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Traffic through these straightiformos remaining at a standstill following the US seizure of an Iranan cargo ship, the escalation casting doubt on whether the two nations will meet for peace talks tomorrow. Elsewhere, the President renewing attacks threats to attacks civilian infrastructure in Iran in a three social post, the President vowing to quote knock out every single power plant and every single bridge if Tehran does not accept the
US deal. And finally, US Energy Secretary Chris Rights saying gas prices may not dip below three dollars until next year.
I don't know that could happen later this year. That might not happen till next year. But prices have likely peaked and they'll start going down. Certainly, with a resolution of this conflict, you'll see prices go down. Prices across the board, on energy, prices will go down.
The national average for a gallon of gasoline remaining above four bucks, the highest price since August twenty two.
Yeah, and people pointed the fact that Treasure Secretary Scott Besen had said previously that the price of gasoline was likely to go down to that three percent level or even below by the summer. This is a political issue, and this is an issue of a calendar going into the midterm elections, and how much can this administration really fortify some of the some of the support that they've seen in polls recently based in the ceasefire? Can they
get oil prices down to three percent? We ask every single commodity strategist who comes on, and they just either say no comment or they just say no. And that ultimately is what a lot of people, at least in Marcus, seem to believe.
Three dollars a gallon is going to be really tough for this administration. It's not just what's going on in the Middle East and the strait of her moves, but also it's peak driving season, where naturally and normally, with the cyclical cycle of energy prices, you do see prices rise in the summer. So this is going to be a really hard time that they're trying to go to
before the midterm elections. And once again I mentioned this poll over the weekend, two thirds of Americans are saying gasoline prices themselves are putting a lot of pressure on them families Right now.
It is certainly a problem for confidence creagizing once again this morning, following a weekend of tension in the Middle East culminating with the US ceasing and around it ship Francisco Blanche Bank for America writing the paper oil market is priced to perfection that ignores post conflict energy economy realities. Francisco joins us now for more. Francisco, thanks for making
time for us this morning. That line at the end, the post conflict energy economic realities, What are they that you don't think we quite appreciate?
Hey, John, agreed to see you again.
Look, I think there is number one potentially a per amount of refinery damage. Remember, about a third of the traffic in oil market through hormuz is roughly a petroleum product. So we're going to have a hard time restoring petroleum product flows, which means I mean you were talking about gasoline Eardier, and I do think that. I mean, gasoline is probably the least important product out of those being exported through hormones. Only five percent end of seaborne gasoline
globally flows through hormones. But there is other problems like jet fuel or diesel NAPP that are are much more reliant on that straight for supplies. Number two, there's also oil fields. There's many old oil fields in the Middle East that have had to be shut down in order to essentially contain the storage overflow, and that could be also a problem as we restart those. There's potentially pipeline damage.
And then of course there is there is just.
A notting the web of vessels which are tied up on both sides of the strait and need to be essentially reshuffled in a very meaningful way to restore flows. So I do think those are probably the biggest constraints on the oil side, and then on gas there is there's a few others, as we know because we strike the r strike.
In rasta Ura Russell about about three weeks.
Ago, Francisco, Can we just set on one product then, jet field, and can we talk about cushions that are available to some regions. How big is the cushion of available jet field in a place like Europe. I imagine it differs across from one country and one nation to the next, But in your opinion for the region as a whole right now, how big is the cushion that they've.
Gone Well, we heard it from from fatib role.
Last week it was six weeks, so I guess now it's five weeks, which is why time is of the essence to restore flows and to restore refinery operations across the entire Middle East, which frankly.
I mean counts on two countries. Iran and Saudi Arabia have.
Two of the of the largest global refining toolkits, so we need to see all those flows being restored. But yeah, I would say Europe probably are five weeks at this point, and John, we are already seeing cancellations of flights. It's relatively small at the moment, but it's going to start growing into the summer because one of the challenges here is that we are going to to peak demand season in the next five or six weeks, and once we
get into June, it's going to be complicated. So it's not just about looking in your fair looking in your flight.
Is that that flight just might be canceled?
Francisco, is this just a European issue? Or when you have certain regions that no longer have availability of jet fuel, does that torpedo a lot of international travel travel more.
Broadly, Well, it does, because remember the only product globally that has the same specifications across the oil complex is actually JEFF Fuel for the obvious reasons that the buyings and air bulses that fly around the world have to be filled with the exact same specification.
So there is that there is that challenge.
You might be able to fly out of North America which is sitting long product generally on long creol oil.
But can you get back I don't know.
And I think the other issue that's important to think about here in when it comes to when it comes to the petroleum product complexes that perhaps you were talking all about gasoline. The gasoline there's some flexibility there. We could see more but tain blending into summer gasoline, which would shave off some of the prices. You could see
the relaxation of other fuel specifications into the summer. And then also again gasoline it's a lot harder to make under summer spec but then winter spec is generally easier to meet and demand tends to be lower. So I am perhaps a little more bearish on gasoline retive to older products once we pass the summer. I do think it's easier to get gasoline lower retive to older petroleum products Francisco.
A lot of people have commented that they take some comfort in the back end of the curve for oil prices.
You do have this.
Unprecedented backwardation that the front end, that current price is incredibly high, and you see at the long end, or just in December, you see about eighty dollars a barrel. When you look at Brent crude, you think it's the opposite. You think that's a warning sign.
Why, well, we do think that the well, the conflict, first of all, is still far from still far from over us. We've seen over the weekend only about twenty vessels passed through on Saturday. And you know, frankly, we need to see what the final negotiations yield. We know it took about it took about twenty months.
To negotiate the jcpo A.
This this negotiations can be complex and I realized that all parties want.
To get to a quick resolution here.
But this this takes time, and we need to see the flows occurring in the meantime. If they're not the flows are not moving, that that's a big problem for the market. But also importantly, we do think that, as a pointed out earlier, there's a lot of potential facilities that may not be able to come back in full force. Even if we get back to eighty eighty five percent in the next two three months, we're still going to another six plus months to get to the last ten to fifteen percent of oil.
Flowing through or moose.
That's two to three million barrels a day that the market will be short into the end of the year. So, you know, while we are you know, we're hoping that there's a resolution soon, we will still likely miss a fair amount of energy for the foreseeable future in global oil markets, and that will keep prices high into the year end.
In our Francisco this week we saw our last week, we saw the US Treasury Department basically flip flop. On Onnesday, the Treasury Secretary said he will not renew the general license on Russian crude, and then Friday, very late at night, they decided to extend that waiver. How much is that cushion in the market right now.
Well, there's definitely a little bit of cushion. I mean, the Russian crude and product markets are pretty large. Russia is the world's, depending on the day, second or third largest crude oil user, and the second largest.
Petroleum product exporter, so that is a fair amount of cushion.
But then again, remember there's been reports of strikes in different Russian ports, both in the Baltic as well as more importantly in the in the in the Black Sea, we've seen impacts on on top C and novor.
Sisk and so.
It's it's not easy for Russia to export oil either because obviously we've seen news of Ukraine trying to attack
those facilities. So, I mean, energy assets are just generally generally have become UH targets in military conflict and and and that's one of the most difficult parts about forecasting we're supplying the demand are going to be particularly supply given that has become very much right from center of of both policy actions to your point on the US Rusure decision, but also military action, and and so I do think it's it's I mean, Russian flows are very
important to keep the market in retive order, and that's why I think that decision was made at the end of last week.
Francisco enjoyed the night. Thanks for coming absent time for us this morning. I appreciate it, Sir Francisco Blanche of Bank of America,