Been in the works for a bit now

It is often said that the best cure for high oil prices is high oil prices: they reduce demand and rebalance the market. And already some users of oil are pulling in their horns.

It's true, prices work... higher prices = people and companies pull back on use, extracting companies ramp up whatever they can (which, in the short term isn't that much unfortunately...).

Here's an interesting twist:

When a refiner “cracks” a barrel of crude oil, the result is a barrel’s worth of products spanning from butane to bitumen, with gasoline, jet fuel, diesel, naphtha and fuel oil in between. These emerge in fairly fixed proportions — in other words, a refiner has little ability to prioritise one over the others.

A roughly 15 per cent cut in the world’s supply of crude and products, like that which would result from a prolonged closure of the strait, would therefore need to result in a cut of about 15 per cent in consumption for each of the products. That’s a rule of thumb rather than an exact figure, admittedly, since the actual amount would be affected by the limited tinkering refineries can do, and the fact that Middle Eastern exports of products were particularly focused on naphtha and jet fuel.

As so often is the case: the flying/airline industry is irrelevant

Demand destruction for crude oil, then, happens when the price of the other products rises too, reaching the level at which 15 per cent of their customers decide it is no longer worth their while to buy. And some will be a lot less price sensitive than airlines, which suggests that, in a prolonged disruption, the price of crude and other products would have to rise further. Suddenly-less-frequent flyers may be doing their bit, but managing any coming shortages will need to be a much wider team effort.

archive misbehaving... sacrificing my subscriber link to yous; you're welcome.