I suspect the main reason the captive MSM (here and in the USA) is making such a song and dance about the price of oil and gas is that they are desperate for President Trump to fail.
The magazine Money Week published similar graphs in its last issue. The background should have been well-known to anyone who knows the world oil market. But that is really my point - the almost total ignorance of the current set of journalists for mainstream media. What is shows is that real journalist expertise has shifted away from newspapers and TV either to specialist weekly/monthly magazines or to online publications including Substack. It is much more diffuse and probably less profitable than in the past. TDS is also a factor, but the main thing, I believe, is simply the decline of traditional media - and that includes sources such as AP, Reuters, Bloomberg, etc.
I’m a little confused by the third graph. Can you explain if the price of products is pre or post tax and whether the comparison is mass or volume basis? European wholesale products markets are typically quoted in mass basis but crude and customer level prices ante both volumetric.
Volume basis. The ratio for each product is the UK retail price less duty & VAT converted to dollars per barrel divided by the Brent spot price in dollars per barrel. I thought that this was the best way of showing how refining, transport and other costs have changed over time.
The issue is the balance of demand relative to production and the way that affects trade. In a very simple example, suppose that your refinery produces 50% diesel and 50% petrol from each tonne of crude. The market demands 60% diesel and 40% petrol. Then if you refine more crude you have to export the excess petrol and import diesel. But any refineries in, say, Rotterdam face the same imbalance, so they are going to charge a high price for diesel which you want to import and offer a low price for any petrol that you want to export.
The point is that if most markets are short of diesel and have excess supplies of petrol, everywhere will have prices that are high for diesel and low for petrol, whether they rely on trade or refining crude oil.
Thank you for more insights not found elsewhere. To add to your point about inflation, apparently oil is cheap, priced in gold.
While your comments about journalists are well-made, how savvy really are desk-based traders? We've yet to see real shortages, but as you noted, all us ordinary amoebae can do is adapt as did our forebears, and to heed Voltaire's advice to cultivate one's garden.
Hmm ... traders may be better informed than the rest of us but most of them are market-makers rather than gamblers taking a position. Oil markets are dominated by corporate traders like Trafigura, Vitol, etc who have learned that taking extended positions is a route to bankruptcy. When prospects are uncertain, pushing up prices until demand disappears is the conservative thing to do.
Yes, similar to electricity. One of the points that I was tempted to make but omitted was that the increase in VAT revenues due to higher oil prices could exceed the proposed increased in fuel duty.
A terrific article! It deserves widespread circulation, especially to decision makers in the UK Government. I see there already stories pushing the idea of rationing and “persuasion” to consumers to use less oil products. This of course can create its own effects, as people start to panic. However, it is also clear that the closure of the Straits of Hormuz may lead to much lower volumes of oil being available so the outcome of the war needs to be rapidly resolved. No doubt the shortage of particular crudes will also have an impact through the refineries being short of their “normal” supplies. Not an aspect I had realised until reading your article. I will forward this to friends …. John
Interesting analysis of the lighter vs heavier oil fractions, diesel vs petrol. Nice to see it in black and white. As an observer of these thing the current oil panic seems mainly media created. I can see many poorer countries living hand to mouth on supplies may be stressed but most major economies have ample reserves. The Saudis are pumping using their east west pipeline and while there is some short term disruption it looks like stuff is still flowing and likely that flow will increase.
The lack of recognition of a trader making a profit on a day time scale being the same as a month timescale for longer term supply is lost on most media. I suppose their job is to sell "news" and the head line oil goes up to $100 like its done many times in the past" does not have the same eye catching effect. But there is also the clear effect as I see others have noted of wanting anything Trump does to fail or not be supported even though the evidence of some success and support is already apparent. My children who are now old enough o be concerned by such thing but not old enough to have seen the past repeats are a little concerned by events and were somewhat surprised by my laissez faire attitude to it all, they will learn. To me the oil price however its calculated is still within "normal" statistical bounds and that's before taking years of inflation into account
I think that some of what happened was precautionary. Traders and oil suppliers did not want to find themselves accepting orders when the cost of replacing stocks might be much higher. So they deferred or cancelled orders. In addition, parts of the world rely heavily on supplies of products from refineries in the Gulf region, so until the damage caused to these refineries becomes clearer the principle of only accepting orders at much higher prices is understandable. But, as is always the case, the panic passes and prices settle down, though not at pre-panic levels.
