WEBVTT - Senior Advisor and Commodities Strategist at Hartree Partners Ed Morse Talks  Commodities 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>The first name on the list was Edward Morse. Absolutely

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<v Speaker 2>definitive within the global zeitgeys if you will, the Washington

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<v Speaker 2>Consensus on Petroleum, all sorts of efforts here, including his

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<v Speaker 2>work with the Council unfeign At Relations, and we're honored

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<v Speaker 2>that doctor Morris would join us in our studio today.

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<v Speaker 2>Welcome to Bloomberg, doctor Morris. When I look at this,

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<v Speaker 2>I think the arch question is a cup of coffee

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<v Speaker 2>this morning with the President of the United States, how

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<v Speaker 2>would you brief him on the timeline to get Venezuela

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<v Speaker 2>to a new Caracas, a new Venezuela.

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<v Speaker 1>The timeline is very, very long. The timeline includes not

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<v Speaker 1>just what must be done on the oils patch, but

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<v Speaker 1>also includes how do you get this government to cooperate

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<v Speaker 1>with the United States. And yes, they're starting out on

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<v Speaker 1>a good foot, but this can't be done without a

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<v Speaker 1>change in the entire view of the government of how

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<v Speaker 1>they do what they do. They're there to make money,

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<v Speaker 1>they're there to control things, and they can't do that

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<v Speaker 1>and have the oil patch resume what it was like

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<v Speaker 1>five years ago.

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<v Speaker 2>This is a transactional president. You have lived with your

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<v Speaker 2>iconic work at City Group, a transactional big American banks

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<v Speaker 2>enjoying losing big money in Latin America and other places.

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<v Speaker 2>What do you perceive as a relationship of President Trump

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<v Speaker 2>with mister Diamond, with mister moynihan and with other financiers

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<v Speaker 2>of America.

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<v Speaker 1>Well, he's got a good relationship with the financial sector

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<v Speaker 1>for all kinds of good reasons that we can get into.

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<v Speaker 1>That's a separate subject. But here the capital has to

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<v Speaker 1>come from oil companies. And oil companies look at risk.

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<v Speaker 1>They look at the risk in the marketplace, what is

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<v Speaker 1>a supply demand balance, They look at the risks of

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<v Speaker 1>an investment, And in the case of Venezuela, they need

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<v Speaker 1>a lot of capital going into infrastructure, and that infrastructure

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<v Speaker 1>has to be in place before the oil comes out

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<v Speaker 1>of the ground. So we're talking here about billions of

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<v Speaker 1>dollars to start to restore the infrastructure that will get

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<v Speaker 1>things going, to allow oil on a sustainable basis to

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<v Speaker 1>rise by a mere four or five hundred thousand barrels

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<v Speaker 1>a day. That's twenty billion dollars. Twenty billion dollars is

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<v Speaker 1>not nothing. When oil companies have opportunities in Guyana, opportunities

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<v Speaker 1>in Argentina, opportunities in Brazil, and opportunities in Africa. So

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<v Speaker 1>the question is what will attract companies to spend the

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<v Speaker 1>capital that Trump needs for the transaction toward.

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<v Speaker 2>Paul Chevron debt eleven point seven percent. That's where they

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<v Speaker 2>are right now.

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<v Speaker 3>Just as an example, what do you think the US

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<v Speaker 3>government or what do you think those energy companies would

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<v Speaker 3>need from the US government in terms of assurances or

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<v Speaker 3>whatever to commit that capital.

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<v Speaker 1>Do you think, well, they need the re insurance from

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<v Speaker 1>the Venezuelan side as well as from the US government,

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<v Speaker 1>because the US government said that it's not taking over

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<v Speaker 1>Venezuela a good point. So it needs to have the confidence,

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<v Speaker 1>which will be step by step, and I suspect the

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<v Speaker 1>first step will be with Chevron to see whether they

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<v Speaker 1>can make good in short term of capital with short

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<v Speaker 1>term return. So I think it's going to be a

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<v Speaker 1>slow process, but it will be trust building on trust,

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<v Speaker 1>and we'll see how smooth that transition goes.

