Javier Blas on Why Oil Could Go Much, Much Higher

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, one of the weirdnesses of our current market moment is that you have all these oil analysts who keep talking about how the Strait of Hormuz closure is like the theoretical exercise that the entire market used to have nightmares about. This was like the big risk in the entire oil market. And yet, and yet, if you look at the actual price of oil and where it's trading, I mean, it's gone up.

Joe Weisenthal (0:50)

It's gone up a lot.

Tracy Alloway (0:51)

But it's not, it doesn't strike me as panic levels.

Joe Weisenthal (0:55)

Yeah, I mean, it's gone up a lot. And, you know, it started the year, I'm just looking at Brent, it started the year around 60, it had climbed to around 70 before the war started, now 115 So it's a huge move in some sense, but it's not even in 2022 levels, which were very high. And all that's true. And yet, there's this disconnect that I don't understand, like, why isn't it at 200 yet, or whatever? Because Strait of Hormuz is closed, et cetera, why isn't it even higher? But then the other thing is, okay, like prices are up a lot, but then you look at, like, what governments around the world are doing, and it's like hair on fire panic, particularly in East Asia. So you get stories about, you know, Korean government workers being told to drive to work, depending whether their license plate number ends in even and odd, like, extreme rationing.

Tracy Alloway (1:43)

A very 1970s.

Joe Weisenthal (1:44)

Yeah. And so I'm trying to, like, it still feels like there are some puzzle pieces here that I'm trying to fit together.

Tracy Alloway (1:50)

Absolutely. The other thing I would say is, it feels also like there's this disconnect between what's going on in the financial world and what's going on in the physical world.

Joe Weisenthal (1:58)

Yeah, yeah, which I don't get.

Tracy Alloway (1:59)

Yeah, and there was this really interesting note. This wasn't purely related to oil, but you could kind of extrapolate from it, but it was from Bloomberg Green Markets the other day, and they were talking about urea coming out of the Middle East and the pricing that they've been seeing from it. And one of the analysts says the real issue on pricing is that while sellers and buyers can quote almost any price, nothing is actually getting out of the Gulf. That reality makes most discussion academic rather than representative of actual business. So I wonder how much of that is happening in the oil market as well, where you have all these quotes that are flashing across the screen, but like for barrels that are essentially not going anywhere for a while.

Joe Weisenthal (2:37)

Yeah, and I still don't totally get it because right, like these things do have to settle at some point and I don't know, I'm confused. Then there were those headlines early on about how physical oil quoted in Oman, where $50 a barrel above the front month, many things I don't understand. So we have to talk to someone who can answer all these questions for us.

Tracy Alloway (2:56)

The great thing about an oil crisis Joe is that we will learn about all the oil benchmarks throughout the entire world. Okay, well, we really do have the perfect guest. Someone who's been on the show before, who a lot of people have requested us to bring back to talk about this particular moment in time. So without further ado, we have, of course, Javier Blas. He is the energy and commodities columnist over at Bloomberg. Been writing about this stuff for a very long time. Javier, thank you so much for coming back on Odd Lots.

Javier Blas (3:23)

My pleasure. Seems that every time that you come back is because of a crisis. Yep.

Tracy Alloway (3:28)

That's right. Okay, well, let's just jump into it. How bad is this one?

Javier Blas (3:32)

It's bad and it could get really bad. But in any energy crisis, there are two elements that are very important. One is the size of the disruption and the size is huge. Then is the length of that disruption, how long it goes. So far, the disruption is relatively short-lived. We have been a month. So that's one of the reasons why we are not at crazy high oil prices yet. It's just because it's a bit too early. Give it a few more weeks and certainly we will get there. But so far, the crisis is relatively short-lived.