Transcription
We took in more oil yesterday than we've ever, than has ever gone through the strait. You probably see that we have an, we have an oil gusher. Uh, the strait is totally open. You know that. And we're negotiating. We'll see how that all goes. But >> well, that was President Trump about two weeks ago talking about how there is a gusher of oil. The strait of Hormuz has opened up. Uh, we're good to go. So Chris Martinson, great to have you back on the show today. Uh, founder and CEO of Peak Prosperity and economic researcher and futurist, uh, and guru, if I can just say, on all things oil and gas and energy related in the world. Grateful to have you on today. >> Oh, thanks. So good to be back with you here and, and your audience, of course. So much going on. I can't wait to dive into it. >> Yeah. Well, let's, let's go straight into it. Uh, and let's just start off with that claim. That was a couple of weeks ago, but the implication is supposed to have been that now, then, two weeks later, everything should be basically back to what it was before the war and, uh, gas prices should be coming down. In fact, President Trump sent out an angry letter last week, uh, to oil companies in the United States and said, "You better start bringing those prices of gasoline back into line with the price of oil, or I'm going to be angry." So, what do you make of that?
Well, first off, his claim that, uh, this is a gusher of oil. It's the most that's ever transited the strait is not true. That he was pointing to a single day where 19.1 million barrels came through, which is good. But I just want to set the context. The average for all of 2025 before the war was 21 million barrels a day of oil plus products. So, it was, um, it was a little bit of hyperbole. It was a little bit of a bold claim that, that's true. Uh, and then also when he said the strait is open, that's also not true because, you know, there's lots of ships that, that are not transiting right now. And we are focusing on oil. We should focus on the oil tankers. I'm good with all that. But this is actually a poly crisis right now. We're missing sulfur. We're missing helium. We're missing LNG. We're missing petroleum products. We're missing, uh, urea and fertilizers. We're missing all kinds of things. And those are going off in container ships, bulk ships, all these other, all the ships that aren't transiting right now. So the strait is not open, at least by the numbers.
So what, what is the case then if it's, if it's not open? I think I saw maybe day before yesterday that we're at about a third on a, on a routine basis going through because President Trump's comment there was 19 million barrels a day implying that that's now the, the flow. But now I saw yesterday or day before that the flow is about 1/3, which is better than it was, but it's not, it's not 2/3.
>> Well, we have to, there's two things we're going to have to keep in mind. Stocks and flows. Okay. So, first off, there were a lot of ships that got trapped in the Persian Gulf because when the war started, they couldn't go out. So, they just sat there, they floated, they got barnacled up, they, you know, the, the poor crews just sitting there day after day during the heat. Um, must have been, must have been tough for the crews. But anyway, so there's a lot of floating oil. When that starts to come out, that's not a measure that we're back to how things used to be. Here's how it used to be before the war. Oil was pumped out of fields. It would go into holding tanks. Some of it would go into refineries for processing. Some of it would get loaded onto ships. And so you had, you had the flows out and you had the stocks of it sitting there. Now the war happened, so a lot of damage happened to actual infrastructure. We still don't know how much, but we know there's going to be some repairs that have to be done to some of the refineries that were hit in Qatar, in Oman, in Saudi Arabia, even Kuwait. So, there's that. So, the fact that there's all this floating oil that's sitting here that's sort of going to race out, we can't take that as a measure of anything except for there's a lot of oil that suddenly raced out. Um, and what we really want to get back to is seeing a steady balance of tankers coming, tankers going, and we want to see all those fields back up to producing at their normal rates. That will be the full normalization.
And, and, and speaking of the normalization, one of the things, and I, I think that we talked about it when you were on the show before we got to the ceasefire, but it's been all over that a lot of people in the industry, and they were warning in the early part of this, even before we got to the ceasefire, about shut-in oil. That once all the storage facilities got filled up in the GCC and even in Iran, uh, that they would have to stop production because they didn't have anywhere to put it since they couldn't put it on barrels. And that it was unknown what would happen when they started turning the nozzles back on. Can you tell us how that process is going now that we have some data?
>> So, apparently, um, there's been a couple of field restarts and I don't have good data yet from that. They've just said, "Hey, we've started flowing again." But there's still fields that are, are continue to be shut in. I believe, um, the Kerna 2 field in, in Iraq is, I think, completely still shut in because Iraq had had the least amount of storage buffer to continue to pump. So, they just had to shut their fields down really, really quickly. And when they finally get all the stuff cleared out that's in their full storage tanks, even though there's not that many of them, once they clear that out and they can then begin to start, uh, the field back up again. So, we don't know yet what's going to happen there. But the typical thing that happens, particularly with these types of fields they have over there, when you shut them down and you start them up again, you, you get a little damage. They don't quite come back how they were. The, the, these are very complex underground things, geologies, cracks and fissures and thises and thats and different pressures. And the field engineers do these incredible jobs of squeezing those fields underground from the edge, you know, with water injections. And if you stop that, it all kind of like, you know, sorts itself back out again and then they have to get it all fired up again. So, usually it's not ideal. You just don't want to be turning fields on and off. Gas fields, totally different thing. But oil fields, yeah, you're, well, we, it remains to be seen what kind of damage could happen there. It might be, might be minimal. It could be significant. You know, four, five, six, 7% of fuel production is just those are going to struggle to get that back.
