Host: Bob Yawger is a commodity specialist with Mizuho Americas, and he joins me now on the program. Bob, great to see you. How are you doing?

Very good. Thank you for having me.

I want to pull up some data that is probably you're no stranger to. You have seen this. This is a chart of the price history of West Texas Intermediate oil since 1970. You can see when we start sort of in the 70, we're looking at $3 US per barrel. When we look towards the 2020s, there have been some moments in history where we have hit about 100 and sometimes over $100 US per barrel. The sharp increases that you'll see indicate some kind of oil shock. And there have been many over the years.

Bob, help us understand right now what's happening with the Strait of Hormuz. Hormuz has never been closed to tankers like this before. Some have gone on to say that what we're seeing is unprecedented. Why aren't we seeing oil prices higher than, say, in the early 2000, mid 2000?

The big reason is because the United States, and to a lesser degree Canada, are now oil producing superpowers. We, the United States, we produce way. We produce 13.8 million barrels a day of crude oil back in those early 20s or going back to the first war in Iraq. I worked on the floor. Then when we liberated Kuwait, we were probably producing 6 million barrels a day if we were lucky. Now we're at 13.8 million barrels. We have energy security in North America, in the Americas, in general. That was not the case back in those days. It was not the case even through the first through the second Iraq War with the second President Bush. That was still not the case. And the, the, the, the technology that we have at our hands now can bring a lot of crude oil out of a very tight space. It can suck basically crude oil out of rock. And we've got we are very good at that in Canada. You're very good at it also. And if you could build more pipelines in Canada, you would even be able to produce a lot more crude oil. So yeah, we have an abundance of crude oil. We're going to have an abundance of crude oil for a long time. And that kind of takes the shock effect out of the out of price, especially for North American WTI crude oil.

You'll see today at one point, the international benchmark Brent contract was trading at basically a 20 year high $20 premium to US crude oil. In other words, crude oil from the North Sea was $20 more expensive than the barrel from West Texas today. So what happens then is crude oil. There's no real reason for crude oil in the United States to go rally above and beyond. But with that $20 premium to the international benchmark, we're going to be like, we are going to be exporting barrels for size here in coming weeks. The crude oil is trapped in this in this in the Persian Gulf is going to divert their customers to the United States, who are going to sell them a lot of WTI crude oil, which is a good crude oil, makes a lot of gasoline. The Canadian barrel, which generally comes down through the mid-continent of the United States, is a thicker crude oil. It makes a lot of diesel and heating oil that has trouble making it to the sea. But we will if we sell. If you sell us that oil, we can divert some of those our supplies to the Gulf Coast and sell them even more barrels. So look for. The all time record is about 5.6 million barrels a day of US exports. We were at about 4.9 million barrels in yesterday's storage report. Look for that record to fall in coming weeks.

I do have to ask, you know, prolonged high oil prices can test any nation. It doesn't matter if you are an export or an import. I am curious help us position what we are seeing right now, sort of in the history books here. What past oil shocks did not lead to a global recession?

It's pretty much a layup to a large degree. Yeah. It's it certainly increases the odds. I mean we traded $100 yesterday. We're in the range where inflationary pressures are going to be on the move. And it's going to threaten a recession here. I just read before I left the desk that the traders are pricing in no rate cuts this year. They have to have that rate increase in their back pocket, possibly to combat inflation moving ahead here. So it's not looking it's not a good situation. It looks it's looking more and more like a low growth, possibly low job environment moving forward from here. And that is not good. I will tell you the big problem here in the States. I mean we're not immune to all this despite the fact that we're pretty far away from the Persian Gulf or the Middle East, and the fact that we don't import barrels from there anymore. However, the price of gasoline here in the United States is up over 30% in 18 days. Since the beginning of the of the war, the price of crude of gasoline at the pump has been higher for 18 days in a row. It's been higher for every day of the war so far. So that is going to put pressure on the consumer. That is the easiest way to get to inflation is high energy prices because it bleeds through so many different industries. So yes, it's a real it's a real problem here. It's not only an inflationary problem, it's a political problem for the administration. We have the midterm elections coming up in November. And if people are driving and they're paying $4, $5 for gasoline during summer driving season, they'll remember that when they go to the polls.

Bob, how would you compare this oil shock to those of the past, say, the 1973 oil embargo, or when oil prices traded at $147 per barrel briefly in 2008.

The 2008 scenario was kind of a drift higher. It wasn't necessarily a one day 10% spike higher it was. And it wasn't just one factor. It was geopolitical mayhem, basically, in Iraq. It was the increasing demand by China to next level demand numbers. And it was also a, a, a the dollar, those three forces conspired to rally crude oil to the highest level of all time. But there was like, it was more of a gradual thing. It wasn't like a big one day event. So I would say this time, because of the, the quickness, it's, it's, it's, it's a big event. However, I would also say that the Russian war in Ukraine, that was a big one that left a lot of the European Union's access to what they had bet would be there. Oil and gas supplies for millennium off the market. And they had to scramble really fast to secure new supplies. And those numbers went to the moon. And that was a big shock to the system. That was a big shock to one of the biggest economies, the European Union of all time, to any, any economy. And so that was a big one. There's a lot of in some ways you could say that was worse. But it's, you know, it's it's apples and oranges at this point, to a large degree, we still haven't traded to the levels that we were at in the Russian war in Ukraine. Brent traded to $119.50 at the beginning of the war, traded to $119 today. But that's still a good $1,112 away from where we were at during the Russian war in Ukraine.

If hostilities were to cease tomorrow, how long would it take for global oil and gas to balance itself? Maybe, perhaps come back to where it was February 27th before the U.S. and Israel attacked Iran?

Market would fall really fast in one day. For starters, it would be $1,015. Move to the downside. It probably would be another one the day after that. This has happened before. This has happened in the first Gulf War. The market would trade limit down multiple times in one day. That would probably happen again to a certain degree if they just wrapped it up today from out of nowhere, which I wouldn't say is likely, but I would. I would say there's a one, two, 3% chance that it does happen. If that were to happen, it would it would pull back fast. However, there is no doubt that there's significant infrastructure destruction in the production space in the Middle East, in the Persian Gulf at this as of right now, Kuwait Energy was putting out this morning that it would take as long as five months to them to fix the damage that has been done to their facility, which is the largest LNG facility on the planet that moves 20% of all LNG supplies on the planet, is has been damaged. And that's longer than I thought. But they are putting out five months to fix that. Today, three refineries representing 1.2 million barrels of refining capacity. Were were targeted by the Iranians today, an earlier part of the war, the fourth largest refinery in the world in the United Arab Emirates, was targeted. That's 800,000 barrels a day. And the largest refinery in Saudi Arabia for 550 million barrels a day was also targeted. That production is not going to come back from those refineries. On day one, you'll get the big move in crude oil. You would get the big crude oil move in crude oil. But oil infrastructure is going to take longer to come back.

All right, Bob, we are going to have to leave it there. Really appreciate your insights on this. And thanks for the history lesson as well.