As diesel prices leap past $5/gallon once again and freight rates begin their slide down from July 4th highs, owner-ops should expect fuel prices to remain "higher for longer" as the Iran conflict reignites and an earthquake in Venezuela set back energy development there, according to oil market analysts.
President Donald Trump on Wednesday touted the U.S.'s success in seizing Venezuelan oil production, but it's unclear if that can fill the considerable hole left from the Strait of Hormuz closure.
"Millions of barrels of oil are coming to Houston and Louisiana," Trump said at a rally. "The big oil companies are going in [to Venezuela] ... and combine the U.S. and Venezuela, we have about 62% of the world’s oil market."
While Venezuela does have a lot of oil, it's not all ready to get extracted, refined, and marketed to Americans just yet, Tracy Shuchart, CEO and Founder of Hilltower Resource Advisors LLC said.
Most of the world's oil infrastructure still hinges on the exports from the Strait of Hormuz, a narrow passage that flows past Iran. Despite devastating military losses, Iran has been able to scare off most big tankers from attempting the pass.
[Related: Fuel surges back above $5/gallon as rates continue post-July 4 decline]
Trump on Wednesday tried to allay fears there of another major blockade.
“We don’t need the Hormuz Strait," said Trump.
Shuchart said although Venezuela holds promise, it's not ready for primetime yet, and trucking watchers should be ready for diesel prices to stay "higher for longer."
"Forget about the fact that Venezuela's infrastructure is crumbling" she said, but also a recent earthquake "did a whole lot of damage," delaying timelines and raising investments.
For oil giant Exxon, which had its oil assets in the country seized by the former Venezuelan government and only reluctantly returned to the country after Trump toppled former leader Nicolas Maduro, the earthquake just adds more headache to the process.
Right now, Shuchart said Venezuela is pumping out about 1.5 million barrels per day, which mostly hits U.S. refineries. It's the right type of crude to process into diesel, but nowhere near the 10 million barrels per day that would normally flow past Iran.
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Add to that Iran telling its allies in Yemen to target shipping in the Red Sea, troubles in the Black Sea with Ukraine and Russia, plus Ukraine targeting Russian refineries, and Shuchart said she doesn't "see how these issues resolve any time soon."
Global diesel demand won't go down anytime soon, and with all these pinch points, everyone is a buyer.
For Venezuela to meaningfully replace the Strait of Hormuz oil, as Trump suggested, Shuchart said it would take "billions of dollars of investment and several years."
As such, expect to see diesel prices "higher for longer," though maybe not breaking any records again.
The U.S. military has vowed to clear the Strait of Hormuz and assist tankers through, but Iranian strikes in the region have lowered capacity.
"Iran does not control the Strait of Hormuz," U.S. Central Command wrote. "The international waterway remains open for transit regardless of IRGC threats and attacks. Commercial vessels continue to use the strait with U.S. military support. Since early May, American forces have helped more than 900 ships transit the strait."
Of course, crude oil flows impact more than just diesel.
In May, the Independent Lubricants Manufacturers Association warned of a "global base oil supply crisis" that had already tripled engine oil prices in some markets.
With a prolonged blockage near Iran, Shuchart warned even the "feedstocks that make petrochemicals for plastics" that hold the motor oil could see supplies snarled.
[Related: Could U.S. action in Venezuela bring diesel prices down?]
