WEBVTT - Ellen Wald on Saudi Prince Comments (Audio)

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<v Speaker 1>Well, as we have been discussing today's Saudi Arabian energy Minister,

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<v Speaker 1>Prince Abdelazi's Ben Solomon said, extreme volatility and a lack

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<v Speaker 1>of liquidity means the futures market is increasingly disconnected from

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<v Speaker 1>fundamentals and as a result, Pick plus may be forced

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<v Speaker 1>to cut production. Joining us now to discuss we have

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<v Speaker 1>Alan Walge. She is president of Transversal Consulting. So Ellen,

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<v Speaker 1>is this a fair call from the Saudi minister energy

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<v Speaker 1>minister cutting production would help to stabilize growing dysfunction and

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<v Speaker 1>energy markets or does this look like a thinly veiled

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<v Speaker 1>justification for getting the oil price back up again. M

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<v Speaker 1>that's a really good question. I think that his statements

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<v Speaker 1>are very chacteristic of of what we've seen from Prince

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<v Speaker 1>Ability so far. There they're actually somewhat cryptic, I think,

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<v Speaker 1>and um, it's not really clear that he actually does

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<v Speaker 1>think that the market is oversupplied and that we need

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<v Speaker 1>to see a cut, but it did seem like he

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<v Speaker 1>was almost threatening it as kind of a hypothetical. So

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<v Speaker 1>I don't think we should read too much into the

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<v Speaker 1>ideas that that he thinks that we need to kind

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<v Speaker 1>of have some sort of reset by a major production

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<v Speaker 1>cut UM. But I do think his his point overall

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<v Speaker 1>that the markets are extremely volatile, that oil prices are

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<v Speaker 1>are incredibly volatile, and that they are reacting to things

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<v Speaker 1>that are not necessarily showing up in the physical market

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<v Speaker 1>UM is a very good point. UM. I don't think

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<v Speaker 1>that UM, you know, OPEC cutting their their production quotas

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<v Speaker 1>is necessarily going to help fix this unless there's one

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<v Speaker 1>one way that that might actually help, because UM open

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<v Speaker 1>plus isn't most members are not producing at their quotas,

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<v Speaker 1>and the quotas are in fact totally unrealistic production targets

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<v Speaker 1>for them, And if they did cut back on a

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<v Speaker 1>lot of these quotas, it might help the market to

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<v Speaker 1>realize that UM, just because the quotas are high, doesn't

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<v Speaker 1>mean that's where production is actually UH is actually heading

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<v Speaker 1>or can actually get. So it might actually bring a

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<v Speaker 1>bit of clarity to the market. So, so Ellen, you

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<v Speaker 1>know you're you're an analyst. When when he talks about

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<v Speaker 1>the difference between the paper and physical markets, which one

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<v Speaker 1>do you think most accurately represents the fundamentals? I think

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<v Speaker 1>that right now we're really seeing that the the paper market,

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<v Speaker 1>or it's not really a paper market anymore, but is

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<v Speaker 1>very much UM reacts to news, kind of overreacts in

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<v Speaker 1>a way, so we see a lot of the moves

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<v Speaker 1>kind of UM amplified in a way that we don't

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<v Speaker 1>necessarily it doesn't necessarily reflect the physical market UM. So

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<v Speaker 1>you know, we see a report that you know, something

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<v Speaker 1>might happen to with UM with the nuclear negotiations with Iran,

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<v Speaker 1>and suddenly oil prices drop more than they should given

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<v Speaker 1>the fact that we're not actually seeing a nuclear deal. Yeah. Well,

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<v Speaker 1>oil process, to be fair, have been on a pretty

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<v Speaker 1>wild ride, ranging between the mid sixties too above a

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<v Speaker 1>hundred and twenty barrel over the past year, but the

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<v Speaker 1>average over the past five years is about sixty barrel.

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<v Speaker 1>Can you imagine a scenario where we get back to

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<v Speaker 1>those labels in a sustainable way? I could see a

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<v Speaker 1>time when we do get back. I think that it

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<v Speaker 1>would require a total end to the hostilities between Russia

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<v Speaker 1>and Ukraine and all of the Europe and the United

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<v Speaker 1>States in Asia, to just completely end any kind of

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<v Speaker 1>sanctions or retribution, and I don't see that happening any

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<v Speaker 1>time soon. I think there's a lot of UM push

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<v Speaker 1>from policymakers to continue this, uh, these actions, So I

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<v Speaker 1>don't see that in the near future either that or

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<v Speaker 1>we if we saw a big re found in production,

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<v Speaker 1>to say from the United States or from another area,

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<v Speaker 1>which I also don't see is particularly likely in the

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<v Speaker 1>next couple of years. In our story, we say that

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<v Speaker 1>open interest and trading volumes are well below average levels,

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<v Speaker 1>and that a lot of this is because of the

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<v Speaker 1>price wings the volatility, uh, some of it coming from

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<v Speaker 1>the Ukraine war. Uh. Do you see it that way?

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<v Speaker 1>And does that take you further away from fundamentals or

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<v Speaker 1>does it actually shrink the market more to real buying

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<v Speaker 1>and selling. Actually, I do think in this case it

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<v Speaker 1>takes us away from the fundamentals because people, many, many

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<v Speaker 1>people are operating under the impression that more oil had

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<v Speaker 1>come off the market due to the rush of Ukraine

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<v Speaker 1>issues then actually had and so we were seeing them

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<v Speaker 1>react to what they thought was going on or what

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<v Speaker 1>they thought was happening, as opposed to the actual barrels

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<v Speaker 1>that we were seeing move on the market. We are

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<v Speaker 1>on procession watch at the moment. If we're not already

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<v Speaker 1>in one, should we have a global recession where two

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<v Speaker 1>then for oil prices exactly and That's a really good question,

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<v Speaker 1>because I think a lot of it does depend on

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<v Speaker 1>the European energy situation and whether we see a lot

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<v Speaker 1>of switching of UM, you know, of oil for natural

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<v Speaker 1>gas U. Typically oil prices should go down in a recession.

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<v Speaker 1>But if the European energy market continues to not be

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<v Speaker 1>able to buy natural gas or for natural gas, and

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<v Speaker 1>instead they are continuing they buy oil UM, that could

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<v Speaker 1>keep oil prices more elevated than we would normally expect.

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<v Speaker 1>Or they could or they could turn more to nuclear,

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<v Speaker 1>which we heard from from Germany, and that might be

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<v Speaker 1>have the opposite impact. It would the nuclear would take

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<v Speaker 1>a longer time. I think absolutely up. Thank you, Ellen,

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<v Speaker 1>We're out of time. Ellen Wall, President of Transversal Consulting

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<v Speaker 1>with US