This is a fairly shallow article and a long way of saying "oil producers make more money". But it's not really the interesting part because it doesn't mention refineries and they're a key part to what's going on.
Crude oil is essentially worthless. What makes it valuable is a refinery that turns it into any number of products, most notably the middle distillates such as gasoline, diesel and aviation fuel ("avgas", which is just kerosene basically). Oh and heating oil.
How refineries work is they buy crude oil on the open market and produce a mix of products. A refinery will be somewhat designed for a particular flavor of oil but they'll also mix these oils to produce a more profitable product mix. The only big issue here is if oil is sour or not, meaning it's high in sulfur. You need processes to extract the sulfur. Most US crude is sweet (meaning low sulfur).
The general mix that gets tracked to see how healthy the refining industry is is the 3-2-1 crack spread [1], meaning 3 barrels of oil to produce 2 barrels of gasoline and 1 of diesel (and heating oil). Since the start of this war of choice in Iran the crack spread has gone through the roof. Why? Because a certain portion of refining capacity is inaccessible (being in the Gulf) and a bunch of it has been damaged, particularly in Russia.
So oil prices aren't higher because there's simply a lack of refining capacity to produce useful goods. Saying oil is "only" $100-110 misses the real issue entirely. If the refineries were still online, the oil price would be much higher so, as a result, the middle distillates would still be near record highs.
I see some comments here writing off OPEC (and OPEC+). That's a mistake. If you want to see an example of how OPEC can still screw us, look no further than the pandemic inflation shock, which was almost entirely caused by the Trump 2020 OPEC deal, which cut global oil production by 10% (going down to 6% over 2 years).
In 1945, FDR made a deal with King Faisal of Saudi Arabia, which was basically oil for weapons. The Middle East keeps oil flowing and the US guarantees their security. That's why the strategic defeat of the US in the Gulf is so consequential because it's an end to the US security guarantees that have lasted over 80 years.
Oil exists to induce demand for weapons the US sells.
jmyeet · · focus · HN ↗
Crude oil is essentially worthless. What makes it valuable is a refinery that turns it into any number of products, most notably the middle distillates such as gasoline, diesel and aviation fuel ("avgas", which is just kerosene basically). Oh and heating oil.
How refineries work is they buy crude oil on the open market and produce a mix of products. A refinery will be somewhat designed for a particular flavor of oil but they'll also mix these oils to produce a more profitable product mix. The only big issue here is if oil is sour or not, meaning it's high in sulfur. You need processes to extract the sulfur. Most US crude is sweet (meaning low sulfur).
The general mix that gets tracked to see how healthy the refining industry is is the 3-2-1 crack spread [1], meaning 3 barrels of oil to produce 2 barrels of gasoline and 1 of diesel (and heating oil). Since the start of this war of choice in Iran the crack spread has gone through the roof. Why? Because a certain portion of refining capacity is inaccessible (being in the Gulf) and a bunch of it has been damaged, particularly in Russia.
So oil prices aren't higher because there's simply a lack of refining capacity to produce useful goods. Saying oil is "only" $100-110 misses the real issue entirely. If the refineries were still online, the oil price would be much higher so, as a result, the middle distillates would still be near record highs.
I see some comments here writing off OPEC (and OPEC+). That's a mistake. If you want to see an example of how OPEC can still screw us, look no further than the pandemic inflation shock, which was almost entirely caused by the Trump 2020 OPEC deal, which cut global oil production by 10% (going down to 6% over 2 years).
In 1945, FDR made a deal with King Faisal of Saudi Arabia, which was basically oil for weapons. The Middle East keeps oil flowing and the US guarantees their security. That's why the strategic defeat of the US in the Gulf is so consequential because it's an end to the US security guarantees that have lasted over 80 years.
Oil exists to induce demand for weapons the US sells.
[1]: <a href="https://rbnenergy.com/market-data/3-2-1-crack-spread" rel="nofollow">https://rbnenergy.com/market-data/3-2-1-crack-spread