Transcription
Where is the west, the US, Europe, Australia, New Zealand, Canada, uh, with energy right now?
I think, um, it's a very good question, and I, I, my strong sense, um, this is intuitive with some analysis to, to support it. My strong sense is that we're, um, on the edge of a crisis. And the reason I say that is if you take, um, it's not 20 million barrels per day, and let's just stay with oil for the moment, not, not natural gas, but just taking oil, which is the critical resource for almost all of the others. Um, if you take 20 million barrels of oil out of the sit, out of the, um, Strait of Hormuz, in fact, it's 13, then, um, sooner or later, that has to show up.
Now, what, what, um, I was surprised with is how long it's taken. And of course, and when you start to see what's going on, you start to see what's happening. It takes, um, from the closure of the strait, it takes about two months for the ships, which are traveling at 12 knots, which is about the same speed as a bicycle, you know, to get to the United States and to, um, to places like Cushing. It takes about, uh, a month or so to get to Europe. So firstly, you've got all the ships which had left were still moving. Uh, the inventories, of course, were significant. There was a bit of an old glut at the time. So those have been largely drawn down, as far as I can see. Uh, the strategic petroleum reserves as well, uh, have largely been drawn down. I think Cushing is now the American strategy reserve, I think, is pretty low. Figure I have in my mind, you, you may know this better than me, is about 20%.
That's right. And again, when you get, start to get to the drags, um, you've got to think carefully about it. Um, even when the oil moves through pipelines, so from Cushing up to this, up to, um, to New England, it's traveling at between three and five, three and eight miles an hour. So that, of course, takes time. And of course, the oil in the pipeline needs to, you need to have oil in the pipeline for the pipeline to work, right? So the oil in the pipeline isn't working. Uh, it's not working inventory.
And last, but by no means least, is China. And what I don't think any of us understood was how China would respond to this. And I don't think we completely understand. But China, uh, reduced its, um, its demand by about 5 million barrels per day, which is a significant reduction. It's also home to the largest strategic petroleum reserve in the world. I think the figure I've got is 1.3 billion barrels per day. So it's a very significant, uh, reserve. Um, I also suspect, I don't know, I suspect one of the ways that China was thinking about this was not just about self-interest, but I suspect the Chinese were thinking that as an exporting nation, they were thinking long and hard about the impact that the Strait of Hormuz closure would have on the rest of the Far East, because there are other nations in the Far East which are much more vulnerable. Japan had a very big, um, oral reserve, but places like Taiwan, the, the, um, 90% of the semiconductors are made in Taiwan. So places like Taiwan were much more, much more vulnerable. So I suspect one of the reasons China may have done that is not just, um, uh, uh, not, not just for tactical reasons, but also for thinking about their export markets, cuz, um, reduction in oil in these other places could have a significant, significant impact.
Um, I don't think anybody really knows. Um, but one of the, the other things to think about is that, sorry, I'll just finish. I think I would be surprised if we were not seeing consequences of this in August. Uh, and I've certainly heard some very, um, good analysts who I, I follow, um, talking about September as well. I'm a great fan of an American geophysicist called Art Berman, who's an exceptional, um, exceptional analyst. The other thing though, of course, is that even when the straits form open, then there is a lag. There's a lag on actually those, um, um, the whole system getting going again. It's a bit like sort of closing off your plumbing in your pipes at home and then expecting it to function perfectly.
Now, one of the interesting things is that when the, um, I can't remember what the ship's name was, a ship, container ship, um, um, blocked the Suez Canal, and for every one day that that container ship blocked the Suez Canal, um, of there's a, there's a very good merchant navy analyst called Sam Mogliano, who said it was about six days for the whole logistic system to recover. So even if it's three days, you could be talking for, um, you know, as a minimum, it would be the amount of time that the strait's been closed, it will take to recover, but it could be twice that, or it could be three times that. So I'm expecting and forecasting that we'll be looking at a significant recession starting in the autumn, and that could tip into recession in the new year. Quite where that recession will play in the globe is an open question. I mean, the country that's most insulated from it, surprise, surprise, is Russia. You know, Russia is an autarkic nation. Uh, it's well understands the consequences of, um, uh, you know, of, um, of, of what's going on. I think although Putin's first degree is in law, his postgraduate work was in resource economics. So I would be astonished if they don't understand this. I know that the Chinese have been looking at their own energy situation for decades. Um, there's good evidence to say that in 2003, when the, the Americans with allies went into to Iraq, that the Chinese thought that that was about oil, and they began, um, uh, increasing their, um, their, um, their own reserves.
So, but, but as for places like Europe, you know, we're incredibly vulnerable. So is a lot of the Far East. Um, so I'm afraid to say on places like Africa, and there's an open question about the United States as well, that the, the Trump line that that the United States is a, um, an exporter of oil is true in as much as an exporter of refined products. But when it comes to to, um, crude, it's an importer of crude, to the tune of about 6.5 million barrels per day. And even if you've got access, you know, through, for example, Venezuela or Canada, oil is a fungible commodity. So you may have access, but the prices of the oil are going to go up. So I don't know what it's like over there in the States at the moment, um, in terms of, you know, cost per per barrel, it's up here. Um, but if those costs were to increase significantly, um, in the next two to three months, um, I would imagine that would not be the sort of run you'd want into the midterms, and I would be surprised if they don't increase significantly. And even if you open the strait, I would be surprised if the lag in, um, the system is such that you're still not suffering from the consequences of those well into the midterms and probably into the new year.