>> And, and what is the impact on this? I'm, I'm publishing some stuff here lately on the Strategic Petroleum Reserve. I'm going to ask you to talk about that in a second. But one of the things, and I, I remember that you were talking about, uh, when we had you on before the ceasefire was signed, you said, well, of course, that's when we had dueling blockades that were, everything was shut down. So, you said, well, once this, once it gets resolved and then the thing opens up, it's still going to be, and you measured it out to some number of months before it was like 50%, and then 80%, and end of the year before back. And you said that would potentially, uh, cause significant higher cost of oil prices later in the fall, later in the late summer, early fall. Uh, now that you have data, can you update us on that status?
So, this has been really fascinating and puzzling to try and parse through all of this because, um, I, I never in my wildest dreams thought that, uh, the above-ground stockpiles of oil that we have in things like, well, below ground even, SPR, but our commercial inventories and the stockpiles, they just have been getting run down all over the world. And I never thought that that would happen, um, without some sort of a price adjustment. So, we can talk about that in a minute. Right now, best data we have, about 1.3 billion barrels of oil did not come out of the Gulf so far over this, over the conduct of this war so far. Right. That's including all the stuff that did come out. The stuff that didn't come out, Daniel, that's 13 days of production. 13 days of production and consumption globally, not just 13 days in the Gulf. I mean, that's 13 days of oil that the world doesn't have and can't burn and wasn't available for economic uses. And so that's going to leave a huge mark in there somewhere. We just don't know how that's all sort of going to sort itself out at this point. But oil at $70 right now. It's just under $70 in the US. Call it $70 on the Brent. And we can talk about that more in a bit. This is not demand at all. In the United States, demand for petroleum is up 2.9% year-over-year. Flights are up 1.9% globally year-over-year. So, there's full demand. And crazy as it is, we are missing still with one-third of flows sort of restored for now out of the Gulf. We're still missing, that leaves us short, I don't know, probably six, seven million barrels per day is just missing in action at this point. So, this is just causing us to eat further and further into stockpiles. This is going to have to resolve at some point. Hopefully not violently, which is what will happen, as far as I'm concerned, economically violently, if we just crash into tank bottoms. It'll be a big crisis. Oh, no, gas rationing, you know, block out, break out the flock cameras and and data centers, you know, to, to help, you know, coordinate the the response. I'm a little worried that's where this is headed.
And, and explain to us how that can work because I, I have to confess, I have been puzzled too because what I have, at least in my understanding of, of what the fundamentals of the oil and gas industry globally do and supply and demand and all that is if you had, uh, I, I think it was called Oil Shockwave in like 2005 and several others, and they perceived this, like a 5% supply removing, it had all these catastrophic impacts and cascading. And then here we had bigger than that, and yet we haven't had a fraction of those outcomes so far. What did either they get wrong back in Oil Shockwave 2005, or what is different today?
>> Because we're doing something.
>> Or I'm sorry, third one, or is that date of, uh, problem still to come on the horizon, anyway?
>> I, I think it's C. Um, so, so there's really, I don't have many good explanations for what we're seeing right now except this is a ridiculously irresponsible way to conduct business. So, can I, can I just talk, um, oil market dynamics real quick here, please?
>> Um, so I'm going to pull up a, a quick chart here. And so, this is in, in, um, I do something called a Fatpipe. It's a, it's a thing I do for subscribers. And this, I just came up with this morning. And here I'm quoting HFI Research. They, they put out this beautiful chart. They do great, great stuff. I really love what they do. Um, and here they note that we are seeing here in the Brent. So, Brent is a grade of oil. It, but there's two big contracts in the Atlantic basin, known as WTI. That's US. This is Brent, Brent oil. Um, and so the Brent oil contract short positioning is the highest in history. So that means that traders, air quotes traders, are as short as they've ever been. They're, they're super short. At the same time that inventories are as low as they've ever been. Now, normally, how this, how normally, how, how this has always worked in that oil shock 2005, when inventories come down, prices start to adjust very rapidly. In this case, they're not adjusting because for some reason, these traders are as maximum short as they can possibly be. This is one way to look at it. And then I've got here, John Kemp came up with >> I'm sorry, Chris, if I could interrupt. Can you explain just briefly what does it mean to be short?
