The U.
From Marketplace, I'm Sabrina Benachore, in for David Brunkachio.
Three ships have been attacked in the Persian Gulf, a refinery in Saudi Arabia was temporarily shut down after it was attacked by drones. Iran has said it is closed navigation through the Strait of Hormuz, and hundreds of ships are now sitting idle, unwilling or unable to pass through. The current crude prices are up more than 8.8% West Texas Air Media is up 8%.
Joining us to talk about it is for Nando Valley. He's managing director of energy for the investment firm hedge-eye risk management. Welcome. Thank you. Glad to be here.
Oil futures, oil prices are up, supply and demand.
“What specific developments in this conflict are pushing those prices up right now?”
I think there are a few aspects here. One obviously is the disruption, the immediate disruption that you're seeing. There are fewer tankers coming around the bend on the Strait of Hormuz, which is close to 30% of world oil production. That is a combination of both just pausing because of the attacks and not to have any risk.
Then there's also the issues of insurance and several insurance companies, canceling insurance for ships, transiting in the Strait of Hormuz, and that kind of disruption would force the oil market to consider some form of rerouting. There's just not a lot of ways to reroute that much oil within a short time frame. How big of an oil producer is Iran, and where does that oil go?
Then is that oil not flowing now? The oil still flowing, there's been no news of an attack on Carver Island, which is their
“main export hub, it accounts for 80% of exports.”
Iran is a fairly large producer, close to 4 million barrels a day, they export just under
2 million barrels a day, which primarily goes to China to over 80% goes to Chinese refineries. Is China still getting that oil? Is it paying more for it? What does that mean for China? It's certainly going to pay a lot more for oil and natural gas that goes through the Strait
of Hormuz. The largest did border of oil globally. The U.S. has made no produces 13.5 million barrels a day, roughly, with Canada where close to 18 million barrels a day of production versus our 20 million barrels of consumption. So we're fairly evenly balanced, whereas China still imports over 13 million barrels.
Sometimes there's much to 50 million barrels a day of oil.
A lot of that comes from the Middle East, Iran can account for over 10% of those volumes. Iran, because of the sanctions, was selling at a much lower price, China is now going to have to find a different supplier potentially in the ore at a significantly higher cost than it was paying Iran. So the potential inflation shocks, China, could be very significant to longer this last.
And how about us? How about in the U.S?
“Is this something that could trickle down to pump prices?”
It almost certainly will. We have a more transparent mechanism to move oil prices into pump prices than China would. So almost certainly will, again, the conflict does not escalate from here and Iran doesn't have this strength to retaliate, then it's possible that will get prices to come down. Also worth mentioning the U.S. has a lot of capacity to grow production at these higher
prices. It doesn't have that capacity at $60 oil, but at $75, it certainly can, and that will alleviate some of the impacts on the pump for American consumers. There is a lot of slack in the global oil market in the sense that OPEC could pump more, we could pump more.
Does that kind of mitigate the medium-term potential consequences of this conflict? Let's so for OPEC, because most of OPEC's production growth would come through the straight harvest, so it doesn't necessarily help you to produce more in that region specifically. The U.S. does have the capacity to grow production in fairly short order, enough to alleviate combined with strategic petroleum reserves, not just in the U.S. but in China as well, that
can help put a cap one short-term oil prices. For Nando Valley, is managing director of energy for investment from Hedgeye Risk Management. Thank you so much. I'm pleasure, good to be here with you.
The fighting between the U.
reroute flights and stranding passengers.
“The airlines could also face higher fuel costs, and all of that is driving down international”
airline stocks, United is down almost 7% in pre-market trading. Air France down 10% yesterday and other percent today, India's interglob aviation fell 6% as Yana down 2% Marketplace and Nancy Marshall Ganser has more.
Countries around Iran have closed their air space, forcing airlines to cancel some flights
and leave passengers stranded. The website Flight Aware says more than 1,000 flights were canceled in the past 24 hours,
“just to Dubai International Airport, with the air space over the United Arab Emirates”
virtually empty.
Emirates Airlines says it suspended all operations to and from Dubai until tomorrow.
The airline says it's actively monitoring the situation and engaging with relevant authorities. Air ports in Abu Dhabi and Doha are also affected, and there are ripple effects that other airports, Dubai International is one of the busiest airports in the world. Other airports in the region are hubs for passengers traveling between Asia and Europe, these really airline allows says it's scheduling rescue flights for stranded passengers
that will take off as soon as Israel's main airport reopens, and it gets approval from the Israeli government. I'm Nancy Marshall Ganser, for Marketplace. And in New York, I'm Sabri Benahsure, with the Marketplace Morning Report. From APM, American Public Media Hey, David Brunkachow here, I hope you're well and that
your passport is up to date because I am hosting a trip to Italy this fall and you, you, are invited. Stay at a world-class Tuscan villa, and step into the world of the Medici, the formidable family whose influence and power help give rise to the Renaissance and the art we still celebrate today, and not to mention the banking system.
We're going to visit the world's oldest bank, swim in the thermal spa waters in Montecatini and take in the art of the U. Fizi. All of this, and then we'll try to put it all into context with great conversation over even better meals and wine tasting.
“Please join me and know this, buying into this trip will provide essential support for”
public media. Discover more about this fall's Tuscany Adventure at Marketplace.org/travel to reserve your spot today, that's Marketplace.org/travel.
