Supply and Demand is Like Gravity
Welcome to The Real Estate Esperanto Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. As many of you know, I follow macro-economics and from time to time, I share perspectives on the implications of these underlying aspects of industries that ultimately affect real estate and the economy in some way.
On today’s show, we’re talking about oil. It’s been a while since we’ve looked at what’s happening in oil and gas. Initially, we’ve not seen any drastic change in oil prices over the last two years. They’ve traded in a fairly consistent range between $70-$90 a barrel. There have been a few instances outside of that range. As of now, prices are lingering between $60-$70 a barrel for most of this year. This is an indication of relatively balanced supply and demand.
The recently imposed 50% tariff against India’s penalty for buying Russian oil unsurprisingly misses the point. There’s a misleading rumour circulating that India imports large amounts of Russian crude oil, refines it, and then re-exports it as petroleum products. However, the current levels of petroleum product exports nearly identical to those from 2019, three years before Russia’s invasion of Ukraine. With or without Russian oil, India’s petroleum products exports remain steady.
It might be true that some Russian oil is being refined and sold as petroleum products, but these supply agreements have not been influenced by the source of crude oil that forms the input to those refineries. The Group of Seven and the EU sanctions on Russian crude and products have redirected global oil trade, but they’ve not fundamentally altered global supply and demand, not even in India.
The EU’s 18 rounds of sanctions, and now President Trump’s latest penalties on India for importing Russian crude, may disrupt the oil industry temporarily. This may negatively impact economic growth and ultimately thwart President Trump’s efforts to reduce interest rates and inflation.
Over the past two years, Europe significantly decreased its reliance on Russian oil. Russia’s share of Europe’s petroleum products has fallen from nearly 29% in 2021 to around 2.0% in 2025. Nonetheless, these sanctions have not removed any oil from the global market. They’ve re-routed global supply routes, which country is buying and which one is selling, but no barrels of oil were omitted from the global market as a result of sanctions against Russia.
If we survey the past, most of India’s oil came from Iraq, Saudi Arabia, the Gulf states and a few African countries. Since US exports started under President Obama, India has begun importing from the US. After Russia invaded Ukraine and the European sanctions were imposed, oil imports from Russia surged. This surge is in response to India’s growing demand and replacing oil from high shipping cost regions like the US, South America, and West Africa.
Imports from Iraq, Saudi Arabia and the United Arab Emirates stayed pretty stable in volume. Although they dropped as a share of India’s total percentage, this is because India’s demand has indeed been growing. Europe has sought alternative suppliers to compensate for the shortfall from Russia. For example, some Gulf states have increased their oil and LNG exports to Europe. This situation is a giant game of musical chairs, except it involves oil tankers.
While there are some variations in the figures reported, current estimates indicate that Russia produces about 9.8 million barrels of crude oil daily. Russia’s total production exceeds its exports, about half is used for domestic consumption, which is around 1 million barrels a day.
Russia ranks as one of the top three producers of crude oil in the world alongside the United States and Saudi Arabia. Its output represents roughly 10% of the global supply. If they export approximately half, Russia contributes about 5% to the global international supply.
If that proportion were to dry up, a 5% reduction in supply could trigger a price increase of a much higher percentage. For example, some historical analyses have shown that a 1% supply shock can lead to a price spike of at least 10% or more.
So while the White House seeks ways to wield leverage against Russia, it’s hard for the US to avoid the pain of higher oil prices if Russia loses all of its international customers for oil. There isn’t sufficient spare oil capacity in the world to offset the shortfall if Russia’s oil exports were to disappear. This creates a substantial problem for the Western countries trying to pressure Russia to halt the war.
Three years of sanctions have been futile, and frankly, this new approach to pressuring Russia will have little influence on global oil supply. It will merely resurface the musical chairs again. Oil may be the main focus of sanctions, but Europe continues to buy steel, fertilizer, nickel, wood and a plethora of other commodities from Russia. None of these supply chains have been theoretically disrupted by sanctions.
The US aims to increase its export of LNG to serve world markets, but currently, the US only has enough export capacity to make about 10% of its domestic production available. There are many projects targeted at doubling this capacity in the next 3 to 4 years. But, natural gas infrastructure takes a long time to develop. Pipelines are buried in the ground.
Over the last year, Europe has managed to reduce its dependency on Russian gas from about 45% of its total gas imports in 2021, down to about 11.1% today. Russia is now the 3rd largest supplier after Norway and Algeria. But this too, has become a huge game of musical chairs.
At the end of the day, supply and demand copiously seek to find equilibrium, just like gravity helps water find its balance. As you think about that, have an enjoyable rest of your day. Go make some excellent things happen. We’ll continue this conversation again tomorrow.
Stay connected and discover more about my work in real estate and by visiting and following me on various platforms:
Real Estate Espresso Podcast:
- 🎧 Spotify: The Real Estate Espresso Podcast
- 🌐 Website: www.victorjm.com
- 💼 LinkedIn: Victor Menasce
- 📺 YouTube: The Real Estate Espresso Podcast
- 📘 Facebook: www.facebook.com/realestateespresso
- 📧 Email: podcast@victorjm.com
Y Street Capital:
- 🌐 Website: www.ystreetcapital.com
- 📘 Facebook: www.facebook.com/YStreetCapital
- 📸 Instagram: @ystreetcapital