>> Sure. So, um, if you or I wanted to participate, speculate in the oil markets, you know, you open up a futures trading account and you have one of two options you can select. You can either be long oil, so you buy a contract, right? Or you can be short oil, which means you sell a contract. Now, for most people, most traders, we're never, Daniel, you're never going to produce a barrel of oil. I'm never going to take delivery of one. Like, we're not legit producers, consumers in this story. But we are speculators, and speculators really dominate these markets. Right? So, the paper trading in oil is typically around 50 to 1 compared to the actual production consumption of it. Right? So, lots of, lots of money in there betting is oil going to go up or go down. So, being short is a bet that the oil price is going to go down. So, I sell oil, I go short. So, I take one of these contracts and I sell it, and then somebody else buys it. So, they are max short, meaning that the ratio between how many long bets they have and how many short bets they have is now at the most extreme it's been, well, at least ever in this 15 years of data. So, this, this is a chart here from John Kemp and it shows this ratio here. So, this is percent along the bottom. So, like a 100, like if you were out at this end of the curve. This is the most extreme thing. They've never been shorter. I mean, longer. This is on the long end up here. This is showing the ratio, the money managers would have been 20 to 1 long versus short. So, they would just be, oh, being very long in March of 2026 here, March 31st, they were 12 to 1 long to long to short. And here we are just by June, March, April, May, just a couple months later, and we are at the zeroth percentile, meaning they have never in the last 15 years of data, because this goes from 2011 to 2026, money managers have never been this bearish on oil. They've never taken us such an extreme position betting that the price of oil is going to go down. Now, you would normally take an super extreme position like that if you're confident of one of, maybe I only have three explanations for this. One, there's a massive recession underway that only they know about. The rest of us haven't heard about it yet. Um, so they're looking at huge demand destruction. Two, there's no risk in the story. Like, you're absolutely positive the strait's going to open up. There's no way the ceasefire can fall apart. The attacks on Russia, you know, stop right away. There's no risk. Uh, obviously, that's silly because this is one of the highest risk moments I could imagine. Or three, somebody is stepping into these markets and placing short orders regardless of the actual economic or risk circumstances. And that would be the hypothesis that it's our government or equivalent coming in and saying, "We want oil prices down." And they've been able to engineer that.
Oop. But then you mentioned the, the magic thing, Trump getting all irate because as we've pushed the price of oil down, I think somebody that actively managing the price of oil down in the futures market, we have this other reality, which is that over here, in, in real demand, real supply territory, where real inventories matter, in the United States, inventories of gasoline and diesel are way below their five-year ranges. They're low. And when inventories are low, those retailers, and I think Trump actually pointed his bazooka at the retailers, he's like, "Those retail stations are gouging people." He's like, he doesn't understand how this works. They're not price setters in this story. They're price takers. Tankers show up from distribution centers. They have a price on those things. Okay. Distribution center. Are they the price setters? No. They're all bidding for what oil, you know, gas and and diesel is available coming out of the refineries. Are they the price setters? Nope. They're working flat out as, as hard as they possibly can, and then they just sell their product to whatever the bid market is. So, what Trump doesn't understand in this story is that the oil market is, is actually from retail, from refiner down to, um, the retailer. That is a pure, that's pure capitalism. It's just supply and demand. People are bidding for stuff. And if you force the price lower, if you said, "I'm forcing gas stations to charge $2.50, not $4, for gasoline," they'll lose $1.50. They'll go out of business and there won't be any gas at the pumps. I'm going to force the distributors to sell it for that price. Well, then they're not going to be able to bid out from here because guess what? These refiners are going to take this stuff, put it on a tanker, and sell it to whoever else in the world is going to bid $4 a gallon for it. So, that's the, unless Trump is willing to literally break the entire global oil market and our position in it, should be one of the most insane things ever. This is the situation. The apparent price for oil, the headline price in the futures is $70. But the real price at the pump is if oil's somewhere between $100 and $110. And that's for reasons that are understandable and explicable.
Let me, let me ask you something here. I'm going to show you a couple things here, uh, and explain to me how these two things coexist. So, the first one here is the, you mentioned this a second ago. I'm, I'm showing WTI here. Um, you see that right now it's, it's trading. This is live. Uh, $68, which seems really low. And you can see what it's done over the, over the last number throughout the, the course of this war and how it's bottomed out right here. Okay, that's one thing. But now, let me show you a different one here. And this is the, uh, what they call the spot price, uh, which is what an actual barrel of oil is selling for right now. It's $104. So, uh, how, how do we reconcile these two things? If I can get my computer to stop acting crazy. Uh, $104. That's a lot different. I mean, almost what, 35, 36 bucks difference between the two. And, correct me if I'm wrong also, that's what is, um, when you talk about what gas companies or whatever are actually going to sell for a gallon of gas, they're, it's going to be something based on what they actually paid for the gas, right? I mean, the, the oil that's converted into the gas and not this paper price.
>> Well, well, that's true, but we have a, there's a, there's a, a wrinkle in this. Um, so it turns out that while you or I could trade oil futures at $68 a barrel and have fun doing that, there are participants in there such as legitimate producers who sell forward their oil. I'm, I'm an oil producer. I got oil wells in Texas. I decide I want to lock in a December price for oil because I know I got oil coming out of the ground in December, but I want to lock it in and I so I can sell out in that and I will deliver that oil and then there are people who will take that oil. So, there are refiners out there, even if your current spot price is $100, all they have to do is go out a month, right, and buy that oil out a month on that futures and then take delivery. Now, where do you take delivery from? Well, typically, one of the big distribution hubs is called Cushing, Oklahoma. It's got a ton of storage tanks. There's, you know, dozens if not hundreds of them. And, uh, that right now is maxed out. It's like running at the bottom. There's not a lot left there. So, the concern I have is there going to be all these legitimate refiners who've decided, you know what, I'm not going to pay $100 today. I'll just sort of tune things up. I'll pay $70 next month. They could buy a front month contract, $70, take delivery. Now, what happens if we get there and the people who sold those contracts don't have anything to deliver, right? That's where things are, are going to start to break down.
