Title:   Oil Market "Comatose" as 1 Billion Barrels Are Lost (Kpler's Matt Smith)
Show:    Monetary Matters (host Jack Farley)
Guest:   Matt Smith (Director of Research / lead Americas oil analyst, Kpler)
Date:    2026-JUN-08
URL:     https://www.youtube.com/watch?v=S-5jHt3TBds
Length:  ~70 min
Note:    Auto-transcript, timestamps mm:ss / h:mm:ss. Saved for personal study. A macro oil-market discussion (no equity
         picks) — the global market is "sleepwalking into a crisis" four months into a closed Strait of Hormuz.

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(00:00) The global oil market is kind of sleepwalking into a crisis. It's a billion barrels of supply that has been taken out of the market on the crude side of the picture. People are tapping those inventories, but the market is still like it sounds like we're going to get a deal done tomorrow, the Strait of Hormuz is going to open up, everything's going to be fine. And it just isn't.
(00:53) So, as we record here in June, we're four months into the Iran war conflict. The Strait of Hormuz has been closed for over 3 months now. You've had about 15 million barrels a day of crude exports that would be leaving, plus another 5 million a day of products (jet fuel, gasoline, diesel, LPGs). Some crude has been rerouted — Saudi via the east-west pipeline, a little from elsewhere, maybe 4 million a day.
(01:41)  The way I look at it simplistically: supply is down about 11 million barrels per day on average over the last 3 months — all those Mideast producers throttling back. To offset that, we've seen about 9 million barrels a day of refinery runs cut globally. The difference, ~2 million a day, is inventory draws. The big crux: refineries are down 9 million barrels a day, so you're not getting that 9 million a day of products hitting the market.
(03:21)  We are not at the point where prices are so high they're killing demand. They probably need to be, but they're not. 90% of the crude that leaves the Strait of Hormuz goes into Asia; they've lost those flows. So Asia dials back refinery runs and exports. It's a series of dominoes. The biggest challenge is we're likely seeing product-side inventory draws in opaque areas (e.g. China) we just cannot see.
(04:41)  China is the largest crude importer (~11 million b/d) and suddenly halted buying. It turns out they dialed back refinery runs, so the ~4.5 million b/d they were importing was made available to the rest of the market — even reselling West African barrels. That provided 4.5 million b/d of supply the market wasn't expecting. China can't stay out for long.
(06:02)  Best to look at the US — largest market (~20% of global demand, 20 million b/d), most timely and transparent (weekly EIA report). The US refines ~17 million b/d, produces nearly 14 million. Because the rest of the world is so tight, barrels are getting pulled out of the US. Europe got ~half its jet fuel from the Middle East; that stopped, so it turns to the US.
(07:32)  US refiners tweaked yields to maximize jet fuel — US jet inventories actually hit the year's highest. But by maxing jet, you reduce gasoline and distillate supply, and those inventories are tanking. Diesel is being pulled to Australia and Africa. So the US is supplying the world, but US inventories are getting depleted — approaching critical levels. When the US stops sending barrels out, that's when the music stops.
(08:59)  When? Probably July. The best benchmark is Cushing (where WTI is priced) — inventories dropping ~1 million barrels every week for 8–9 weeks, from low-30s toward 20 million. We fly drones over it 3x/week; this morning's number showed another 1.4 million draw. Cushing is getting close to tank bottoms. That forces WTI to narrow vs Brent to slow the pace of crude exports.
(10:29)  You need a price response to keep barrels at home, otherwise inventories run dry. Cushing last approached this ~2014 (went below 20 million). The last ~20% is operational "sludge" — you can't draw it. So US exports have to slow. Last month set record US exports (~5.6 million b/d, vs 4 million pre-conflict); it'll drop below 5 million in June as availability dries up.
(12:10)  Broadly we haven't had as big an impact as possible because it was a seasonally weak time of year (spring shoulder season). Now refinery runs are way stronger, domestic demand is up, Europe's jet needs are ramping — and yet the strait remains closed.
(13:11)  Add other factors: the lack of Chinese buying helped. And you have a president who can type 160 characters and drop prices 10–15% — we've seen it happen multiple times. So the market has just become illiquid because no one wants to trade.