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<v Speaker 3>Talkos to just describe the energy when we talk about Venezuela,

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<v Speaker 3>What do they have, what do they need? How big

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<v Speaker 3>are they is? How important is this? Because I understand

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<v Speaker 3>there's a lot underground.

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<v Speaker 1>It's quite important. So the world is known for a

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<v Speaker 1>long time that Venezuela has the largest known oil reserves

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<v Speaker 1>in the world. The problem is it's not the kind

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<v Speaker 1>of oil that the rest of the world needs or wants.

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<v Speaker 1>And the problem is it's in Venezuela, and it's complicated

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<v Speaker 1>oil to get out of the ground. But they've done

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<v Speaker 1>it before, and they've managed to go from under two

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<v Speaker 1>million barrels a day to three and a half million

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<v Speaker 1>barls a day in a relatively short period of time

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<v Speaker 1>a couple of decades ago. So if the will is

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<v Speaker 1>there and the government is there to provide the guarantees,

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<v Speaker 1>but to do that you need the government institutions to

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<v Speaker 1>be rewarned. Those government institutions have themselves deteriorated dramatically. They

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<v Speaker 1>don't have the human resources, they don't have the personnel

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<v Speaker 1>to be able to guide it. So part of the

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<v Speaker 1>process will be a return of that human resource base.

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<v Speaker 2>Edward Morris with this for a lengthy conversation this morning

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<v Speaker 2>with Hartree and of course definitive at City Group, among

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<v Speaker 2>other services to the United States over his long decades

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<v Speaker 2>on petroleum, on hydrocarbons, I believe I've shared this stage

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<v Speaker 2>with you and Shannon O'Neil at the Council on Foreign Relations.

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<v Speaker 2>Doctor O'Neil was on with us recently exceptionally gloomy about

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<v Speaker 2>Venezuela's ability to reorganize given an event like what we've seen.

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<v Speaker 2>I assume you've been to us more than forty times.

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<v Speaker 2>You remember a Caracus from another time in place. Do

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<v Speaker 2>you have any optimism that they can move from a

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<v Speaker 2>Cuba like society to something that can get capitalism done.

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<v Speaker 1>Well, you have to be a little bit optimistic given

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<v Speaker 1>the change that has already taken place. So changing getting

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<v Speaker 1>Maduro out of that position is a major step. And

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<v Speaker 1>now the government is in a crisis of survival. That

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<v Speaker 1>survival will require them to cooperate with the US. So

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<v Speaker 1>the options that they have are quite limited. Who is

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<v Speaker 1>going to replace the US at this moment in time,

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<v Speaker 1>Given the US military position, the naval position surrounding Venezuela,

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<v Speaker 1>the control that the US has over Venezuela and exports,

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<v Speaker 1>it's not easy to imagine a replacement for that. So

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<v Speaker 1>the good news really is that they are cooperating to start,

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<v Speaker 1>and we'll see how that goes. But it will be

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<v Speaker 1>a long road with difficulty.

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<v Speaker 3>Is it your understanding, just based upon the limited reporting

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<v Speaker 3>that we have in the last twelve forty eight hours,

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<v Speaker 3>that the government of Venzezezuela was in contact with the

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<v Speaker 3>Trump administration if to facilitate that mister Maduro being taken.

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<v Speaker 1>Look, it could not have been done without there being

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<v Speaker 1>some contact within the government. We know from reporting that

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<v Speaker 1>the intelligence operations preceded this. They were on the ground,

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<v Speaker 1>they had to have help to be on the ground,

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<v Speaker 1>and undoubtedly they were not taken by surprise because of

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<v Speaker 1>the smooth way events went on over the weekend.

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<v Speaker 3>I do think China is viewing what's going on these days.

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<v Speaker 1>China's in a big difficult position they have. They are

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<v Speaker 1>a massive creditor to Venezuela. Venezuela has been part of

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<v Speaker 1>central to the Belton Road initiative enlarging China's influence in

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<v Speaker 1>Latin America. Excuse me, and it's been frankly a failure.

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<v Speaker 1>They have between fifty and one hundred billion of debt.