And, and I don't know how much longer we can play this game of cat and mouse, but we saw Trump. And one thing I like about Trump is when he talks, he doesn't have any filters, right? And so it was just two weeks ago he said, "Hey, we were only like four weeks away from like Armageddon, basically, you know, catastrophe economically, tank bottoms, you know, we're going to run out." So, that's where he was four weeks ago. And the trends have just, you know, two weeks ago, the trends have only continued. Daniel, we're, we're, we're marching towards something here unless something really changes. And that's why the strait has to open. It just has to. In this case.
>> You mentioned, uh, earlier in the show, and I, I saw on your, uh, your X account here, you have been making some posts recently about the Strategic Petroleum Reserve, and you have some concerns there. Can you tell us what those are?
>> Yeah, so the Strategic Petroleum Reserve is, is, um, let, let me just, one second. Let me, let me pull up a, a few things here. Um, so, I mean, yeah, let's, let's do this. So, a lot of people talk about it. I just thought, you know what? You know what we should do? We should probably just really, like, let's settle in so we have all the shared understanding about it. We've all seen these, these charts. This is the amount of oil in the Strategic Petroleum Reserve. Goes back to 1980 as a starting point on this chart. And it got up to almost 740 million barrels there. And then this is the big sell-off in 2022 under Biden. And then here we are now under Trump. And by the way, we have as much in the SPR as we did back in 1983. And so I read this whole report. Um, it was a nice report. It's 10 years old, but, um, it's a great report about what's actually going on in the SPR. And, um, it, it's got a lot of details that are pretty important. So, when we say SPR, there's four big sites along the Gulf Coast here. And then this is a project management office here in New Orleans. So, you got your Baton Rouge, you got your Lake Charles, you got Port Arthur, you got Freeport. I'm a real show me guy. Like, what, what, what do we mean? These are the facilities. If you flew over them, this is what you'd see. Um, Bryan Mound actually has a few above-ground storage tanks, but all the rest are just below ground. And what they are is they're salt caverns. And there's a lot of salt caverns. How many? A total of 60. Each one of these sites has many. Um, and each one of these has its own dynamics, how much it can hold, and how fast it could possibly be drawn down. By the way, they were designed collectively to draw down at 4.4 million barrels a day if needed. Uh, we haven't needed that. We've been drawing them down at about 1.3 million barrels a day up until last week when they slowed it way down to about, um, just under, under 0.8 per day. And these salt caverns, it's just a big hole in the ground. Literally a big hole in the ground. And they pump water in to the bottom and it floats the oil up if you're taking oil out, or you reverse the process and you shove oil in and it squeezes the water back out. And that's it. That's the whole thing. It's just a, it's just a pump in, out, in, out. Um, but part of the dynamic that I felt was important for people to know is that the first caverns we, we, so 1973 oil embargo, Arab oil embargo happens. It's over by March of '74. That year, Congress is like, we got to do something about this. So, they scrambled and they said, "Ah, well, what can we do?" And somebody came up with the bright idea like, "Hey, we have these old salt caverns that, you know, Morton Salt and others, you would were taking salt out of, big holes in the ground. Why don't we fill those with oil?" Cool idea, cuz oil doesn't dissolve salt, so it's pretty stable. So, that's what they did. But those first caverns, Daniel, were called Early Storage Reserve caverns, the ESR caverns. They weren't designed to hold oil. They were designed to get salt out of the ground cheaply. So, they're not exactly, they're not really stable and they're referred to as single-cycle drawdown caverns. So, if, if they're going to, if they're going to pull that down, if they're going to draw that out, you do it once and then the cavern is damaged, it probably cannot be used again, right? And so that's, cuz they have these funky shapes, you know, it's just that's not, once you draw the oil out, it's just going to collapse, right? Instead, um, when they designed new ones, they made them look like this. They're stable. They can go through multiple cycles. They're designed for five cycles, and that's what they can do. But what's important to note here is that we have about 130 million barrels are in these ESR caverns, these single-use ones. So, if we draw that down, if we take that out, we don't have that storage capacity to refill in the future. We'll have to do something else, like make more, make new ones. But I consider it would be deeply irresponsible to use that stuff, right? If you're saying, "Hey, oil's only $70. Why are we drawing down caverns that it would be damaged permanently?" I hope we're not that stupid. Um, and we're not doing that. But it's hard to get actual individual cavern data out of the, um, Department of Energy. Pretty hard. So, at any rate, that's sort of some of the, some of the realities. I just thought it was helpful for people to understand. When we say SPR, we're talking about 60 holes in the ground, some of which are single-use. Um, and it, it's quite a lot. So, at Big Hill, almost all of its storage capacity at that one site is all ESR. That's, this is the first one they did, um, put in, in range. So, I just ran through a, a couple of, a couple of, um, ideas here. And so, if we said, well, let's put it, let's see. So, here they say in this table from that big report, the max drawdown is, you would, you never want to go below the 10% level in any one cavern. So, if it could hold 10 million barrels, you'd, you'd have to leave a million in there. There's a max drawdown. So, that, that gives us a floor of how much we could possibly take out. Otherwise, you damage all the different cavern types, um, whether they were specially designed or not. So, we said, okay, well, what's 10%? Well, there used, there was capacity for 713 million barrels. That means that 71 million barrels is actually untouchable, like at a minimum. So, we know, okay, can't touch that. Fine. So, how much is actually left? Well, at the time I put this report together, there were 331, 331 million barrels. I think now there's 325 because it went down a bit. But at any rate, if we said we're not going to touch the, the 130, we're not going to touch these other minimums. Uh, that means that we have, okay, there's 143 million barrels left that we could possibly go after at this stage. So, you say, okay, at 9 million barrels a week, blah, blah, blah, how much time do we have? So, that gives us about 16 weeks from the time I put this out last week. That, that brings us to October 4th, max. But there's one other consideration I wanted to get here. Um, and there's a lot of details here I don't have to get to, but actually, uh, Pepe Escobar reported that the, the Department of War, Department of, yeah, war, now says, oh, 243 million is actually the minimum. It's not exactly that. What, what, what I found since is that there's a statutory requirement that you can't go below 243 million barrels without the permission of the Department of Defense, war. Um, and so they could give that permission. I don't know why they would, but that's what the Department of War has to be consulted because if we do get into a war, we're going to need this stuff to conduct that war. So, if we said, "Okay, 243 million barrels, is that the line in the sand?" Well, if that is, and we leave a 10% minimum, we only had about two weeks left at the, at, um, where we were last week. So, I think we're really close to the bottom unless we're going to, um, wave rules and damage caverns, then, well, we might, but that would be ridiculously, ridiculously irresponsible.
