The energy market’s real squeeze is not a shortage of crude oil, but of refining capacity, according to oil industry analyst Tom Kloza who spoke last week at the American Coalition for Ethanol annual conference.
Kloza said many observers remain fixed on the Strait of Hormuz while missing a broader problem that drones have damaged refineries in Russia, the Persian Gulf and the Red Sea, which he argued, is a “game changer” comparable to the introduction of the Gatling gun.
“People tend to concentrate on the price of crude, which has been moderate,” said Kloza in an interview at the conference. “I mean, if you average the price of crude oil for the last 25 years, you come up with a number very close to where we are. So crude oil prices are by no means extraordinary. Prices for gasoline and diesel are, though. Gasoline costs about $140 most of the world, ex-tax, and diesel fetches a price of about $180, and I think it could go well over $200 a barrel before this is over.”
China is the other large wild card. Last month 62 percent of its vehicle sales were electric. Beijing’s command economy has cut crude imports from the 11.5–12 million barrels a day seen earlier to roughly 8–8.5 million, muting strength in crude while leaving product markets tight. Diesel and jet fuel, Kloza noted, are “paying the bills for what may be an incredible party for refineries.”
Kloza expects wild swings and possible near-term softness in diesel after unprecedented premiums, but he still sees a “very, very scary picture” of $5–$7 diesel over the next six months. However, he says that same tightness makes this “the” market for ethanol blends since E15’s octane and price advantage versus gasoline “makes perfect sense” economically.
Learn more insights from Kloza in this interview:
Interview with Tom Kloza, Chief Energy Advisor, Gulf Oil
Tom Kloza, Gulf Oil 6:56