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<v Speaker 1>Their operations right now are to export oil to pay

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<v Speaker 1>for that debt controls their exports out of Venezuela. So

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<v Speaker 1>they they had, yes, they came down and condemned the

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<v Speaker 1>US government. They had to do that, but they have

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<v Speaker 1>to take a quiet approach because there's so much at

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<v Speaker 1>stake between them and the US on a global basis,

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<v Speaker 1>so much at stake on a bilateral basis, including their tariffs,

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<v Speaker 1>that they want to see some resolution on. So I

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<v Speaker 1>think we'll see quiet diplomacy with China and the US

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<v Speaker 1>rather than stamping on the foot or saying anything about

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<v Speaker 1>military force.

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<v Speaker 2>In my reading, i've heard that. But what does Edward Morris,

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<v Speaker 2>I'm going to butcher the pronunciation, Doctor Morris. Do we

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<v Speaker 2>need to show the flag this morning and cow Shingport

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<v Speaker 2>in Taiwan? Does the US Navy need to get over there,

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<v Speaker 2>and you know, like Perry centuries ago, show the flag time.

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<v Speaker 1>I think the US showed the flag before Madua was

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<v Speaker 1>taken out. They showed the flag with a massive military

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<v Speaker 1>sale to Taiwan. And the military has been there, the

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<v Speaker 1>Navy has been there. China is not in a position

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<v Speaker 1>to fool around with the US, even with much of

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<v Speaker 1>the US naval fleet now around Venezuela. So I think

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<v Speaker 1>it's going to be stepping very lightly on what could happen.

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<v Speaker 2>Van Morris with his folks a special edition of Bloomberg Surveillance.

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<v Speaker 2>We've really held back the commercial interruptions to give you

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<v Speaker 2>this conversation for America. Around the world, you have such

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<v Speaker 2>a relationship with Faisal and on in Saudi Arabia. How

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<v Speaker 2>does the Middle East in general, and particularly read and Jedda,

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<v Speaker 2>how do they respond to these actions?

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<v Speaker 1>They're responding quite quietly. Riad Is looking at the global setting.

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<v Speaker 1>They know that Venezuela could be a threat to the

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<v Speaker 1>production agreement within OPEK plus, but not in the short run.

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<v Speaker 1>And the short run they're looking at the year ahead.

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<v Speaker 1>The year ahead is quite uncertain and quite messy, and

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<v Speaker 1>it was that way before the taking of Maduro. We

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<v Speaker 1>have Russia, Ukraine, We have uncertainty on the distortion and

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<v Speaker 1>disruption side around the world. And the Saudis have also

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<v Speaker 1>a military tide of the US that they don't want

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<v Speaker 1>to lose, right, so they have to and they look

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<v Speaker 1>at their budget. The budget requires a lot of borrowing.

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<v Speaker 1>That borrowing may include in their own minds, how low

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<v Speaker 1>can prices go for US six.

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<v Speaker 2>Where's the folks? I failed, Paul, I've failed. Ed Morris

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<v Speaker 2>nailed the decline in oil. Do you have a lower

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<v Speaker 2>oil target from her for heart Tree.

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<v Speaker 1>So we don't know how low the price will go.

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<v Speaker 1>It's lifted a little bit by the geopolitical risk. I'd

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<v Speaker 1>say the supply demand balance, which is higher supply than

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<v Speaker 1>the race demand now and going forward, is for oil

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<v Speaker 1>testing branded forty OK and I think testing branded forty

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<v Speaker 1>is something the Saudis can swallow. How much lower than

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<v Speaker 1>that they can swallow? It is not known.

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<v Speaker 2>I want to get this thing because Paul's got any questions.

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<v Speaker 2>So you're going to go visit Trump. President Trump is

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<v Speaker 2>going to mean Edward Morris coffee with the President. You're

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<v Speaker 2>going to talk about a transactional American president. And I

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<v Speaker 2>know you're going to get a phone call from Ottawa

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<v Speaker 2>where Mark Kearney is going to go Edmonton's playing Ottawa,

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<v Speaker 2>ed Morre's come join me at an Ottawa senator's hockey game.

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<v Speaker 2>I mean, this is the way it's going to work.