(14:08)  Why has the oil market cared about tweets when it's a physical market? Because the price can move on those benchmarks. But at some point the structural shortages kick in. There's complacency on headline benchmarks now; as extremities get reached, you'll see vicious moves. Trump talking down US oil has incentivized higher US exports (US crude became relatively more attractive).
(15:04)  To skeptics who saw oil fall: stay out, stay patient, watch the data — it's going to show a breakdown sooner rather than later. 84% of the drop in global crude inventories happened in two countries: the US (SPR draws) and Japan. Product releases are happening across ~30 OECD countries — a gradual bleed buffering the shock. But it's a billion barrels of crude supply taken out; the lack of products is going to come and bite, and that bite is going to be bad.
(16:24)  The shortage is hard to pin to one product — US distillate inventories are at a ~23-year low; European jet (ARA hub) has drawn ~45–50% since year-start. It's happening globally; people are tapping inventories while the market acts like a deal is imminent.
(20:00)  Crude inventories outside the US/Japan haven't drawn much because refinery runs dropped so far — everything comes back to lower refinery runs and lower product production. India (imports ~5 million b/d, ~half from the Mideast) went out and pulled Russian and rerouted Saudi/UAE barrels, holding imports ~4.5 million; but it had only ~20 days of cover going in, and its product exports keep dropping (protectionism). China banned exports; South Korea's jet exports (the US West Coast gets ~85% of its jet from there) are slowing.
(22:36)  The US West Coast is "an island"; a Jones Act waiver lets US crude/products move port-to-port more freely, so more jet flows to the West Coast — but that just pulls more barrels out of the US Gulf Coast. The US is getting everything pulled out of it.
(24:30)  Why is oil down over 4 months? The China pullback was surprising — China is excellent at inventory management (draws when high, builds when low). It wasn't selfless; they just refused to bid against everyone, freeing a huge chunk of crude that kept prices in check. Plus optimism and a "broken," illiquid market.
(26:25)  Why have commercial players (refiners) stepped back rather than panic-buying? Macro guys were burned betting on the closure. Refiners dialed back expecting barrels to return; buying a Brazilian/US barrel takes ~2 months to arrive, so they'd rather not buy a barrel that arrives after a presumed resolution. They're sitting on their hands, supplying the domestic market and not worrying about exports.
(29:24)  Of the 9 million b/d of crude "demand destruction" (oil run through refineries that isn't), how much is true end-user demand destruction vs product draws? Hard to know. Probably not much true demand destruction — it's conservation/rationing, not price-driven; demand may be down only a few million b/d. US gasoline prices even pulled back as oil fell from 110 to 90, which defies logic but keeps product prices in check.
(30:42)  Crack spreads have come off but are still profitable, so refiners keep running (US runs were the highest since August). The US imports heavily from Canada and Latin America, so it's basically insulated from the supply shock — only ~half a million b/d of Mideast barrels dropped off.
(31:50)  Strait of Hormuz flows: ~15 million b/d crude + ~5 million products before; now a handful of tankers, mostly Iranian/friendlies paying tolls or carrying humanitarian LPG. The two two-mile-wide lanes are unused (possibly mined; no one will risk it); tankers detour through Iranian waters. Crude still stuck in the Mideast Gulf: ~140 million barrels in March → ~120 now (maybe ~10 tankers got through in 3 months).
(34:11)  Apparent "traffic returning" stories (e.g. Shatr's piece) reflect zero→five, not 25% recovery. When the US/Iran cite "30 vessels," that's over weeks and may include speedboats/fishing boats/container ships — tankers only. Plus a US blockade hundreds of miles beyond the strait stops Iranian tankers; the buildup just inside the strait is log-jammed.
(36:24)  Could the strait still be closed in November with oil not at $200–300? A decent likelihood. Our dry-bulk lead said "next year" at the start and may be right. The US blockade stops Iran leaving; Iran blocks everything leaving — both sides hold power and are far apart. Three paths: stalemate (closed for months), a US nuclear deal that releases money (US "wins" but really loses), or military escalation. The weaker Iran gets, the more it might bring Bab-el-Mandeb / the Red Sea (via the Houthis) into play, threatening Saudi's rerouted ~3.5 million b/d.
