Oil to Extend Gains as Iran Disruptions Drag On

SPEAKER_1 (0:02)

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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Massar and Tim Stenovec. On Bloomberg Radio.

Mark Gurman (0:32)

I'm going to bring in Mia Gindis.

Carol Massar (0:34)

She's got to make sense of all of it.

Tim Stenovec (0:35)

She's Bloomberg News oil markets reporter.

Mark Gurman (0:36)

She joined us here in the studio.

Carol Massar (0:38)

We've been creeping close.

Tim Stenovec (0:39)

The directionality, you're correct, Carol.

Carol Massar (0:42)

All right, let's get to it. Mia, we did see a rally in both Brent and WTI.

We backed off, and so how do you read what matters to oil prices, global oil prices longer term? Is it all the war or are there other fundamentals at play here? I'm just wondering, are we starting to settle in just at a higher level here?

Mia Gindis (1:07)

Sure. Hi, guys. Thanks for having me. Always fun to be here. I think for all intents and purposes, the oil market is just laser-focused on the war, and the question right now that's on everyone's minds is, how much volume is moving through Hormuz and how do we get that number up?

What we saw today was a hit by the Houthi rebels on several energy facilities in Saudi Arabia, and that's a little bit of a sore spot for the market right now.

Carol Massar (1:34)

What are those energy facilities? What do we know about?

SPEAKER_1 (1:36)

What exactly has been hit?

Mia Gindis (1:37)

A lot of them were domestic facilities. The reason that the price didn't go higher today is because a lot of that feeds into the domestic market there and wouldn't necessarily impact the global market. But of course, we had a hit near Jizan, which hosts a huge oil refinery. It runs 400,000 barrels a day.

It's actually currently offline, which is another reason that maybe prices didn't go higher. It's still recouping from some attacks that we saw there in July. But just any intent and action of Iran or its proxies to target that infrastructure at this time, I think is just really stoking a lot of fear in the market, because as I'm sure you guys have been talking about endlessly, we're seeing really high refined products prices. When we see damage to facilities that are actually processing them, there's a worry that the prices could go even higher than the really exorbitant rates that we're seeing right now.

Tim Stenovec (2:35)

Yeah, daily national average for diesel, according to AAA, over $5.90 a gallon right now.

We're going to talk about that with Mike McKee in just a minute, and the flow through to the larger economy. But Mia, before we do that, I want to hear about what specifically is the choke point. Certainly, the Strait of Hormuz is. But what is it about the Strait of Hormuz? Is it that ships don't want to go through because of concerns about getting attacked? Is it because insurance companies refuse to insure those ships? Is it because of a blockade set up? What is it specifically that is affecting flow right now?

Mia Gindis (3:10)

It's really everything all at once. We have a blockade by the Iranians on US or US-linked ships. We have a blockade by the US on Iranian ships.

We have this bifurcated passageway right now where we have-

Carol Massar (3:24)

I mean, I understand why oil prices are higher.

Mia Gindis (3:27)

We have the Iranian side which is controlled by the ROGC that's hugging the North. We have the US and Omani side on the South, and it's tricky to go through either because what the party running the other gets mad at you if you use the route that's not theirs.

We have a lot of pipelines like the East-West Pipeline, for example, that are running capacity.

SPEAKER_1 (3:52)

That bypasses the strait.

Mia Gindis (3:53)

Exactly, that bypasses the strait.

But it's obviously not enough. There's not enough capacity to totally make up what the Hormuz was for the market prior to this war.

Carol Massar (4:04)

How much are we down from prior to the war?

Mia Gindis (4:06)

So it's hard to know at the moment, because a lot of the ships that are moving through Hormuz are actually doing this thing called going dark. So they're turning off their transponders to try to avert the wrath of the Iranian regime and move that oil through quietly. So they're harder to track nowadays. And no one has an exact estimate. If you did, you'd be able to make a lot of money.