I am sure that there is an element of TDS but there is the larger aspect of a population that has become used to the idea that they should be insulated risks and shocks that previous generations would have regarded as normal. The divorce from what might be regarded as the harsher realities of life reinforce such attitudes. Of course, most people don't understand that providing universal insurance against external shocks is, in fact, rather expensive.
This explains neatly why diesel is now 20p per litre more expensive than petrol and why I will be using the petrol vehicle a lot more for the foreseeable future!
I note that a pipeline from the Arabian Gulf to the Red Sea, built in 1981, is now fully operational in 2026. I wonder if this is helping to keep international oil prices more subdued than they would otherwise be?
Yes, the East-West crude pipeline can carry up to 7 million bbl per day to Yanbu. Some of that is allocated to refineries at Yanbu, and there is a constraint on how much the port at Yanbu can handle. The increase in crude supplies and, perhaps, products from the refineries will finish up in Europe via either the Suez Canal or the Sumed pipeline, which will reduce upward pressure on prices in the Mediterranean and Atlantic markets but push up prices in Asia.
There was an interesting post on Doomberg a few days ago (Drilling Laterally). It said it was a mystery that the oil price has not gone higher than it has. Unfortunately I don't have a paid subscription with them so I could not read the whole article.
I am less surprised than Doomberg. We are getting close to the end of the Northern Hemisphere winter, so restocking can be postponed for a limited period. That means that prices can settle at somewhere close to their expected summer level, allowing for adjustments to bypass the Gulf. Also, my guess, even before the US relaxation of sanctions on Russia oil, was that the US (an eventually Europe) would prefer to row back on restrictions on Russian oil and product exports than to face the consequences of very high spot oil prices. So, the traders that Doomberg refers to are betting on what will happen to Russian oil supplies.
Retired accountant Paul Homewood managed to find great oil and gas price graphs for this post: https://www.conservativewoman.co.uk/the-climate-scaremongers-eds-mad-objection-to-north-sea-gas/, graphs from https://tradingeconomics.com/commodity/brent-crude-oil.
I suspect the main reason the captive MSM (here and in the USA) is making such a song and dance about the price of oil and gas is that they are desperate for President Trump to fail.
The magazine Money Week published similar graphs in its last issue. The background should have been well-known to anyone who knows the world oil market. But that is really my point - the almost total ignorance of the current set of journalists for mainstream media. What is shows is that real journalist expertise has shifted away from newspapers and TV either to specialist weekly/monthly magazines or to online publications including Substack. It is much more diffuse and probably less profitable than in the past. TDS is also a factor, but the main thing, I believe, is simply the decline of traditional media - and that includes sources such as AP, Reuters, Bloomberg, etc.
I’m a little confused by the third graph. Can you explain if the price of products is pre or post tax and whether the comparison is mass or volume basis? European wholesale products markets are typically quoted in mass basis but crude and customer level prices ante both volumetric.
Volume basis. The ratio for each product is the UK retail price less duty & VAT converted to dollars per barrel divided by the Brent spot price in dollars per barrel. I thought that this was the best way of showing how refining, transport and other costs have changed over time.
Why is shipping in finished product is more expensive than buying crude and refining it here?
The issue is the balance of demand relative to production and the way that affects trade. In a very simple example, suppose that your refinery produces 50% diesel and 50% petrol from each tonne of crude. The market demands 60% diesel and 40% petrol. Then if you refine more crude you have to export the excess petrol and import diesel. But any refineries in, say, Rotterdam face the same imbalance, so they are going to charge a high price for diesel which you want to import and offer a low price for any petrol that you want to export.
The point is that if most markets are short of diesel and have excess supplies of petrol, everywhere will have prices that are high for diesel and low for petrol, whether they rely on trade or refining crude oil.
Thank you for more insights not found elsewhere. To add to your point about inflation, apparently oil is cheap, priced in gold.
While your comments about journalists are well-made, how savvy really are desk-based traders? We've yet to see real shortages, but as you noted, all us ordinary amoebae can do is adapt as did our forebears, and to heed Voltaire's advice to cultivate one's garden.
