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Speaker 1: We thought we'd take a closer look at oil. We've

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Speaker 1: been seeing some gains and we asked Neil Beverage to

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Speaker 1: join us senior oil analyst at at Sanford Cis Bernstein.

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Speaker 1: So thanks very much for joining us, Neil. We we've

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Speaker 1: got a weekly advanced for oil underway here. It seems

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Speaker 1: like the China story. We've seen a number of developments

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Speaker 1: on the easing of COVID restrictions there that that is

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Speaker 1: kind of dominating the news flow at the moment. Do

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Speaker 1: you think this is temporary or do you see oil

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Speaker 1: continuing to rise here from lower levels. Yeah, I think

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Speaker 1: we're in for a pretty dramatic week for oil. We've

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Speaker 1: got an OPEQUE meeting coming up on Sunday. We've got

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Speaker 1: the EU oil embargo UM starting on the fifth, We've

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Speaker 1: got price caps coming into effect on the fifth. And

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Speaker 1: at the same time, we've got China potentially UM moving

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Speaker 1: to living with COVID, which is all highly significant. So,

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Speaker 1: you know, a lot of things happening in the oil

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Speaker 1: markets UM, and I would say on balance, the reopening

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Speaker 1: of China UM, you know, certainly moving a bit quicker

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Speaker 1: than people expected, which is you know, clearly a positive

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Speaker 1: for for oil. Yes, so many catalysts, but if we

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Speaker 1: just categorized, categorize them and to demand or supply or

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Speaker 1: which is the bigger force propelling the oil price at

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Speaker 1: the moment? Well, I think right now it's the news

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Speaker 1: on China, which is you know, having a positive impact.

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Speaker 1: I think people expected China would reopen next year, but

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Speaker 1: probably not really not until the second quarter or the

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Speaker 1: second half. Um. And I think what's happening at the

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Speaker 1: moment is the covered outbreaks that we're seeing, plus the

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Speaker 1: unrest is somewhat forcing the hand of the authorities in

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Speaker 1: Beijing to reopen a little quicker. So I think that's

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Speaker 1: certainly driving the positivity in oil. But on the supply side,

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Speaker 1: there are lots of uncertainties as we had into next week.

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Speaker 1: And and what will the impact be of these price

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Speaker 1: caps you seven price caps on Russian oil export over

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Speaker 1: the next few months. Well, I think this is the

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Speaker 1: big debate. Um. You know, we're seeing breaking news that

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Speaker 1: the E's looking at setting a price cap of around

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Speaker 1: sixty dollars barrel. Um. You know, urals is trading about

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Speaker 1: sixty six dollars a barrel, so that's about six dollars

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Speaker 1: below where urals is trading. Uh. You know, Vladimir Putin

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Speaker 1: has said he will not sell to any country that

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Speaker 1: implements a price cap. And you've currently got about two

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Speaker 1: million barrels a day of Russian seaborn crewed um, you

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Speaker 1: know going to Europe, which is going to be you know,

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Speaker 1: under embargos as we go into next week. I think

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Speaker 1: in terms of the you know, impact on Russian crewed

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Speaker 1: export has been clearly they will try and pivot um

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Speaker 1: that supply towards Asia. We're seeing tanker rates going up

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Speaker 1: very significantly. Um. So logistically, um, there's a lot of

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Speaker 1: work to do here to make that happen. Um. But

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Speaker 1: in terms of the sort of impacts, you know, the

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Speaker 1: Russian government has come out with the budget for next

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Speaker 1: year where they're um, implying about a half a million

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Speaker 1: barrels a day in reduction in Russian supply. The I

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Speaker 1: has got a penciled in around one point two to

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Speaker 1: one point four million barrels. We think potentially it could

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Speaker 1: be somewhere in the range of half a million to

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Speaker 1: a million barrels a day of of of of supply

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Speaker 1: disruption for for Russia next year, you know, which is

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Speaker 1: going to be quite significant. How significant is the dark fleet?

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Speaker 1: Tell us about that. Yeah, so there's about two thousand

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Speaker 1: oil tankers in the world. About two hundred of those

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Speaker 1: tankers are part of the so called dark fleet. So

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Speaker 1: these are vessels that effectively operate with their transponders switched off,

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Speaker 1: largely running UM. You know, crude oil trades between countries

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Speaker 1: like Iran and Venezuela and and and buyers around the world. UM.