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<v Speaker 2>What do you say to Mark Kearney of Canada?

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<v Speaker 1>Well, start with Trump, because I haven't answered your question

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<v Speaker 1>by said that Trump. And what I said of Trump

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<v Speaker 1>is your policy on energy dominance is a wonderful strategy.

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<v Speaker 1>But mister President, I think you're ignoring some things about

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<v Speaker 1>energy dominance, and there are two things about it. One

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<v Speaker 1>is that you can't get to where you want without

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<v Speaker 1>having a significant growth, because this is a world transitioning

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<v Speaker 1>to electricity intensity, and you can't do the electricity intensity

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<v Speaker 1>you need for AI and cloud computing and energy dominance

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<v Speaker 1>without renewables. You can't do it even without hydrogen. So

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<v Speaker 1>you've got to enlarge what you think about energy dominance.

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<v Speaker 1>And then, mister President, you've got to think about the US.

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<v Speaker 1>The US is not one country when it comes to energy.

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<v Speaker 1>At six. We have two exporting segments in the US.

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<v Speaker 1>They are the Gulf Coast of the US. And I'm

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<v Speaker 1>not talking about the Gulf of America or the Gulf

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<v Speaker 1>of Mexico, but the Gulf Coast, and we have Alaska,

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<v Speaker 1>both exporters of fossil fuels. And then we have two

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<v Speaker 1>massive importers of fossil fuel with no tie. And mister President,

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<v Speaker 1>here is a lesson. The reason that we have two

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<v Speaker 1>importers on the West Coast and the East Coast that

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<v Speaker 1>are massive in scale, global in scale is because another

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<v Speaker 1>period of dominance around World War One, we thought we

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<v Speaker 1>were the best shipbuilding company country in the world, and

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<v Speaker 1>we wanted to retain that dominance. So the Jones Act

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<v Speaker 1>was enacted. And the Jones Act has meant that when

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<v Speaker 1>it comes to energy, we are importers because we can't

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<v Speaker 1>afford American chips to take oil from the Gulf Coast

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<v Speaker 1>to the West Coast or the East coast. We need

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<v Speaker 1>investors and they carry far.

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<v Speaker 2>So this is the moment to do away with a

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<v Speaker 2>Jones Act.

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<v Speaker 1>This is the moment to do it, I mean, and

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<v Speaker 1>also to tell the president energy dominance a good idea

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<v Speaker 1>needs a little bit of massaging at the edge.

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<v Speaker 2>I mean, the photograph of Theodore Roosevelt with the map

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<v Speaker 2>of Venezuela behind him from I believe Paul nineteen oh

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<v Speaker 2>nine was just stunning. I mean, this history going back here,

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<v Speaker 2>Paul Sweeney with Edward Morris.

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<v Speaker 3>So when you go down to Houston, you talk to

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<v Speaker 3>these big energy companies today. Are they happy with what's

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<v Speaker 3>going on in the last twenty four or forty eight

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<v Speaker 3>hours or are they apprehensive? Did they see a big

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<v Speaker 3>opportunity here?

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<v Speaker 1>They see a better opportunity that they've seen than they've

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<v Speaker 1>seen in years, but they are apprehensive. The risk of

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<v Speaker 1>putting capital, their capital, their shareholders. Capital at risk looms

0:12:46.040 --> 0:12:48.560
<v Speaker 1>extremely large in their minds, so there's not going to

0:12:48.600 --> 0:12:52.000
<v Speaker 1>be a rush to put money into Venezuela until we

0:12:52.080 --> 0:12:55.440
<v Speaker 1>see what the structure of the investment might look like.

0:12:56.679 --> 0:12:57.280
<v Speaker 2>I'm surprised.

0:12:57.320 --> 0:12:59.800
<v Speaker 1>I don't see a move in WTI and Brent Crew today.

0:12:59.840 --> 0:13:01.280
<v Speaker 3>Now I couldn't have told you is it gonna be

0:13:01.360 --> 0:13:03.719
<v Speaker 3>up five percent or down five percent? But I kind

0:13:03.720 --> 0:13:05.360
<v Speaker 3>of got nothing going on here today.

