Answering all your questions about oil

What, exactly, do we mean when we talk about a barrel of Brent Crude oil versus West Texas Intermediate oil? Where's this oil coming from, where's it going, and how is all of this affected by the U.S. blockade at the Strait of Hormuz?

To help answer some of these questions, “Marketplace Morning Report” host Sabri Ben-Achour spoke with Fernando Valle. He is the managing director of energy for the investment firm Hedgeye Risk Management. The following is an edited transcript of their conversation.

Sabri Ben-Achour: OK, so I wanted to clear up something right off the bat here: We hear all about how oil is a global market — supply shortages in one place affect other places. And yet, if you try to look up the price of oil, there is not just one price of oil; there's like 20. And the two we hear about most are West Texas Intermediate and Brent Crude. Why are there so many oils at different prices, and which ones should we care about?

Fernando Valle: Oil is a is not as homogeneous as you would expect. Every type of oil will have an inherent yield, which means when you process a barrel of oil, it's not all going to be gasoline, it's not all going to be diesel. And then on top of that, you have locations. So, Brent is actually an oil field in the North Sea in the UK. [It] currently doesn't produce much at all, but it's used more as a financial benchmark, whereas WTI, the contract is for physical delivery of crude in Cushing, Oklahoma.

Ben-Achour: Got it. So, different kinds of oil can make different kinds of stuff, and they come from different places.

Valle: Exactly.

Ben-Achour: Which one of the oils is the one that goes through — normally — the Strait of Hormuz?

Valle: There are several benchmarks in the Strait of Hormuz. Saudi Arabia produces four varietals. You have Murban, which is the UAE. Iranian crude, as well. So, there are several benchmarks. They are medium sour crudes, meaning they produce more diesel than gasoline compared to U.S. oil. And they have a higher sulfur content than U.S. oil.

Ben-Achour: When we look at the price of oil, there's the price in terms of futures, agreed prices like a month from now, and then there's the price like right this minute, if I needed to go buy oil right now, for now. And they are very, very different. It's much more expensive to buy oil on the spot market, as they say. Why is that?

Valle: So, it's typically not. This is a very unusual anomaly that the difference between dated Brent, which is the right-now prompt delivery oil, is $30 more expensive than oil delivered a month from now. The physical market — so actually getting your hands on a barrel of oil — is very challenging right now, and there are several reasons for that. One is the lack of tankers. Some tankers are locked behind the Strait of Hormuz. They can't get out, so they can't move oil from different places. We're also taking longer to deliver the oil that is being exported.

Ben-Achour: The U.S. is the world's biggest producer of oil, so who is importing from us?

Valle: European refiners can use some WTI, and they do. The other ones — primarily South Korea, Japan — they import U.S. light oil. Some Singaporean imports as well. Those are our main markets.

Ben-Achour: President Trump has said the closure of the Strait of Hormuz could be great for U.S. oil producers. Is that the case?

Valle: Yes, for the most part, he's correct. There are two challenges there, which is, there's a limitation on how much global refiners can take of U.S. crude, because U.S. crude produces a lot of gasoline. And the biggest shortfall we have today is diesel. It is not a like-for-like replacement of Middle Eastern crude. Second is, there's a question mark on the duration. We think it's going to be a long-duration disruption. But there's a question mark to decide how much they're going to invest in this disruption to capture market share. Especially again, because you don't know if there's a saturation limit for U.S. crude. And then lastly, we have a physical limit on how much we can export. And that can change over time, but in this very short term, they're not going to be able to export a lot more than is already being exported.

Ben-Achour: Natural gas production in the Gulf has been damaged, and yet, when you look at prices, natural gas in Europe is up 40%. Natural gas in Japan and Korea is up 80%. Natural gas in the U.S., the price actually fell almost 7%. What is going on?

Valle: Yeah, natural gas is different from oil — a very regional commodity. It is not easy to transport natural gas. So, to us, it's one of the biggest misunderstandings right now is the price of natural gas, especially in Europe. We think that should be considerably higher. The production in the Middle East — Qatar has been driven to zero. The UAE, which is small producer of LNG, is also at zero for right now. Although it doesn't seem like there's significant damage on their export capacity, but you're losing production that is not going to make be made up. And the inventory levels in Europe are strikingly low, which means they're going to have to buy very aggressively in order to prepare for the winter season of 2026-2027.

Ben-Achour: Could the U.S. supply Europe with natural gas?

Valle: We are. In fact, we are the largest exporter of natural gas now, through a lot of development of liquefied natural gas. The challenge is that it takes a really long time to build a liquefied natural gas facility. We do have some coming online in 2026, but what we've already lost in LNG supply so far in this war, and the fact that we lost 17% Qatari supply for three to five years, has already erased all of the growth that was expected for 2026.