Daily Episode 251 - What to Expect from an Oil Shock?

0:00Hey, Cory here. We've had an influx of new listeners, and so I just want to make sure that if you are new to the podcast, you don't just jump in and start listening to these daily episodes which we've been doing. Please go back and listen to the first at least eight episodes. So you have an idea of what collapses, what it is that Cory is talking about. Also if you've been with us for a while and you're enjoying the content, please join us on Patreon. We would love to see you there. There's a link, as always, in the description. Therapy's biggest impact doesn't show up in some dramatic breakthrough. It shows up in the smallest moments. You bite your tongue instead of escalating. You put your phone down, instead of firing off that text. You say what you actually mean, instead of what would hurt someone else the most. Nobody applauds those moments, but they quietly change your life. That's what growing feels like, and that's exactly what growth therapy is here for. No is therapy that works, covered by insurance.

1:00Sessions average $21 with insurance and some pay as little as $0 depending on their plan. There are no subscriptions, no long-term commitments, you just pay per session. Grow connects you with thousands of high-quality licensed therapists across the US, offering both virtual and in-person sessions, nights and weekends. You can search by what matters, like insurance, specialty, identity, or availability, and you can book a therapy session in minutes and begin in as little as two days, not the national 48-day average. See if you could pay as little as $0 per therapy in seconds at growtherapy.com slash a cast. That's growtherapy.com slash a cast. Growtherapy.com slash a cast. Availability and coverage vary by state and insurance plan. When you own your own business, you need to keep things moving. To book a last-minute flight, earn a $300 travel credit to cover that. Need to take a meeting before takeoff? Do it from the comfort of the Chase Sapphire allowance by the club.

2:03Need to get your breath before you board? Done. Chase Sapphire Reserve for Business. The business card that gives back all you put in. Visit Chase.com slash reserve business to learn more. Card's issued by JB Morgan Chase Bank and a member of DIC Subject to Credit Proof will terms apply. If your work day happens in two languages, this one's for you. Whisper Flow is a voice to text app. You talk, it types, and any app in more than 100 languages. The email in English, the text to your mom in Spanish, the client note in Portuguese, and it switches languages as you do with the arms and typos gone four times faster than typing. Whisper Flow is free. Get it at Whisper Flow.ai. That's WISPRFLOW.ai. Last week we did an episode on the trouble arising in the gas, oil, diesel markets. We focused primarily on why it's happening, on some anecdotal evidence of it happening.

3:03What we didn't really discuss a lot of was the consequences of it in the long term. We focused on the fact that yes, for example, the US oil reserves are running low, likewise other nations across the world. But what exactly does that mean? I hinted very loosely, of course, at some of those consequences like higher grocery prices, prices at the pump and transportation, but it goes so much further than that. Today I want to give a quick update on the state of things, a couple of news where the items on this front, as well as read through some analyses of the expected impacts. Some of these are published articles, some of these are opinions, but I think at any rate it will be interesting to explore in what ways this will affect people around the world. So first with some updates from euro news.com, armed group shuts Libyan oil pipeline, jeopardizing exports. It says an unnamed armed group shut a valve on a pipeline from Libya's largest oil field

4:04causing a drop in production, according to the national oil corporation. The disruption threatens production from the El Sharara field, a key source of crude for Libya, an OPEC member that holds Africa's largest proven oil reserves. Armed groups and protesters frequently target oil fields, pipelines and export terminals to press, political or economic demands. The NLC said in a statement that the closure affected a pipeline linking the El Sharara field, some 700 kilometers south of Tripoli to the coastal city of Zawiya, home to one of the country's main export terminals. It did not name the group responsible. If the shutdown continues, the company could be compelled to declare force-major, a legal provision that allows suppliers to suspend contractual obligations because of circumstances beyond their control. The NLC declared force-major at El Sharara in January 2024 during a previous closure. The closure caused a pressure build up within the crude oil pipeline, leading to a significant reduction in production at the El Sharara field, the NLC said in a statement. Such a scenario would directly reduce state revenues at a time when global oil prices

5:06are rising. Oil prices have risen above $100 a barrel in recent weeks amid disruptions to Gulf shipping linked to the Iran War. At full capacity, it produces approximately 350,000 barrels per day, accounting for roughly a third of Libya's total output. All right, so that's just one more complication, I guess, in this conversation. There have been additional attacks from Houthis on various oil infrastructure. The war in Iran continues on with no hope in sight for an end. The US and Iran apparently set over the last couple of days that they were going to be having talks about how to phase out the war, but these talks have been going on for months on and off with no results yet. Well, MNWAL Macron calls for another emergency oil release as Europe continues losing supply. He's calling the G7 back to the table to discuss another release of emergency oil stocks, as Europe loses Saudi crude deliveries and diesel prices push deeper into record territory. We talked about this last week was not officially announced.