Hmm ... traders may be better informed than the rest of us but most of them are market-makers rather than gamblers taking a position. Oil markets are dominated by corporate traders like Trafigura, Vitol, etc who have learned that taking extended positions is a route to bankruptcy. When prospects are uncertain, pushing up prices until demand disappears is the conservative thing to do.
Here’s a handy pie chart breakdown of the cost of petrol: https://x.com/Evans16Stuart/status/2033454862654927119.
Yes, similar to electricity. One of the points that I was tempted to make but omitted was that the increase in VAT revenues due to higher oil prices could exceed the proposed increased in fuel duty.
Gordon,
A terrific article! It deserves widespread circulation, especially to decision makers in the UK Government. I see there already stories pushing the idea of rationing and “persuasion” to consumers to use less oil products. This of course can create its own effects, as people start to panic. However, it is also clear that the closure of the Straits of Hormuz may lead to much lower volumes of oil being available so the outcome of the war needs to be rapidly resolved. No doubt the shortage of particular crudes will also have an impact through the refineries being short of their “normal” supplies. Not an aspect I had realised until reading your article. I will forward this to friends …. John
Interesting analysis of the lighter vs heavier oil fractions, diesel vs petrol. Nice to see it in black and white. As an observer of these thing the current oil panic seems mainly media created. I can see many poorer countries living hand to mouth on supplies may be stressed but most major economies have ample reserves. The Saudis are pumping using their east west pipeline and while there is some short term disruption it looks like stuff is still flowing and likely that flow will increase.
The lack of recognition of a trader making a profit on a day time scale being the same as a month timescale for longer term supply is lost on most media. I suppose their job is to sell "news" and the head line oil goes up to $100 like its done many times in the past" does not have the same eye catching effect. But there is also the clear effect as I see others have noted of wanting anything Trump does to fail or not be supported even though the evidence of some success and support is already apparent. My children who are now old enough o be concerned by such thing but not old enough to have seen the past repeats are a little concerned by events and were somewhat surprised by my laissez faire attitude to it all, they will learn. To me the oil price however its calculated is still within "normal" statistical bounds and that's before taking years of inflation into account
I think that some of what happened was precautionary. Traders and oil suppliers did not want to find themselves accepting orders when the cost of replacing stocks might be much higher. So they deferred or cancelled orders. In addition, parts of the world rely heavily on supplies of products from refineries in the Gulf region, so until the damage caused to these refineries becomes clearer the principle of only accepting orders at much higher prices is understandable. But, as is always the case, the panic passes and prices settle down, though not at pre-panic levels.
I am sure that there is an element of TDS but there is the larger aspect of a population that has become used to the idea that they should be insulated risks and shocks that previous generations would have regarded as normal. The divorce from what might be regarded as the harsher realities of life reinforce such attitudes. Of course, most people don't understand that providing universal insurance against external shocks is, in fact, rather expensive.
This explains neatly why diesel is now 20p per litre more expensive than petrol and why I will be using the petrol vehicle a lot more for the foreseeable future!
I note that a pipeline from the Arabian Gulf to the Red Sea, built in 1981, is now fully operational in 2026. I wonder if this is helping to keep international oil prices more subdued than they would otherwise be?
Yes, the East-West crude pipeline can carry up to 7 million bbl per day to Yanbu. Some of that is allocated to refineries at Yanbu, and there is a constraint on how much the port at Yanbu can handle. The increase in crude supplies and, perhaps, products from the refineries will finish up in Europe via either the Suez Canal or the Sumed pipeline, which will reduce upward pressure on prices in the Mediterranean and Atlantic markets but push up prices in Asia.
There was an interesting post on Doomberg a few days ago (Drilling Laterally). It said it was a mystery that the oil price has not gone higher than it has. Unfortunately I don't have a paid subscription with them so I could not read the whole article.
I am less surprised than Doomberg. We are getting close to the end of the Northern Hemisphere winter, so restocking can be postponed for a limited period. That means that prices can settle at somewhere close to their expected summer level, allowing for adjustments to bypass the Gulf. Also, my guess, even before the US relaxation of sanctions on Russia oil, was that the US (an eventually Europe) would prefer to row back on restrictions on Russian oil and product exports than to face the consequences of very high spot oil prices. So, the traders that Doomberg refers to are betting on what will happen to Russian oil supplies.