0:13:05.400 --> 0:13:07.560
<v Speaker 1>Well, in my prepared remarks, I thought that was the

0:13:07.559 --> 0:13:10.240
<v Speaker 1>first question. I didn't know. You know that we're going

0:13:10.280 --> 0:13:11.480
<v Speaker 1>to have prices go down a.

0:13:11.360 --> 0:13:15.440
<v Speaker 2>Little bits and surveillance, you know, we make it up as.

0:13:15.440 --> 0:13:19.560
<v Speaker 1>We're winging it. No, I'm not surprised. Okay, there is

0:13:19.600 --> 0:13:21.480
<v Speaker 1>no change in the energy market period.

0:13:22.200 --> 0:13:24.360
<v Speaker 3>There you go, all right, so, but I think at

0:13:24.360 --> 0:13:28.079
<v Speaker 3>some point it just feels like almost Opeck and Opeck

0:13:28.080 --> 0:13:30.120
<v Speaker 3>plus become less and less relevant every day.

0:13:30.960 --> 0:13:34.240
<v Speaker 1>Opek and Outpeck plus have become less relevant every day

0:13:34.760 --> 0:13:37.760
<v Speaker 1>since the beginning of this decade. And when we look

0:13:37.880 --> 0:13:40.440
<v Speaker 1>at the positions that have put this in place, it's

0:13:40.480 --> 0:13:45.520
<v Speaker 1>not just the rise of Guyana and Brazil and Argentina again,

0:13:45.960 --> 0:13:49.320
<v Speaker 1>but it really is the US. The US h you know,

0:13:49.520 --> 0:13:53.000
<v Speaker 1>I have this battle with my colleagues at work almost

0:13:53.000 --> 0:13:56.120
<v Speaker 1>every day. The US is not just a crude oil producer.

0:13:57.400 --> 0:14:01.120
<v Speaker 1>It is a massive liquids producer. We are a producer

0:14:01.120 --> 0:14:03.960
<v Speaker 1>of twenty three twenty four million barrels a day, and

0:14:04.080 --> 0:14:07.400
<v Speaker 1>our growth has been in natural gas liquids. Natural gas

0:14:07.440 --> 0:14:11.240
<v Speaker 1>liquids compete with oil out of a refinery. They compete

0:14:11.240 --> 0:14:14.360
<v Speaker 1>with gasoline, they compete with dissolate, they compete with fuel oil.

0:14:14.600 --> 0:14:18.120
<v Speaker 1>They're there for transportation, they're there for home heating and

0:14:18.160 --> 0:14:23.920
<v Speaker 1>power generation and industrial use. So we are the disruptor

0:14:24.040 --> 0:14:26.400
<v Speaker 1>of the global market, and we're the ones who put

0:14:26.440 --> 0:14:29.400
<v Speaker 1>OPEC plus in a position of defense.

0:14:31.040 --> 0:14:32.400
<v Speaker 2>I would be out. We're going to have to wrap

0:14:32.400 --> 0:14:35.320
<v Speaker 2>it up here with Mark Champion coming up, folks from Europe,

0:14:35.320 --> 0:14:39.640
<v Speaker 2>with all of his decades of experience, Doctor Morris. Some

0:14:39.720 --> 0:14:42.680
<v Speaker 2>of the highlights of my career here than with you

0:14:43.560 --> 0:14:46.560
<v Speaker 2>in with Daniel Jurgen. If I was to get Urgen

0:14:46.640 --> 0:14:50.280
<v Speaker 2>in Morse together and look at his theprize, just the

0:14:50.400 --> 0:14:53.960
<v Speaker 2>romance that I as a kid in college, red cover

0:14:54.400 --> 0:14:58.200
<v Speaker 2>to cover. We got to find the romance for Venezuela,

0:14:58.280 --> 0:15:01.400
<v Speaker 2>to save a society, to say a region maybe to

0:15:01.440 --> 0:15:04.360
<v Speaker 2>support the don Road doctrine. I don't know how do

0:15:04.440 --> 0:15:08.840
<v Speaker 2>we get the romance back that you knew working there,

0:15:09.000 --> 0:15:10.240
<v Speaker 2>that I knew as a student.

