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Listen and subscribe to Thoughts on the Market wherever you get your podcasts. The hundreds of different flavors of oil from Marketplace. I'm Subri Beneshore. There is some optimism in oil markets that the U.S. and Iran could be talking again soon. The price of Brent Crude is now under $95 a barrel. That, though, is just one type of oil. And there are many. Fernando Valli is managing director of energy for Hedgi risk management. Fernando, great to have you back. Happy to be here, Subri. Okay, I wanted to clear something up just right off the bat here. We hear about how oil is a global market, supply shortages in one place affect others. And yet, if you try to look up the price of oil, there is not just one price or there's like 150 plus. Although the two we hear about most are West Texas Intermediate and Brent Crude. Why are there so many oils at different prices? And which ones should we care about? Oil is not as homogeneous as you would expect. Every type of oil will have an inherent yield, which it means when you process a barrel of oil, it's not all going to be gasoline. It's not all going to be diesel. And then on top of that, you have locations. So Brent is actually an oil field in the North Sea in the UK. Currently doesn't produce much at all, but it's used more as a financial benchmark. Whereas WTI, the contract is for physical delivery off crude in Cushing, Oklahoma. Got it. So different kinds of oil can make different kinds of stuff and they come from different places. Exactly. Which one of the oils is the one that goes through normally the Strait of Hormuz? There are several benchmarks in the Strait of Hormuz. Saudi Arabia produces four varietals. You have Morban, which is the UAE, Iranian crude as well. So there are several benchmarks. They are medium sour crude, meaning they produce more diesel than gasoline compared to US oil. And they have a higher sulfur content than US oil. When we look at the price of oil, there's the price in terms of futures, agreed prices like a month from now. And then there's the price like right this minute if I needed to go buy oil right now for now. And they are very, very different. It's much more expensive to buy oil on the spot market as they say. Why is that? So it's typically not. This is a very unusual anomaly that the difference between dated Brent, which is the right now prompt delivery oil, is $30 more expensive than oil delivered a month from now. The physical market, so actually getting your hands on a barrel of oil is very challenging right now. And there are several reasons for that. One is the lack of tankers. Some tankers are locked behind the Strait of Hormuz. They can't get out so they can't move oil from different places. Fernando Valley is managing director of energy at Hedge-I-Risk Management. Fernando, thank you so much. Thank you very much. Glad to be here. 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Here in the US, some drivers are cutting back on long car trips as the war drives up gas prices. In places like South Korea, the government's asking people to take shorter showers. In Pakistan, Sri Lanka, and the Philippines, they announced a four-day work week. Kevin Book joins us to talk about it. He's managing director of Clearview Energy and a non-resident senior advisor at the Center for Strategic and International Studies. Kevin, thank you for being here. Thanks for having me. Are we individuals, even the biggest consumers of energy in an economy? Well, if you think about how the end-use sectors are divided, there's some attribution of things like electric power generation to different end-use sectors like industrial and transportation, residential and commercial. There's different answers to that question depending on how you divide the pie. But here in the United States, the industrial and transportation sectors are far larger than the residential and commercial. Residential comes in about third. What kinds of pressures are we seeing on industry, whether it's pressures they're feeling or pressures coming from governments? Well, here in the United States, industrial consumers are not necessarily facing controls or limitations on what they can use. Other governments are telling their industrial players to manage their resources carefully. And in terms of the impacts, again, if you go back to 2022, you saw a pretty significant deindustrialization in terms of the natural gas-intensive industries in Europe that simply couldn't operate without the molecules they weren't getting from Russia. That sounds pretty dire. A lot of what we think about in terms of the energy system overlooks the fact that it flows and that supply is constantly producing, transportation is constantly moving. And so we as consumers have continuous access. When that supply gets cut off, energy can only come out of commercial inventories, government strategic inventories, or it has to come out of essentially demand response, which is not using energy at all. Let's say the war ends soon and oil flows through the strait. How much more inflation and pressure on fuel prices is just locked into the pipeline at this point? The problem will be with us for a while. If you look at about where we stand right now on petroleum barrels that are missing from supply as a function of the crisis, it's about 450 million barrels or so, probably by the end of April. And that's just a tad above the strategic drawdown that the International Energy Agency is conducting with 32 governments. But if you think about what that means, it means that you took two months to dig a hole that could take six months to fill back up. What ultimately is the most effective way to cut energy use in the short term? Market rationing does a pretty good job. When prices climb, behavior changes. The problem is that it tends to be very regressive and politically unpopular. Kevin Book is managing director of Clearview Energy and a non-resident senior advisor at CSIS. Thank you so much. Thanks for having me. In New York, I'm Sabri Beneshor and you've been listening to The Market Place Morning Report. From 8 p.m. American Public Media. Headlines shift overnight and then again in the afternoon and again in the evening. You see where I'm going with this. Hello, I'm David Brancaccio, special correspondent for Market Place. We're we deliver economic news designed to keep you both sane and informed. One of my favorite ways to make sense of it all is with the Market Place newsletter. Every weekday, our team curates, must read stories from the week and delivers explainers right to your inbox. So if you want the latest from me and our team of award-winning journalists, head over to Marketplace.org slash newsletters and sign up today.