6:07It was leaked by someone inside a ramco. It is, however, now official that they are not going to be making those deliveries. Macron said Friday that he will convene G7 countries in the coming weeks to coordinate stock levels, exports and production capacity, and consider tapping strategic reserves. France is also working to secure diesel, jet fuel and natural gas supplies for the coming months. Europe has a useful car left to play. Unlike the US strategic petroleum reserve, European emergency stocks contain large volumes of finished fuels, including gasoline and diesel. Diesel is exactly where the market hurts. Saudi Arabia added another problem Friday when a ramco told at least two European refiners they will receive no crude under term contracts in October, following the attack on its east west pipeline. IEA members have released more than 300 million barrels of emergency stocks since March. Global observed inventories are still 507 million barrels lower than when the war began, after drawing at an average 2.8 million barrels per day over the past six months. Another stock release could put physical barrels and importantly finished fuel into Europe

7:11quickly. It cannot repair Saudi Arabia's pipeline, restart Russian refineries or reopen or moves. Although this article talks about how yes, it's good news that they may have access to more reserves, but is it ever good to be drawing down from a savings account when the income completely stops coming in? It's definitely not sustainable. That was France. In the UK, there's a Guardian article titled Half My Days Pay goes to filling up my car now. Diesel crisis ripples across Britain. The smoke rising from the Kepatinia oil refinery to the southeast of Moscow marks one of Ukraine's biggest air raids on the Russian capital since the start of the war and the latest salvo in an energy crisis that threatens to affect households and businesses across the globe. You may or may not have heard about this attack, it was the largest attack that Ukraine has done on Russian oil infrastructure. This in a completely different part of the world than the Saudi Arabia, Hormuz, Iran issue that we're currently experiencing nonetheless adding to the long list of problems that energy

8:14is experiencing across the world. It says more than 1,500 miles away, British motorists are braced for the ripple effect from that conflict and the US-Israel war on Iran. Average UK diesel prices are expected to reach record highs within days while across Europe and the US pump prices have already surpassed all-time highs. In a call on Sunday, Donald Trump pressed Ukrainian President Vladimir Zelensky to halt strikes on Russian refineries over concerns that the attacks were pushing up global fuel prices. On true social, Trump said Russia has unfortunately lost control of its diesel oil industry and called for an end to this ridiculous and never-ending war. Of course, right after he started a ridiculous and probably never-ending war. While the price of Brent crude oil which briefly fell below $100 a barrel on Monday remains in flux, already hard-pressed households and small firms face a far greater cost threat at forecourt pumps. As the combined impact of Russia's war-damaged refineries and the Middle East crisis has erased about a fifth of the world's diesel supplies. John Bard in a former humanitarian advisor, turned handyman, says,

9:15around half my days' pay goes to filling up my car now. His diesel Ford estate, once used for camping trips, is now used to carry heavy tools to jobs around Tottenham in North London. All right. So again, just some various stories from different localities showing how it's affecting people, these ones primarily at the pump. But it goes beyond that and quite a bit. There have been all sorts of hyperbolic posts, not just on the collapse subreddit, but throughout many different forums online. And it could be hard to decipher what's true, right? Many of them claiming that we're headed towards a great depression or an oil shock similar to that of the 70s and 80s in the U.S. That what we're going to experience is worse than any depression ever experienced that it will be a complete collapse. And it can be easy to get sort of caught up in that fear. We see this type of thing happen all the time where there is a threat and it gets extrapolated out into the worst imaginable thing happening.