>> And Chris, what, what is the current rate? You said it was 1.3 or something we were using earlier. What is it right now? Like the latest data last >> the last one is we pulled out 5.5 million barrels in the last week. So, um, 5.5 divided by 7. Okay. >> So, that, so it's still, it's less than one, but it's, it's somewhere, whatever, 0.8, 0.9, something like that. And at that rate, that's what you said that we will hit either the, we can't go below, uh, the damaging the caverns, or we're, we're going to have to start having less strategic for our military in the event that we have this. You're going to have to do one of those two if you maintain, uh, 0.8, 0.9. Is that an accurate statement?
>> It is. It is. No, we, we're, we're rapidly heading towards some sort of a really key decision that we're going to have to make. Right. And, um, I, I just never thought our country would be that irresponsible, but here we are.
>> And is, is there any hope? In fact, let, let me before I even ask this question, let me show you something that the Vice President said on July 1st about how he sees the industry. The strait is open in the sense that to oil traffic, we're seeing more oil come out of the Strait of Hormuz, and some, some days actually more oil coming out of the strait than came out before the war even started. So, there's this element of the world oil economy is kind of getting back into gear. That's going to take a little bit of time, but you've already seen the prices come way down. Now, what the cynics will say is, well, if you look at the number of ships that are trafficking, that's actually down from the pre-war start, but they're mostly talking about cargo ships and other vessels. At least so far, what we've seen is the oil traffic has reached its, its pre-war, its pre-war height.
>> So, is there any prospect that starting now and for this, this current week here going forward, that there will be enough additional oil coming out of the Persian Gulf that we won't have to take down that 0.8, 0.9 million barrels per day?
>> Well, let's talk about what we were doing with that SPR, uh, release. So, for every barrel that we pulled out of the SPR so far as a nation, half was just put on a ship and sent overseas somewhere. Okay.
>> We just sold it.
>> We just sold it.
>> Yeah.
>> And I'm sorry, before you even go further, who benefits? Does the country benefit, or is it just the, the company that actually owns that oil that that benefits from?
>> Well, this is, this is another interesting sort of wrinkle. So, prior to this adventure around the Iraq war, prior, all, all previous releases, there have been several times we've released from the SPR, usually for a national emergency like a, like Hurricane Katrina, you know, big natural disaster or, or something, right? Um, but even with, with Biden doing it, and, uh, as a consequence, I, I think of the 2022 elections, but ostensibly it was the Russia-Ukraine war freaked the oil markets out so much at the potential loss of 3 million barrels a day due to the sanctions. That's what, that's what freaked the whole oil market out and shot us up to $120 a barrel back in 2022, led to the release, that huge dump from the rel, from the SPR. That, in all prior ones, it was a cash transaction. There would be a sale tender price. Companies would bid for it. Guess the highest bidder usually would get it, and then, and then you'd pay cash. That goes to the treasury. You get the oil. This is different. They structured these releases at the start of the Iran war to be totally different. They come with an 18 or even as high as a 20% premium, meaning if I took a million out, I might have to put back 1.2 million barrels later on. So, what happened was the companies that were involved in this, because the, their oil was so expensive today, but it was cheaper out in the future because of this huge backwardation, is the term in oil market, um, in futures trading. So, the future was cheaper, so they could actually take delivery of this, sell it to some foreign, um, concern, and lock in getting oil again in the future, way, way, way more than that 20% premium. There was a 30, 35% gap on that. So, they were just, they were just minting money, taking this stuff out, selling it to the higher bidder, and then locking in a future oil delivery at that future point. But now we get into that problem I was telling you about. Those people who bought those out-month contracts, they're going to require delivery of oil. So, the draining of the SPR today gives oil to the market, but it creates additional demand for oil in the future unless they break the contracts.