0:15:11.320 --> 0:15:12.760
<v Speaker 1>I don't know how we do that. I know that

0:15:12.840 --> 0:15:14.800
<v Speaker 1>I'm not going to bring the romance back, and Dan

0:15:14.840 --> 0:15:17.560
<v Speaker 1>Jurgen certainly has the ability to do it. By the way,

0:15:17.600 --> 0:15:20.360
<v Speaker 1>I was an early reader of the Prize. He and

0:15:20.400 --> 0:15:22.520
<v Speaker 1>I knew each other in graduate school. We were in

0:15:22.560 --> 0:15:25.880
<v Speaker 1>different graduate schools, And when he wrote The Price, the

0:15:25.920 --> 0:15:28.800
<v Speaker 1>original version that I read was actually twice as long

0:15:29.240 --> 0:15:32.000
<v Speaker 1>as a version in print, So he had to cut

0:15:32.040 --> 0:15:34.960
<v Speaker 1>out a lot of wonderful text in order to put

0:15:34.960 --> 0:15:35.880
<v Speaker 1>out that brilliant book.

0:15:36.000 --> 0:15:38.000
<v Speaker 2>The book was it, Paul? It was You had to

0:15:38.000 --> 0:15:39.680
<v Speaker 2>walk around even if you didn't read it, you walked

0:15:39.800 --> 0:15:43.680
<v Speaker 2>walk it. Yeah, to be cool, You're gonna talked about

0:15:43.840 --> 0:15:49.680
<v Speaker 2>this unique American relationship with various and sundry Banana republics,

0:15:50.120 --> 0:15:53.960
<v Speaker 2>Reagan and Granada and the rest. Can we develop a

0:15:54.080 --> 0:15:58.480
<v Speaker 2>new process with Central and Latin America or will this

0:15:58.600 --> 0:16:01.280
<v Speaker 2>be the same old, same way through the rest of

0:16:01.320 --> 0:16:02.040
<v Speaker 2>the Trump term.

0:16:02.880 --> 0:16:05.320
<v Speaker 1>No, I think there is a process going on. If

0:16:05.320 --> 0:16:09.080
<v Speaker 1>we look at elections that have taken place in Latin America.

0:16:09.600 --> 0:16:15.400
<v Speaker 1>There's a rebellion in those countries against corruption. There's a

0:16:15.600 --> 0:16:18.800
<v Speaker 1>move from the corrupt left to the right. We've had

0:16:18.840 --> 0:16:21.560
<v Speaker 1>a corrupt right in the past, but it's been a

0:16:21.680 --> 0:16:25.000
<v Speaker 1>very constructive set of moves from reelections. So I think

0:16:25.440 --> 0:16:28.600
<v Speaker 1>I think Latin America is in a very good position now,

0:16:28.680 --> 0:16:31.360
<v Speaker 1>better position than it's been in a long time. And

0:16:31.400 --> 0:16:34.560
<v Speaker 1>part of it is the lessons learned from China, overspending

0:16:35.360 --> 0:16:38.720
<v Speaker 1>and having a view that all credit has to be repaid.

0:16:39.080 --> 0:16:40.920
<v Speaker 2>Wow, Paul, we got to get to mark Champion. But

0:16:40.960 --> 0:16:43.000
<v Speaker 2>doctor Morris, I got to bring this up, Paul said,

0:16:43.000 --> 0:16:45.600
<v Speaker 2>you got to ask the question time. What's it mean

0:16:45.680 --> 0:16:46.360
<v Speaker 2>for Landman?

0:16:49.160 --> 0:16:50.840
<v Speaker 1>Thank you very much for inviting me. It has been

0:16:50.840 --> 0:16:51.320
<v Speaker 1>a pleasure to.

0:16:51.360 --> 0:16:54.840
<v Speaker 2>Be Thank you so much. With har Tree and of

0:16:54.880 --> 0:16:58.160
<v Speaker 2>course doctor Morris was City Group for many years, Edward

0:16:58.240 --> 0:16:58.880
<v Speaker 2>Morrice there