10:15And more often than not, it doesn't result in that. More often than not, there are cushions, there are levers, the economy can be more resilient than we think. But sometimes, that's not the case. And the worst case scenario does happen. Or something completely different or maybe worse than what we had imagined. We cannot know for certain exactly where we are headed in the short term because of this oil supply shock, but we'll at least try and look through some of the range of possibilities in the next few minutes. So first from cmbc.com, this article is titled, how record diesel prices will rip through the U.S. economy. Trucks, rails are only the start. Now while this is talking specifically about the U.S., I think this could probably be extrapolated out into many different countries around the world. cmbc says, ever since the outbreak of war with Iran earlier this year, motorists have been wearing the I.N. prices at the pump. While unleaded gas prices have largely avoided historic highs, the same can't be said for diesel fuel, which hit an all-time high of $6.31 per gallon on Wednesday. This was just the latest grim milestone in what has been a steady march upward.

11:18Economist Sands Supply Chain Experts say what starts in the transportation sector, where trucking and rail companies are feeling the pain now, will eventually push prices on virtually everything in the economy up. This is not surprising because diesel is the economy's single most universal tangible input, according to David Russell, Global Head of Market Strategy at Trade Station Group. The first to feel it are freight haulers, but there will be plenty of other losers, consumers and companies, if diesel remains at record price levels. The chief commercial officer for Norfolk Southern, railroad noted at a Morgan Stanley conference on Tuesday that in California, the price of diesel was already $8. Customers are getting a taste of what could come next in the form of already higher prices at the gas pump. What is driving up gas prices right now isn't just the price of oil, it's the price of diesel. The cost to get the gas to the gas station is the driving factor behind the steady increase at the pump. Jeff Leonard, Vice President of Media and Strategic Communication at the National Association of Convenience Stores, says, the higher transit costs are adding several additional cents to the cost of selling fuel, as do swipe fees that are percentage-based and increase

12:23as prices increase. Retailers are faced with the tough decision of whether to absorb these added increases or pass them along at the pump. Right now, he says they are absorbing the bulk of the costs, which typically happens when wholesale prices and costs increase dramatically. Right now retail gross margins have constricted by about $0.15 a gallon, which is typically what their net margin is. So he's saying that prices at the pump have sort of been artificially decreased or held steady because the gas stations themselves are absorbing those costs, but they're at their limit for being able to do so. The article says that, and then the chips, soda, and donuts inside your favorite convenience store also have to get there by diesel-powered trucks. So the pain from the pump seeps into the store because getting the items there is costing a lot more. Costco recently made the decision to limit how much motor oil, which is affected by crude markets and refining capacity its members can buy. Right click, who is the CEO of a digital freight forwarder, said that diesel is the price nobody watches until it's already inside everything else.

13:24Glick said it moves through freight rates, farm equipment, food delivery, and home heating, anything that touches a truck at some point in its journey. It can take a while for the diesel cost to work its way through the economy and into your bank account. Glick said that consumers feel it last but not least. It shows up in grocery prices, delivery fees, and anything seasonal that depends on trucking to move fast. Usually a few weeks after the spike, once surcharges work their way through the supply chain. That's different from gas where drivers see the pain immediately at the pump. Truckers are the most immediately impacted, especially because many independent operators can't adjust quickly when costs rise. And I did on just anecdotally see a post someone made about how it cost them like $1,500 to fill up their rig with diesel. If you're planning a trip this winter, you may pay more for it. Gassel said, travelers face higher costs for holiday airfares because jet fuel is similar to diesel. Higher diesel prices will spread across the economy with consumers facing higher costs for ordinary goods delivered by trucks and services like home improvement.

14:25The list of impacted goods and services will only grow the longer diesel stays high. Then it goes on to talk about home heating oil, which is used extensively in the northeast to heat homes, tracks closely with diesel prices since they are made from the same ingredients. Customers can expect to pay as much as 31% more this winter if prices stay at current levels. He said, that's not the whole story though. Families are going to get hit three ways, heating oil, and then everyone will get hit with high gas prices and delivery on everything is dependent on diesel, so regular everyday families will really struggle. The article then goes on to talk about why prices are so high and why it's going to be extremely difficult to bring them back down. Therapy's biggest impact doesn't show up in some dramatic breakthrough. It shows up in the smallest moments. You bite your tongue instead of escalating. You put your phone down instead of firing off that text. You say what you actually mean instead of what would hurt someone else the most. Nobody applaud those moments, but they quietly change your life. That's what growing feels like and that's exactly what growth therapy is here for.