>> No, that. So, so now then we're in a situation, and we could be getting there within, I think you, I think she said July the 10th was the actual date that your previous assessment, if we maintain that flow of use out of the SPR, we're, we're going to get to the first of those decision points, either, either you're going to have to, I guess, harm the, the caverns, or you're going to have to tell the Pete Hexth, hey dude, I'm sorry, but we're going to take some of your oil. One of those two things is going to have to happen if we maintain that. Is that accurate?
>> Yep. Yep. Completely accurate. So, but I'm going to expect that what they're going to do is they're going to start really limiting the, the oil draws before, before they have to get to that. That would be the responsible thing to do to say, "Oh, we're, we're not conducting any more."
>> And if you limit, if you limit the draw, then that, that is going to put upward pressure on the price of, of a, a barrel of oil, is it not?
>> Oh, absolutely. Let's be clear about this. Adding a million barrels of oil per day, or even 1.3, to the world market is a big deal, right? Um, not as big as China not importing four to five million barrels a day, but, you know, different story. So, so we've had just the most dramatic shifts and gyrations and all of this and that, and it's, it's, I, I hear Vice President JD Vance trying to say, "Oh, you know, things are sort of healing. We're getting back to normal." Right now, we're anything but normal. It, it's completely just a chaotic situation of, of flows and thises and thats and trying to get things, you know, back restarted again. It's, there's tankers leaving the Gulf that, um, don't have any apparent destination. They're just like, I'm out, right? They didn't have any declared destination. That's been mischaracterized in some articles I've seen. They said there's no buyers for the oil. That's a different term than having no declared destination. They just exited and then, you know, the oil brokers will work it out and figure out where that ship is. Like, let's get out now while we can, I think, is probably what that was.
>> Absolutely. I would, in a skinny minute. Yeah.
>> So, this is bringing us into a real, a real dilemma here to where I, I don't, maybe fiction is a strong word, but this, uh, facade that's been built that everything is fine. Price of gas, or price of a barrel of oil is low, therefore price of gas is low, therefore there's no crisis, everything's fine, we're, we're good to go. That is going to come crashing. Something's going to have to give here, uh, in, in about, uh, four or five days from now, and something's going to have to change. We can't just keep this, this fiction, myth going forward. Do I understand correctly?
>> Well, it's absolutely correct, and that's why I think there's a lot of pressure behind the scenes on Trump to, to open this back up again. You know, when I said he said that that weird statement like, "Oh, we're, it's a global catastrophe. We're weeks away from it." I think he got read the, the riot act by by people who are in the know. I think the oil industry executives, we, we knew that the week before that they had visited the White House. They must have just laid out the actual reality of the situation. So, so I think that we're, the reality of the situation is, is that this is the largest oil shock in world history. Millions and millions and millions of barrels per day missing when the largest oil shock prior to that was closer to one to one and a half million barrels a day missing. So, I mean, this is like just ginormously larger. We don't have anything close to res, you know, normal flows yet. And everything I'm seeing so far, Daniel, and you, I'm sure you know more about this. I'm sure you track it more closely, but from the outside, it looks to me like Iran is sticking to its negotiating guns. Hey, we're going to control the strait. Hey, we're going to charge for this. Hey, um, you know, we're going to need, you know, money released. Hey, you know, they're, they're putting their demands out. And I think Trump has said absolutely not. You know, we're just going to be an open strait or nothing. And I don't, I'm not somebody's gonna have to give in that story really soon. And I, I think that we're going to figure that out probably in the next couple of weeks because the United States needs this open, but it doesn't want to appear to take an L on the diplomatic side of this whole thing, but it needs it open. So, that's the tension right now. It's, it's, it's pretty severe, I would imagine.
>> I would imagine that the Ukrainian side is very keenly aware. They probably watch your show. They probably are very keenly aware of given their, uh, participation in the oil industry, all of these things that you just said, maybe even some proprietary information, which would harden their negotiating position. Why would they give in when a near term they can get some concessions or bring some economic pain on the United States that President Trump's not going to want?
>> Yep. No, I, I think we've both said this, uh, since the beginning. Time is on Iran's side. All they have to do is keep playing this out. And, you know, the mystery, the mystery note in this story is why China's so quiet, but I'm sure they're, they're doing things behind the scenes that that benefit them.
>> Well, and that's where I wanted to go here next is, is, uh, this, this China play because when this first started, and, and people were looking at the amount of oil, 21 million barrels of, of oil and other condensates, etc., that there was going to be a massive, massive shock, uh, on the global economy. One of the reasons why it was mitigated is because China started, I, correct me if I'm wrong, but I think they started buying 5 million barrels a day less and started eating through their own, uh, much larger SPR than that we have. Um, and that mitigated the, the price, uh, for everybody. So, where is that now, and, and how is what is China's play as far as you can ascertain?
>> Well, in, in this, we also had this whole trade delegation in the midst of all this. You know, Trump goes over to China, brings a bunch of CEOs of tech companies and, and, um, it was kind of mysterious what we came away. I didn't notice that we came away with much definitive, but there must have been some quid pro quo there. I believe that it was in the context, it was right after that meeting where China's imports fell off that cliff, and it, it was intense. So, China purposely chose to eat into its strategic reserves to help stabilize world oil prices. If that was the quid, what was the pro quo, right? They got something out of this, right? And we don't know what it is yet. Um, but I will note, weirdly enough, that, um, one of the top exports for the United States for the first quarter of this year is what's called non-monetary gold. $47 billion, all-time record left our country, is about 10 million ounces. Um, I just wonder if maybe, maybe it was that, maybe I don't know. I don't know. A lot of odd notes to resolve here, but certainly China got something out of it, you know.
