The World is Running Out of Fuel
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What is the main topic discussed in this episode?
Since the war in Iran has been going on, oil prices have been going up. But they actually haven't gone up as much as people thought. How high are oil prices right now?
They are high. But they could be higher.
Why haven’t oil prices risen even though the Iran war disrupted supply?
And something that's been stunning to a lot of people is, why isn't it higher based on what's happening and the extent of the disruption?
That's our colleague Benoit Morin, who covers the oil industry.
You know, for most of the year, people were like, oh, we're going to drive off the cliff. And then they were like, oh, actually, wheels feel on the ground. We're OK. Could be worse.
For the last few months, the world has found workarounds to keep the worst-case scenario at bay by doing things like tapping strategic reserves or releasing sanctioned oil. But now, it's starting to look like the world is running out of those Band-Aids. And oil executives are ringing the alarm that prices are about to go up.
We've bought time for the past, you know, six months. And now time has finally run out, right? All the solutions are finally gone, right? And people are again talking about, oh, we're going to be potentially hitting, you know, tank bottoms, which is when crude levels are so low in tanks that you cannot, you literally cannot pull it out. I mean, this sounds bad. It is pretty bad. It is pretty bad. And I was at a conference just a couple of weeks ago, and when I was running into a CEO that I knew or an analyst, I asked them, is this it? Like, is this the turning point? Is this the inflection point? Is this the driving of the cliff? And everyone said, yep, this is, yes, this is it.
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Monday, September 21st. Coming up on the show, the fuel crisis is finally here.
When Iran shut down the Strait of Hormuz at the start of the war, it prevented about 20% of the world's oil from reaching the market.
It's supremely important. And it was known that if Iranians, for some reason, decided to shut down the Strait, this would have massive ramifications for the global economy. You know, when Trump administration struck some of those Iranian sites, people were like, oh, what if Iran decides to close the Strait? But it was really seen as the nuclear option, one that no one wanted to see because it would be so bad for everyone involved.
As soon as the Strait was closed, oil prices shot up. They rose from around $70 a barrel to well over $100. But soon, markets found a number of workarounds that stabilized prices. First, the U.S. government tapped into what's known as strategic petroleum reserves — massive storage sites filled with backup oil that the U.S. has held onto for decades, just in case.
That's been in place since after the Arab oil embargo of the 1970s. And as a result of that, the U.S. decided that it'd be a really good thing to have a bunch of crude stored up in salt caverns on the Gulf Coast that you could tap into if something like that was to happen again. — And it's not just countries that have oil reserves like this.
How did strategic petroleum reserves and commercial stocks act as buffers?
I understand companies have them too? — You have commercial stocks as well, right? And those are something that, you know, refiners can tap into. And those levels were really high going into the conflict. So people could look at it and say, OK, we have good buffers. —
When the U.S. government and companies tapped into those reserves earlier this year, it helped slow the rise of oil prices.
traders and analysts looked at and said, OK, that's good. We have like a response. We have one buffer. It's not going to be enough to see us through this crisis if it goes on for too long. But provided that it is short, as the administration is saying, we will be maybe OK. We're going to have a glut of oil this year. So hopefully we're not going to be, you know, hitting tank bottoms. Right. We'll have enough to see us through this.
Strategic reserves aren't the only buffer that has helped to ease some of the price pressure. Another one is actually coming from illicit oil. There's a giant glut of sanctioned oil tankers sitting at sea that was produced by countries like Iran and Russia.
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Chapters
6 chapters
1
What is the main topic discussed in this episode?
0:05–0:22
2
Why haven’t oil prices risen even though the Iran war disrupted supply?
0:22–3:35
3
How did strategic petroleum reserves and commercial stocks act as buffers?
3:35–7:10
4
What role did sanctioned oil and illicit shipments play in easing the crunch?
7:10–10:40
5
How did China’s reduced imports free up barrels for the global market?
10:40–17:19
6
Why are the oil buffers now running dry after months of use?
17:19–18:08