15:30Grow is therapy that works, covered by insurance. Sessions average $21 with insurance and some pay as little as $0 depending on their plan. There are no subscriptions, no long-term commitments, you just pay per session. Grow connects you with thousands of high-quality licensed therapists across the US, offering both virtual and in-person sessions, nights and weekends. You can search by what matters, like insurance, specialty, identity, or availability, and you can book a therapy session in minutes and begin in as little as two days, not the national 48-day average. See if you could pay as little as $0 for therapy in seconds at growtherapy.com slash acast. That's growtherapy.com slash acast. Growtherapy.com slash acast. Availability and coverage vary by state and insurance plan. I'm Livy Dunn, all American gymnasts and Vyory athlete. When you travel and train as much as I do, you find happiness where you are.

16:30On the mat or on the sand, movement and comfort are essential. That's why I live in performance joggers by Vyory. Made from dreamnet fabric that's made of 89% recycled materials, effortlessly soft and made to move as much as I do. My happiness starts here in the softest joggers on the planet. Get 20% off your first purchase at Vyory.com slash Libby. That's v-u-l-r-i.com slash l-i-v-v-y. Exclusions apply. Not only will you receive 20% off your first purchase, but enjoy free shipping on US orders over $75 and free returns. Go to Vyory.com slash Libby and discover the full versatility of Vyory clothing. Exclusions apply. Visit the website for full terms and conditions. Another site called The New Sensinal has an article titled, Global Food Shock is imminent. Stock up on your favorites now. Farmers and food suppliers worldwide have been warning friends and family members about imminent food shortages. And without their input, citizens are seeing very real changes at the supermarket.

17:32Grocery costs have nearly tripled in the past few years and supplies have dwindled. Word is that people will be truly shocked when they see bare grocery store shelves over the next few months. If there are foods that you'd really like during the holidays, stock up on them as soon as possible. The next section they titled, The Era of Diverse Affordable Food is coming to an end. The problem with these diverse foods, it says, is that they need to be shipped in order to make their way to your table, shipping requires fuel, and that is in shorter supply than ever these days. The straight up from Moods is shut and Saudi Arabia has cancelled oil shipments to Europe. When fuel becomes too expensive, businesses cut back on shipping products. What this means is that the imported items that currently cost around $8 may suddenly cost $30. Prices will keep skyrocketing and fewer items will be available on supermarket shelves soon. Now, obviously this site that I'm reading from here, The New Sensinal, is a little bit more on the potential hyperbolic side, right? It is speculating about what the future may be, but this falls along the path of catabolt collapse that we have talked about frequently in the past.

18:33Kellin and I, through several different episodes, talked about this idea that collapse isn't that one day the grocery stores are full and the next they are empty. It is that the variety that is available to you and the prices at which you can acquire those goods decreases. The luxury foods that we experience today may not be around in the future. The 20 different varieties of potato chips might become two or three. Right now if I want to get a can of pineapple, I can choose if I want it crushed or in tidbits or in slices or in chunks. One day I may only have one choice and yes, maybe one day pineapple will stop showing up in the grocery store. The candy aisle in Walmart, which is now an entire two sides of one very long aisle, maybe an end cap. The expensive and exotic coffee beans that you have access to may turn into just a few options of highly processed and pre-packaged goods. So that is sort of the idea that this article is coming up with that this shipping shock,

19:39these oil prices can lead to this sort of result. Do I necessarily think that is the case? I don't think we can say for certain that that's where we're headed. That said, what I can see and because we've seen this before in recent history is that if there is a slight shock, right, if some grocery stores start to have concern, they're not able to get a supply in, that makes a certain part of the store look empty. Maybe we do go a couple of weeks without fresh produce in a local grocery store or the price of something else goes up 20% that this can spark a panic in people, which is exactly kind of what this article is doing, right? It's saying if there's a certain food that you want for the holidays, you better stock up now. If people get into that stock up now, mentality and everyone goes in and buys three to five times what they might normally buy, that causes a shortage, compounded on top of the shortages or supply constraints that we might have already been seeing. Well to end and I'm not going to go into great details on these, there are a few different