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Speaker 1: And I think Russia is going to have to call on, um,

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Speaker 1: some of the dark fleet to shift some of this

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Speaker 1: oil out into Asia. I mean we think that UM,

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Speaker 1: at present, Russian he's about hundred thirty two forty tankers

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Speaker 1: to really exports its four and a half million barrels

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Speaker 1: a day. UM. You know, given the longer shipping distances

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Speaker 1: to India and China, which are materially longer than into

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Speaker 1: Rotterdam from from Russia, you know, you're potentially looking at

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Speaker 1: a hundred two hundred and thirty additional vessels that Russia

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Speaker 1: would need to contract. So it's a very very significant

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Speaker 1: UM increase. And you know, I think Russia will be

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Speaker 1: able to meet some of that, but not all of it.

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Speaker 1: One of the other developments this week. That has supported

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Speaker 1: the oil price was the comments from Jerome Powell yesterday

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Speaker 1: talking about perhaps slowing down the pace of of raising

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Speaker 1: interest rates, and that has had that has seen a

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Speaker 1: big drop in the in the dollar and oil priced

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Speaker 1: in dollars. So if that trend continues, and I'm not

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Speaker 1: sure that you know that the picture is all that

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Speaker 1: clear because the Fed is still raising interest rates. So

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Speaker 1: but if that trend continues a dollar week as could

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Speaker 1: we see oil creep back up towards ninety and perhaps

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Speaker 1: even higher. Yeah, you're absolutely right, you know, dollar weakening

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Speaker 1: is good for UM oil price. It also I think, um,

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Speaker 1: you know, may um you know, reduce some of the

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Speaker 1: risks around a very severe recession, you know, as we

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Speaker 1: enter UM three, which is I think another concern that

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Speaker 1: a lot of a lot of market observers have in

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Speaker 1: terms of demand next year. Um So net net, I

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Speaker 1: think that's um you know, that's a positive in terms

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Speaker 1: of where we go on pricing. You know, look, there's

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Speaker 1: just a lot of moving parts at the moment um,

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Speaker 1: I think, um, you know, it really comes down to,

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Speaker 1: you know, how much UM oil we see basically taken

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Speaker 1: off the market by Russia in the short term and

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Speaker 1: also the pace of the reopening in China. UM. As

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Speaker 1: we go through three we see the market fairly balanced. Um,

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Speaker 1: you know, through to the end of the year into

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Speaker 1: the first quarter, which is the weakest demand arter seasonally. UM.

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Speaker 1: But you know, assuming we do get a million barrels

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Speaker 1: taken off the market from Russia, then that, combined with

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Speaker 1: the reopening in China, I think is going to push

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Speaker 1: the market back into deficits certainly in the second half

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Speaker 1: of the year, and all prices will go back to

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Speaker 1: a hundred dollars of barrel just quickly kneeled A big

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Speaker 1: plus meeting on Sunday. It's happening online, not in person.

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Speaker 1: Doesn't mean anything, doesn't mean nothing. I think it signifies

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Speaker 1: that OPEC are likely to maintain current policy. Obviously, the

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Speaker 1: two million barrels a day cut that they made earlier

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Speaker 1: on this uh, this this this this year received a

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Speaker 1: lot of criticism from the US. I think as we

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Speaker 1: come into this meeting, I think they will be watching

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Speaker 1: the data very closely, and there's you know, clearly a

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Speaker 1: lot of uncertainty around what is exactly going to happen

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Speaker 1: to Russian crewed and I think that UM, you know

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Speaker 1: they're very likely to roll over. Um, you know the

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Speaker 1: existing policy A and and really you know, have a

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Speaker 1: look at things again in the new year when we

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Speaker 1: start to see data coming through. So I think the

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Speaker 1: significance of online is that we should see expects data

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Speaker 1: quote to prefer prevail. Neil, thank you very much for

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Speaker 1: being with us. Neil Beveridge, Senior oil analyst at Sanford

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Speaker 1: ci Bernstein