>> And what is their current play? Are they still eating their SPR at 5 million barrels a day?
>> Well, a lot of those, uh, ships that left so far, that the loaded tankers that did bail, I think about half of those, uh, ended up in China so far. So, so they are, you know, bringing those flows back in at this point in time. And, um, we've just seen actually some, some, I think Iran, some releases went out to, um, Japan as well. So, we're starting to see flows go out to the Pacific at this point in time. Again, you know, I think Iran is doing this because it's, it's, it's the right thing to do at this point in time, but they can snap that closed any time as well. A lot depends on what's going to happen here at the next round of negotiations.
>> Yeah, if there is one on there, we'll see. Um, one, one other thing before we let you go here, uh, speaking of the oil and gas industry, uh, the Russia-Ukraine war has some engagement going on. And there's, there's the, the two sides are really kind of in an energy war right now. They've kind of escalated into long-range drones and missile strikes into each other's oil infrastructure. And there was, uh, overnight actually, a strike on MS, which is Ukraine, hit Russia's largest oil refinery for the first time in, uh, on record. It was 3,000 kilometer drone strikes. Now, from the information I was able to glean this morning, uh, Ukraine launched somewhere around 700 drones throughout Russia. Almost all of them were shot down. The only one, in fact, that has shown any actual strike was this one in MSK. It looks like there's two plumes there. There's a couple of them there. So, it looks like they had a couple hit here. So far, at least as of the time we came got ready for this show, those were the only two that we saw were confirmed hit. But that's a big one. So, this, uh, Russian MSK oil refinery, it looks pretty big. What can you tell us about the, uh, the status of this, uh, shot here? And there's, there's another explosion.
>> Another explosion. Yeah, look at that. So, this is, this is really astonishing. Um, we have to talk about this because in any time in the past, this sort of activity going on in Russia would have also been very, very, very constructive as we say for oil prices because Russia isn't just like another country. They were the world's number two exporter after Saudi Arabia, right? And they produce a lot of oil, usually around 9 million barrels per day, and they exported five of that, um, ish. And so that's a huge, huge deal right now. I mean, this is shocking to me because it's 3,000 kilometers away, which is like a really big, I mean, that's a long way. And there was just an article in Financial Times this morning talking about how Ukraine has been getting targeting information from US sources, um, US intelligence and, and military. So, we're helping Ukraine thread the needle to get
all the way in there, evade air defenses, which are mobile and can be moved. So, you have to have this real-time mapping of how you're going to sort of, you know, thread the needles and and get all the way to your targets. And we've been helping them.
And Daniel, I'm old enough to have this really archaic weird view that um actively attacking a nuclear superpower without a clear set of objectives or stated aims is probably a bad idea, but that's that's >> well some people are just like that. I mean, obviously nobody in Europe is has that archaic view. They're like, "Yeah, just keep poking it left and right because Russia will never do anything. You don't even have to worry about it." Uh I worry about it and apparently you do, too. I I do.
So, collectively, this is astonishing. Right now, Russia's refining capacity has been dinged by 47%. This alone is a catastrophic sort of like perturbation in global oil markets. Maybe they can fix it quick. You know, Russians are historically really good at fixing stuff fast if they have to. But this is this is an amazing amount of damage that's been happening and it continues. And so, when did these start? These started on March 2nd. When did we close the straight and attack Iran? March 1st, February 28th, depending on where your date line is. So, so this is all happening at the same time. And it's hard not to see it as coordinated because the United States obviously is assisting Ukraine in this in this. We want this to be happening. If we didn't want Ukraine to be taking out energy infrastructure in Russia at an awkward moment for global energy markets, we would call them up and say, "Cut it out, or we're cutting off all of your aid, right?" you know and we didn't. So that means we wanted that too.
So now we have to start formulating a different hypothesis which is well why does the United States want such a massive disruption in global energy markets? Do we not understand the role of of energy in keeping the whole global just in time highly financialized world economy held together? and um and and how and why are are China and Russia, you know, being so relatively quiet about this up to this point in time? There's a lot of pieces here that don't quite make sense yet. And uh what is going to be the impact of this? I mean, if we're because it seems to me this would especially this one here to just happen today is going to have a negative impact on what President Trump wants to happen which is to not use any more of our SPR more oil to come out not just out of the straight of Hormuz but out of the global market. So that would include Russia. This would seem to work against what President Trump wants. Am I missing something?
