Physical Constraints Trump Central Banks as Global Economy Shifts

The recent attacks on Saudi oil facilities have exposed a critical weakness in the global energy market. While production levels are still high, the transportation and refining of oil have become increasingly complex and costly due to disruptions at key ports.

Satellite images show thermal anomalies around Yanbu port facilities, indicating damage that could last until November, affecting Saudi Arabia's ability to ship oil to Europe. This is not a production issue but rather a logistical one.

The market is now facing a shortage of refined products, specifically diesel, which has led to record-high prices in the US and Europe. The diesel crack spread measures the margin between crude oil and diesel prices, and it has exceeded $117 per barrel, far exceeding historical norms.

This development marks a significant shift from a system dominated by central banks to one where physical constraints are taking center stage. Investors should no longer focus solely on Fed decisions but rather consider the impact of logistical bottlenecks on the economy.