Oil Crisis Delayed, Not Deferred

Adam Rozencwajg, a legendary resource investor and analyst, says the oil investment thesis is rooted in both the near term due to the Iranian and Russian conflicts, as well as the long term due to massive underinvestment that will need to be remedied.

The oil crisis has been delayed, not permanently deferred, according to Rozencwajg. He explains that the initial shock was buffered by a time buffer built into oil ships already out of the Gulf when the war started, a large release of oil from strategic reserves, and China's unique ability to cut its imports by 40% to 50%.

However, estimates put the missing barrels somewhere north of 2 billion barrels, with Saudi Aramco recently placing it at 2.6 billion barrels. The world has woken up to the idea that the real problem is in refined products rather than crude, with refinery disruptions in the Middle East, Russia, and especially China shifting the shortage downstream into gasoline, diesel, and jet fuel.

Rozencwajg notes that even without a global recession, economies are still growing, and demand for oil remains high. This has led to declining inventories and exploding crack spreads, with diesel selling as if oil were $70-$80 per barrel higher than it currently is.