20:41self posts in the collapse subreddit on this topic. One is titled, people don't realize how dependent most of the world is on oil and how quickly the economy society will collapse without it. It talks about basically what we've been talking about today. Most of the world is dependent on other countries for producing oil. Right now there's a shock to that. Most countries are using their reserves and it points out at the end. This has most trucks run on diesel. Most of our products are made out of petroleum. Prices will reach astronomical levels in a few months. Choking consumers in the economy, transportation of goods will become uneconomical. Industry will run out of energy to produce things. Farmers will run out of artificial fertilizer. People will be unable to afford gas to get to work or they will eat up all their income. Then there is a super el Niño that will make things worse. Most people out there are completely oblivious towards what is coming. They complain about gas prices but they don't think one step further what this means in the grand scheme of things. They don't think that oil is finite. Especially if the supply is cut by 20 to 30%. Stock up people and good luck to us all.

21:41So again there's that same sort of panic that is a positive feedback loop on this topic. The more people panic about it, the more likely it is to actually happen. Which is why we should always be prepared. Right? You should always be stocked up. You should always have an excess so that when the shock does come, whether it's from this or something else in the future, whether it's temporary or long term, you are not one of the ones going out and panicking and you are not one of the ones losing when everything is already gone. Another self post here talks about silver linings to the oil shortages. They say despite Trump's love for oil and oil companies, he has through shearing competence driven the entire world towards green energy. He has by himself decreased the worldwide production of fossil fuels by over 20%. This is ironically the kind of change needed to fully transition towards renewables and prevent catastrophic global warming. By pushing the rest of the Western world towards Chinese EVs and solar panels, he will usher in a new age of renewable and diversified electrical grids. Countries and citizens across the world will remember the pain he caused and are already rapidly pivoting to non fossil fuel based electricity generation.

22:45Trump has decreased the number of airline flights, carbon emissions we all thought would be impossible to rain in. Without international shipping via cargo ships again once thought to be impossible, increased reliance on public transportation worldwide. Weak in the political power and reach of nearly every petro state, turn the American people against AI, data centers and large corporations, reveal the American military is a corrupt paper tiger that cannot defeat a regional power like Iran. Solidified China as the next global superpower, he is currently working very hard to destroy the commercial internal combustion engine vehicle industry and while he has slowed renewable adoption in the United States, he has done irreparable harm to the reputations of the oil and gas industry. Even fields like battery research are getting a windfall as countries rush to find replacements for diesel and ship fuel. The top comment there says, if anything, he has helped teach the world how dangerous it is to rely on imported petroleum to fuel your society. So yeah, I guess we can look at the silver linings. We have always sort of posited that it might require a shock, right, a collapse in its own right to wake the world up to what needs to be done.

23:47If we can't make the decisions ourselves, those decisions will be forced upon us and right now Donald Trump is sort of forcing those decisions upon us. So what might happen? I don't know. I'm sure it depends much on where you live, on the policies that your government puts in place and on your individual or community reliance on fossil fuels. There are likely parts of the world right now today that are suffering the beginnings of collapse. Because their people cannot afford the increase in the price of fuel because they may not have reserves in place to be able to buffer. There are lives of people who are right now being upended because of the shock as it already stands. That will only get worse as time goes on as more and more nations run through their reserves as prices increase and increase, not just in gas at the pump, but as that reverberates throughout the economies. Do I think this results in a worldwide economic collapse? Not necessarily. Won't rule it out. But when you mix this with the other impacts of the wars in Russia and Iran, the lack of

24:52fertilizers, the lack of grains, you add in El Nino and the impacts it will have on food and production. And then of course mixed with this topic today and the transportation of these goods, yeah, I think it's going to hurt. And much of that will be dependent on what happens from here. If this work can end, if it drags on, and that is something that we'll have to continue reporting on in the coming weeks and months, okay, that's it for today. We'll see you tomorrow. Hey, Corey here. If you are listening to the back catalog of breaking down collapse, thank you. Those episodes are so vital. They're so important. But I also wanted to let you know that I am now doing daily episodes. Yes, that's right. Here on the podcast daily episodes. So if you are enjoying the back catalog, great. Please also feel free to zoom forward to the most recent episodes. Catch us daily. They are quick little episodes. And I think you'll enjoy them. Thanks.