Is The Oil Crisis Over? Or Is It Just Beginning?

**Travis Hoium** (0:02)
Is Nike coming back into fashion? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and our special guest, Tyler Crowe. Guys, we're going to get to Nike. Nike stock was down pretty big after the market closed yesterday after they reported earnings. And now it's shockingly up today. We'll get to that a little bit later. But I wanted to start with an area of the market that we don't talk about all that much, but it's actually a huge deal for consumers, for the economy overall, and that's oil. And Tyler, this is a commodity that we thought was going to be a huge problem for the economy by this time in 2026 when the Strait of Hormuz closed. We were supposed to have $200 barrels of oil. Oil is still up for the year, up about 20% for the year, but we're down to about $70 a barrel for West Texas Intermediate.
What is going on with the oil market? Is the fear, did that just never materialize into the economic concerns that we thought they were going to? And is this whole thing over?

**Tyler Crowe** (1:07)
Well, I mean, talk about a loaded question here. I think one of the things with the initial fears so much of this was basically this, for a lot of commodity traders, this was considered the doomsday scenario. But some of the things that ended up happening were, with a lot of investing decisions and major global geopolitical reactions, there was a lot of second or third order knock-on effects that affected this in some ways. For one, we started this war or conflict, however you want to label it, with this closure of the straight-up horror moves, where not too long after, it was like, we're going to open it back up. Either we're going to open it up by force or we're going to start negotiating, and then there's just been this tit or tat, it seems like for two or three months now, of negotiators have started, negotiators are, we're going to open it, and there's been a lot of like, okay, this is temporary, we can get through this.
As we came into the crisis, there was actually quite a bit of surplus oil on the market. We were actually oversupplied relative to demand in the market. So we were in a position of strength on the market. At the same time, there was a lot of unprecedented changes that we saw. Yeah, I mean, over this period so far, about 1.3 billion barrels have been drawn down from strategic petroleum reserves around the world, whether in the US and Europe, Japan. And that's been a major buffer for this. And not to mention what China has done as well, because demand imports from there have also fallen off a cliff.

**Travis Hoium** (2:44)
But isn't that kind of like a band-aid for the market?

**Tyler Crowe** (2:48)
Maybe?
This is the really hard thing to say, because one of the things that is not necessarily known is how much oil in storage or how much does China have? You know, there are some what they call floating tank storages where you can actually monitor. And that's been like, you know, using satellite imagery data, people have been able to do this because obviously China does not publish their strategic petroleum reserves. But they also have these massive underground caverns that nobody really knows is how much is in there at any given moment. And so it's been using those as a massive drawdown. And they were reducing their total amount of imports at the time at about 5 million barrels per day.
And so when you started thinking about a 13 million barrel per day gap that was leaving the Strait of Hormuz, taking five out was a huge chunk. And you start adding in SPR releases, you saw demand destruction, other parts of the world. It has somewhat deflected the blow that I think a lot of people had seen so far.

**Travis Hoium** (3:51)
Lou, I remember talking about this a few months ago. And one of the things that we talked about was you just don't know what the second and third order effects were. And we were talking about that in a negative way. But it seems like the market has been, I think the word that you used was resilient in ways that we maybe didn't anticipate.

**Lou Whiteman** (4:09)
Yes, certainly. I think we've learned that maybe we have evolved some on oil. But just to underline what Tyler said, China is the most interesting story here. And China probably saved us all a ton. As Tyler said, fortunately, we were washing oil going in, which made it easier. But something weird, and we may never know. I mean, my pet theory is with China is that they have been building a bigger stockpile than we realized for a long time, simply because they wanted, you know, if mischief happened in Taiwan or something, or if they were cut off just to have it. And they decided it was not their best interest as exporters to see the global economy crash. So it wasn't really benevolent, but they had the oil and they decided not to draw the oil so others could.