So oil, Brent crude was like priced in dollars, I think, $71 last week. Um, if you'd told me almost four months after the closure of the strait that it would be $71, I, I would never have believed that. What, how did that happen? Were you surprised by it, that it's so low?
Yes. Very, very. I, I was just as surprised as you, and I think most of the analysts were. But I think a lot of it is to do with the, the, the lag. It's also, um, there's this distinction between the futures markets and the actual delivery. I was talking to a Singaporean colleague last month, and he said that, and I don't know whether this still the case, that notwithstanding what Brent was at, or what WTI was at, that in Singapore, they were buying crude for $200 a barrel. So, you know, the difference is, the difference is, is the interesting one. It's what people are actually paying for it. I mean, there may be a short-term lag. Who knows? But that's, that's the open question, the so-called crack spread between, um, you know, what you're paying, what, or what you're forecasting to pay in the futures markets, and what you're actually paying on the day.
How does a country exist at $200 a barrel?
Yeah. Well, fortunately, um, Singapore is an extremely efficient country. Yes. So, you know, but that must be having political effects, I guess, as well. It's quite a small country. I didn't, uh, I was so surprised when I had $200 a barrel. Didn't ask, ask much more. Um, but again, if, if we, um, get up to those sorts of figures, you, I think back to to 2007 and 2008, the great global financial crisis. I was happened to be in Houston at part of that, and I remember vividly seeing the stock market red all over. I'll never forget it. I remember talking to an American who was working in the British consulate in Houston. He'd lost half his, half his retirement savings in that, that crash. Um, and again, it seems to me that that if you were to get up to those sorts of figures, 150, then if you've got a global economy which is already, um, not in trouble, but already very precarious, then it wouldn't surprise me if we have another great financial crash. I mean, who knows? You know, we might see it.
It's, it, I'm, was $150 an oil barrel oil a function of that? To me, it seems impossible that it wasn't a function of that. People will talk about, um, people talk about, um, synthetic, uh, collateralized debt obligations in the housing market. I think a lot of it's to do with the Eurodollar areas actually, and how, how funding in the Eurodollar areas are actually tightening. But it seems impossible to me that actually that that that oil, which is the primary resource, wasn't playing into that. I mean, it's playing into things like Lufthansa, I think, cancelled 20,000 flights, um, about a couple of months ago. Um, I don't know what bunker fuels are like. That's the fuel used for ships, but, um, when I was talking to somebody recently about those, those were doubled. So again, it's what people are actually paying rather than the futures market. And when those two come back into alignment, then we'll know probably more what's happening.
The, the, the problem, I've said this before as well, is that when somebody, Danny Davis, who I think you know, Daniel Davis, yes, said to me, he said, if you were the Tsar of the world, uh, what would you do about solving the energy crisis? I said, the problem is that the energy crisis, nobody's in charge. The whole of the energy markets are run by the market. So there is no single entity can say, well, we need to do X, Y, and Z to sort this out. You know, you can't just say, well, we need to actually, um, run more tankers, fuel the straits for most, because if the shipping companies say, we don't like the look of that, thanks, we'll wait until it's ready. So there are a whole load of issues here which are really run by the market, and there, I think there's nobody who really understands the thing itself. And even if they did understand, there's nobody who can actually press a button and press five or six buttons to make the whole thing work again properly.
Again, I'm, I'm hearing the same thing from other analysts, and you know, I listen to this like a book, and I don't say that I've got the answers, but what I do say is that you take this amount of energy out of the system, it's bound to have economic consequences. It's a mathematical impossibility that it won't.
And in a globalized economy, no nation can have real sovereignty. Of course, you can't act independently on behalf of your country because you're not in control of your country because you don't control its economy. So, yeah, I, no one kind of thought about that, obviously. Well, having life insurance is one of those things that helps you sleep better at night. If something were to happen to you, what exactly would happen to your loved ones, your children? We've heard so many stories of families losing a parent and having their life insurance policy save their financial lives. That's the whole point of it. It makes all the difference in the world. The next question becomes, well, how do I get life insurance? That's where Ethos comes in, a company we're proud to partner with. Ethos makes securing a life insurance plan fast and easy, and 100% online. People don't get it because it's a hassle and it's expensive. This solves that problem. You get a quote in seconds, apply in minutes, and get same-day coverage. There is no medical exam. You just answer a few simple health questions. Then you can get up to $3 million in coverage. Some policies as low as $30 a month. Takes about 10 minutes to get covered. Life insurance through Ethos. Free quotes are available now at ethos.com/tucker. Ethos.com/tucker. Rates and obviously application times may vary, but it's great. Thanks for watching our YouTube channel. We hope you'll subscribe to it. And by the way, you can hit the little bell on there and get notifications every time we produce a video. And we hope you'll do that also.