>> No. No, you're not missing anything. And and by the way, Russia didn't just export oil. They were a huge exporter of finished goods. Let's call it diesel. and and jet fuel and and gasoline for the moment. Uh they are now actively they've terminated all exports for gasoline. In fact, they are now importing gasoline. Daniel, that's like that's like waking up and finding out that Iowa had to buy corn. You know, it's just it's not a thing that should happen, right? Um and and so Russia is no longer putting those products out into the market. They are now having to buy them back in. They have a huge mess on their hands right now. It's it's a huge country. what is it 13 time zones across and they have a giant they these refineries were all serving areas and regions. I mean it was two weeks ago we saw the the major refinery serving Moscow got totally dialed up right and and really taken out of action. So they now have gasoline and diesel shortages that are spread all over the country. So what do you do? Like do you truck it from A to B? They don't really have pipelines. They're gonna they have some real issues about how they're going to start sorting out this. And even as as their energy crisis has these spotty sort of manifestations, they're still getting attacked very successfully, right? Um and so they're going to have to respond to this at some point and in some way, but immediately all of the oil and and gas and diesel that jet fuel that they were exporting is probably now not being exported. That creates more competition for that in the open markets. That's why we see these crack spreads open up. That's why we see gasoline still here instead of where Trump wants it because we now have a massive uh product mismatch and shortfall that that's that's about to get worse. And Russia alone would be a gigantic story and it should be and it is, but it I I don't see it anywhere. Bloomberg articles just oh there's an oil glut. Oh, there's all this stuff coming out of the Gulf and I don't I don't understand what I'm reading because this is big news.
>> Yeah. and it's going to impose itself. Uh I think the fiction is going to run out pretty quick. Uh and the last thing I'd like to talk to you about which is not related to oil and gas per se, but is hugely important and I wonder if you can just comment on the on the ramifications of what we seen so far and that is you mentioned earlier fertilizer. Uh last week uh the White House kind of quietly announced that there's a fertilizer emergency uh the declaration of emergency for authorization for temporary duty-free importation of phosphate fertilizer from Morocco. What what is the story here and and should we be worried about this?
>> Yeah. So here's here's a derivative of of this whole story. Remember I mentioned we sort of have this poly crisis. There's lots of things that aren't coming out of the Gulf. Even if right now in the Gulf we have um oil exporting because it was loaded on these ships earlier on, what's not happening is we haven't gotten back to a full resumption of refinery activity over there. Now, why is that important? Because one of the byproducts of refining is sulfur. It turns out a lot of lot of oil is called sour. The sour refers to the fact that it has sulfur in it. You clean that up and you remove the sulfur so that you can make a nice product like clean diesel and you have sulfur as a byproduct. That sulfur then gets converted into sulfuric acid and then that gets shipped all over the world or they ship the sulfur out and gets converted to sulfuric acid elsewhere because we're missing the sulfuric acid. The way you convert phosphate rock into phosphate fertilizer is with sulfuric acid. So we're actually really short of that substance right now. And that that's how that sort of ties in. We I think you know Florida's got huge amounts of phosphate rock. we just don't have a easy way of converting it into um you know uh as much phosphate fertilizer as we want. So, and by the way, we're in competition with all that stuff from around the world too. So, all these countries now have to try and chase and fight for the amount of phosphate they can get their hands on. That would be number one. Number two, if you took pulled up a chart of the price of uranium, you would see that really spiking. And four mines in the last couple weeks have announced that they had to suspend operations for lack of sulfuric acid.
>> Oh, wow.
>> So, this is a a really big derivative product of this Gulf. It's it's way beyond oil, you know, and because when JD Vance is like, "Oh, yeah, we don't have all the cargo ships coming through, but but the oil tankers are moving." It's like no no those cargo ships the bulk carriers they carry the sulfuric acid >> we need those you know um badly. So it's one it's one of the missing stories and in
>> and is that going to have uh because this some of the stuff with fertilizer specifically was a problem in the first month of the war because of it was planting season in a lot of different places and they didn't get enough. It was really expensive here. Are there any ramifications come uh uh harvest time this fall? Are we going to see any consequence of that or is it too early?
>> Um, it's probably going to be a little bit too early for the United States. We'll see. Um, but there are other countries where uh they have a much more fertilizer dependent cycle that that they really got dialed out of. Um, and so that would be countries like uh I think Thailand had some issues and I think uh Bangladesh is going to have some issues and Pakistan probably. So these are these are countries that that have import a huge amount of their fertilizer like they have no domestic basically no domestic um manufacturing of it and um and then yeah they're probably going to be lower harvest there next year.
>> Really big problem uh looming if we don't we're going to have to get this sorted out soon. Well, let's uh let's hope we do, but there's not much time to get a lot of things sorted out soon as as this attack in gnomes shows that we keep on kind of hamstringing ourselves. Um, we're going to have to wait and see how this works out, but we are incredibly grateful for you coming on and highlighting just so we know what to even look for. Uh we really appreciate that. Thank you.
>> Well, my pleasure, Daniel. Anytime.
>> And as a reminder to go to peakrossperity.com where you can keep up with Chris where you don't have to wait for him to be back on this show. he's got and man with the stuff happening in his world these days we all need to go there. So uh uh just check him out right there and uh we will uh look forward to seeing you guys next time. As a matter of fact, we also have um uh Patrick Hennington uh back on the show here in about nine minutes from now live from Tyron. And believe me, you do not want to miss this one. He's got some very interesting things that were happening. Uh some of which has to do with bounty for certain heads of state. Uh you're you're going to be a little surprised by this one. Patrick's gonna have all the details uh at noon Eastern time in about nine minutes from now. See you then on the Daniel Davis deep dive. You know, we don't have sponsors because we hate to hit you over the head with ads. I don't like them. So, show a little love back. Subscribe, like, and send this to somebody you care about.