

I think you're going to be able to ride it for a few weeks here.

But diplomacy is tough.

You know, I mean, as much as I call this a honeymoon, I'm worried about it turning into a J-Lo marriage that doesn't last very long.

So that may be the best metaphor for it.

And this is also interesting because a month ago, we were much higher, 453, right? Now, you say the worry could return in July and August? Yeah.

And I think that the worry would be hastened if we have any kind of an active tropical season in the Gulf of Mexico.

What's your degree of concern right now?

You know, my degree of concern for Cushing isn't all that great.

I am concerned about inventories, not just in the US and in strategic inventories, but around the world.

Cushing isn't as important as it was a few years ago and, you know, they actually have storage available for almost 100 million barrels.

But a lot of the crude oil that used to flow to Cushing, you know, we used to say all roads lead there, now goes directly to the Gulf Coast, uh, for export in some cases.

I'm more worried about strategic inventories, which some people think will be strained if we go below 300 million barrels.

And right now, based on the sales of the SPR, we're gonna touch around 240 million barrels, mm, sometimes in August or September.

I- I don't, uh, I'm interested if you know what he's referring to a- and if so, where it's coming from, where it's going at this point.

When would we be excited about a dropping price of gasoline if, say, the Strait of Hormuz opened this afternoon? How long would that take?

Okay.

Well, y- you know, the oddity is you're gonna see gasoline prices tip just a little bit lower here between now and Monday, Memorial Day.

That's because yesterday had a big drop of about 20 to 25 cents in wholesale.

But I, I don't think we're gonna have a trend of lower prices until the strait reopens.

And when it does, you know, my hunch is that we'll see crude oil prices drop, we'll see gasoline prices drop immediately, but then prices are gonna recover because people are gonna realize that we are a long way from normal.

You know, it's, uh, it's probably months before we get the normal supply of crude oil, and we've lost about four million or five million barrels a day of refined products, not just from the Persian Gulf, but Russia.

So I guess, too, the consumer impact, I mean, you know, you know, might we be actually taking fewer road trips this summer given the current prices? Is that a potential threat?

Are there any specific parts of the United States where this is an even bigger problem than the average?

Yeah, well, the, the $5 club is, is limited, let's say, to some of the Pacific Coast, uh, places.

Uh, but it's also just happened in Chicago, uh, today.

It crossed $5 a gallon there.

And the Great Lakes have really seen s- uh, stunning increases this week, even though that part of the country has refiners that have cheap crude and that don't have access to exports.

And exports to other countries have been very profitable because, you know, the one thing the Trump administration says that's true is we're energy dominant.

We are energy dominant, but to a certain extent, we've knocked the knees out and the legs of some of the other countries, uh, with the Iran war.

What sort of practical impact, uh, are these prices, especially when it comes to diesel, having on Americans?

Tom, what's trending?

Uh, we've seen the market trending higher.

Uh, you know, the physical prices for crude are much higher than you see for futures, but gasoline and diesel keep going higher and higher.

And actually, it's an easy prediction right now because the typical retailer, about 160,000 sites, you know, operates on a margin of about 40 cents over the lay-in cost.

They're at about 10 or 11 cents now, so that tells you retail prices have to go up.

You know, they can't, uh, sell at a loss.

So we're gonna see, you know, a very, very busy week with a lot of increases in that gas price.

All right, so what happens then as, as the, the closure essentially just drags on and on?

Do you have any sort of understanding of what the status of that is?

Jake, everybody is making this up as we go along.

I mean, it almost sounds like this could be an E-ZPass system to go, you know, vacate the strait.

And, uh, for now, we're not seeing any additional tankers go through there.

And there was the threat today of, you know, attacks on what had been an outlet where they were moving crude, uh, the Saudis were, through an east-west pipeline to the Red Sea.

That got attacked earlier today, and there was also an attack on a Saudi, uh, processing station that moves about 5 million barrels a day of crude.

So I...

Ships are not able to f- to, to sail through.

Could you just briefly explain the difference, like, p- physically between Brent North Sea Crude and West Texas Intermediate?

Sure.

Uh, there, there's not really much difference in the spec.

They're all suitable to make gasoline and diesel, but they trade in different months, and right now we're trading WTI for May delivery, and we're trading Brent for June.

And believe it or not, that difference of month, uh, has, you know, difference of tens of dollars a barrel in the price.

But right now, the, the thing to remember about crude is everybody needs it now, and they're gonna pay ten, 20, thirty dollars more for it now than what sometimes the futures market might indicate.

Apply that knowledge to this situation and tell me what the next, I don't know, six months in the energy economy looks like.

You know, it's tough to really, uh, peg it for six months.

How much can drivers save for that trade-off, and have you seen a drop in consumption since the war started?

These are small levers that they can pu- uh, pull.

And allowing a little bit more volatility in gasoline and some cheap components in the gasoline that gets blended with ethanol helps, but it helps to the maybe 10 or 15 cents.

You know, ethanol's an interesting story.

If you go into the middle of the country right now, you can find E15, 15% ethanol, for probably less than $3 a gallon.

It's much, much cheaper, uh, than the hydrocarbons.

And, uh, you get some of these credits for it, so it knocks the price down.

How long until you see those prices dramatically passed on to consumers until there is a reduction in them?

How long do you see these high oil and gas prices lasting?

Well, based on what the president said, I think we remain in a very bipolar market for the foreseeable future.

I think people in the oil market who sold in the morning today were hopeful that we'd hear some particulars on opening up the Strait of Hormuz.

The fact of the matter is if that, uh, the flows in the strait are not restored by the end of this week, we're gonna see higher prices, and we've seen that today.

He also said that he was surprised that oil didn't react as much as it did, and it went from $70 essentially in the end of last week to $120 this morning, so that's a little bit of a surprise.

So what do the oil analysts keep a close eye on? Is it the Strait of Hormuz and how oil is moving through that critical waterway?

I think most of us believe that the Strait will remain in effect and that you're going to be able to navigate vessels through there.

I think what's caught my eye is the fact that the Iranians have lashed out at a number of friendlies.

You know, they've lashed out at Saudi Arabia, United Arab Emirates, Qatar, Qatar, some of the countries, Kuwait.

And this could really make this much, much more meaningful than it was just US and Israel against Iran.

We're really worried about that because there's a lot of infrastructure in the Persian Gulf besides the Strait of Hormuz.

Strait of Hormuz, if that gets shut down, we're talking about apocalyptic price increases.

Have we had indications so far after, say, the first couple of days of this conflict, how long it might last?

How come, Tom?

Well, you know, if you have peace in Russia and Ukraine, you might get a lot more Russian molecules at some point.

I think that's probably not true.

But it's still enough to spook all the financial money that has been parked in crude oil and gasoline futures.

The reality is that we're probably seeing oil supply outpace oil demand by a couple of million barrels a day.

that means you build stocks by about 60 or 75 million barrels each month.

And the market's not really prepared for that.

So demand is down because the summer driving is over?