(40:10)  We said $150 by now; we're at 90. But it can't persist on the product side. Some oil analysts who made bullish calls are sheepish about being wrong for 3 months. "Give me the ball — I'll take the educational hit." Something has to break, likely on the product side, where you'd have to take prices high enough to kill demand — way above current levels.
(42:29)  We see the crude side already starting (Cushing). Apply that blueprint to distillates/gasoline — even without knowing global refinery-run losses, US data tells us this surely has to happen. Price hasn't reacted yet, but that doesn't mean it won't in 2–4 weeks.
(45:23)  The IEA (Fatih Birol) warned on jet fuel running out, but refiners tweaked yields and jet now looks fine — the pressure just transferred to distillates. Lots of inventory-shuffling obscuring a general absence of barrels.
(45:46)  Shipping: VLCC rates popped then came back down. ~25 VLCCs typically head to the US daily; that hit ~70 as Mideast-crude VLCCs were redeployed, contributing to record US exports — now easing. Physical differentials (Gulf/North Sea barrels vs Brent) popped then fell back as China stayed out of the West African market.
(50:43)  Floating storage is ~140 million barrels (about the same), but its makeup changed — Russian floating storage off India came onshore; Mideast (much Iranian) storage rose. Oil on water is ~1.2 billion barrels, ~15% of it floating storage; it tanked to ~1.1 billion then rebounded to ~1.2 as US/Brazilian crude exports rose (longer voyages to Asia = more on the water).
(54:32)  Mideast production behind the strait is now ~13 million b/d shut in (up from ~11). Onshore inventories there are basically full — a huge problem, because to restart you must first get full tankers out to Asia, draw down onshore inventories, restart refineries, then ramp production. A whole series of ducks — months of work.
(55:40)  Perspective: the feared Russian production loss from the 2022 Ukraine invasion was ~3 million b/d (and didn't happen). What's happening in the Mideast now is four times bigger — and people are way less freaked out than in 2022.
(57:03)  To avoid a crisis 4–5 months out, demand would have to taper a lot — but that happens via lack of supply through refineries, while barrels are still available to buy (or prices would be far higher). So inventories just get drawn down — in opaque product places we can't see, and increasingly in visible crude places (which we can track) as seasonal demand ramps.
(58:28)  The not-freaked-out crowd points to IEA global inventories (~8 billion barrels) — "don't talk to me about tank bottoms." But you can't ask China to release its ~1.2 billion, and operational low levels mean that 8 billion overstates what's truly available (Cushing's last 20%, US commercial limits ~350–380 million). My worry: before market forces kick in, the US administration could impose an export ban — a very bad idea that muddies the picture.
(1:02:38)  A great point I'd failed to appreciate: the market was very well supplied going in. Jan–Feb we expected a big surplus (supply outpacing demand by ~2.5–3 million b/d through March–May), which acted as a big cushion. But those surpluses have flipped to large deficits June–August, on top of the production loss.
(1:03:28)  If a US-Iran-Israel ceasefire reopened the strait on Monday: oil drops maybe $10, then a gradual return over months (June–September) to normal. The fallen dominoes get picked back up; the tank-bottom concerns get fixed because barrels stop being pulled from the US so fast — a similar price environment, just a drop in oil.
(1:05:00)  What do oil people get wrong? Harp on the product side — clean product exports were ~20 million b/d before the conflict and have dropped to ~16 (a 20% loss); that's millions of barrels a day fewer hitting the water, day after day — it'll come home to roost.
(1:06:01)  Some non-energy commentators are "pretending the straits reopened" citing CIA relationships — like a fantasy novel. What gives Smith confidence: the oil still sitting in the Mideast Gulf has dropped only modestly, the Iranian stuff isn't getting through the blockade, and it'll take "first movers" — brave shippers — to even restart traffic once the strait is declared open. We're not near that yet.
(1:08:12)  Summary: a "comatose" market in terms of volatility, on both crude and products. What gets us out is the shock of inventories hitting low levels — watch the US, the most transparent and timely market. The US is in the best situation of anyone, so when it turns really bad in the US, it's already really bad for everyone else.