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Speaker 1: Radio Oil.
Speaker 2: When we talked about the commodity we talked about this
Speaker 2: earlier with Bill mcgloone, coming off a rough year, it's
Speaker 2: worst in fact since twenty twenty as concerns about a
Speaker 2: surplus pressured prices, and we continue to see some of
Speaker 2: that pressure. You can see that one year chart the
Speaker 2: movement to the downside. Geopolitical risks still out there, seemingly
Speaker 2: not enough though to stem the losses, which is kind
Speaker 2: of interesting because every time we see either war picking
Speaker 2: up in the Middle East or elsewhere around the globe,
Speaker 2: we take a look at oil and it doesn't always
Speaker 2: spike or spikes very quickly. Well. Joining us live with
Speaker 2: what lies ahead for energy, the energy markets and the
Speaker 2: energy supply are Bloomberg's senior US oil reporter, Kevin Crowley
Speaker 2: and Tim Moore, senior research analyst at Clearstreet. He covers
Speaker 2: the clean energy transition as well as oil and gas,
Speaker 2: so perfect twosome to talk to. Kevin kick it off
Speaker 2: with us. We just talked with our own Josh Saul
Speaker 2: and Mark Gungloff talking about the draw down on energy
Speaker 2: supplies that we have been seeing that are expected to
Speaker 2: continue into twenty twenty six in the impact it may
Speaker 2: have or is having on the climate. But kick it
Speaker 2: off remind us too about the world's energy supplies. Prices
Speaker 2: are low, and that's because there's a lot of oil
Speaker 2: out there.
Speaker 3: That's exactly right. Wall Street is almost unanimously bearish on
Speaker 3: oil going into twenty twenty six. As you said at
Speaker 3: the top there, oil dropped about eighteen percent last year,
Speaker 3: and very few people think that it has any room
Speaker 3: to increase from here. Brent Crewe trading around sixty dollars
Speaker 3: a barrel, w Tweati trading in the high fifties. And
Speaker 3: it's really because of this massive oversupply that you mentioned.
Speaker 3: The IEA expects there to be about three point eight
Speaker 3: million barrels a day of excess supply this year, mainly
Speaker 3: driven by growth in non OPEC producing countries such in
Speaker 3: the America's Canada, Brazil, Guyana, also US shale here which
Speaker 3: despite the low prices, continues to grow, and so that's
Speaker 3: really driving this period of very low prices, which of
Speaker 3: course is something that is favored by President Trump. Now,
Speaker 3: this has been one of the most well telegraphed oversupply
Speaker 3: instances in a very long time. So the question really
Speaker 3: is when do investors start to see through these short
Speaker 3: term oversupply imbalances and start to really look at the
Speaker 3: medium term which looks much more constructive.
Speaker 2: When you say more constructive, Kevin, what does that mean
Speaker 2: that there's going to be a floor under oil prices
Speaker 2: and we'll start to see some move to the upside.
Speaker 2: I mean this is against a backdrop where we talk
Speaker 2: about data center build out and how we're going to
Speaker 2: need all forms of energy to power it, and the
Speaker 2: increasing demand that we are seeing on the world's energy supplies.
Speaker 2: It's all needed. So do you anticipate then, or what
Speaker 2: you're hearing from analysts who cover oil that prices will
Speaker 2: head higher and if so, when, well.
Speaker 4: That's right.
Speaker 3: In the medium term, demand looks very very strong. Oil
Speaker 3: demand continues to grow despite the despite the energy transition,
Speaker 3: and with the with the with the data center build
Speaker 3: out and lowering interest rates here in the US. If
Speaker 3: the economy stays strong, you would expect that demand to
Speaker 3: to continue to continue to grow. So eventually the world
Speaker 3: will work through these this this oversupplied market, which will
Speaker 3: then help to help to drive drive prices higher. But
Speaker 3: the big question is when that's going to happen.
Speaker 5: Now.
Speaker 3: I think people are saying, really by the middle of
Speaker 3: this year, we should start to start to see some
Speaker 3: of that oversupply being being worked through. So I would
Speaker 3: expect I would expect, certainly the market to maybe start
Speaker 3: start moving around.
Speaker 1: Then tim on this ices, on these prices going into
Speaker 1: twenty twenty six. At what point does OPEC plus say,
Speaker 1: you know, we want to see higher oil prices, we'll
Speaker 1: kind of tighten the spigot, close the spigott a little bit,
Speaker 1: and we'll we'll decrease supply so prices will go higher.
Speaker 1: Is that still a possibility?
Speaker 4: We think so, are clear Street.
Speaker 5: You know, we've been watching this and we weren't too
Speaker 5: surprised since last April with you know, the catch up
Speaker 5: that they had to do with the two point two
Speaker 5: million barrels a day, the curtailment they did the prior
Speaker 5: two years and catch up with two point sevent two
Speaker 5: point nine million.
Speaker 4: Last year through the December.
Speaker 5: So you know, we like what OPEC plus has done
Speaker 5: and talked about since October you know, they vote this Sunday.
Speaker 5: We don't think that they're going to be raising their
Speaker 5: quota hikes for the first quarter.
Speaker 4: So this kind of lines up a little bit who
Speaker 4: Kevin was alluding to. You know, we like this up.
Speaker 5: We like when investors are bears and think there's a
Speaker 5: low oil prices and we see reason for oil price
Speaker 5: you know, to maybe average possibly you know, low sixties
Speaker 5: throughout the year. And what's more important to us is
Speaker 5: when does that roll off and start and as soon
Speaker 5: as it starts rolling off, that surplus supply, which we
Speaker 5: think will probably maybe get wrapped up by the when
Speaker 5: you're an anniversary of you know, Liberation Day tariffs, maybe April,
Speaker 5: May June. Then you know you do have easier planning
Speaker 5: by E and P companies to drill and just spending
Speaker 5: and usage, which is you know, you want a tighter
Speaker 5: band on oil price just for budget. So we feel
Speaker 5: pretty good about oil prices for next year. Nothing where
Speaker 5: it used to be, you know, in the seventies or eighties,
Speaker 5: but low sixties are good and a lot of the
Speaker 5: stocks that we talked to and cover, you know, they
Speaker 5: break even fifty fifty four dollars for free cash flow brains.
Speaker 1: So is low sixties enough tim to drill baby drill
Speaker 1: as the president wants to see.
Speaker 5: I think if you have some of the stocks to
Speaker 5: be covered, like Magnolia Oil and Gas, yeah, they'll, they'll, they'll.
Speaker 5: They're doing seven percent in net production growth. Probably next year.
Speaker 5: You know, they might add a little bit more. I
Speaker 5: think it depends on your economics. But you know, fifties
Speaker 5: not great.
Speaker 4: And having a.
Speaker 5: Tighter band with less volatility probably this year than there
Speaker 5: was last year. And that's because the tariffs maybe not
Speaker 5: as much of a headwind. Will Peck plus quote is
Speaker 5: not as much of a headwind. I think that really
Speaker 5: helps have a tighter band around the oil price five
Speaker 5: dollars each way in set of ten to fifteen.
Speaker 2: Kevin, Yeah, well, you know, and I just do wonder too, Kevin.
Speaker 2: I mean, obviously everybody's watching policy out of the White House,
Speaker 2: and we have a White House that's pretty clear about
Speaker 2: their view or the president's view when it comes to
Speaker 2: all the energy, whether it's wind and other. So do
Speaker 2: the integrated oil companies feel confident though ultimately about drilling more?
Speaker 2: I mean you said that we're looking for maybe prices
Speaker 2: to start to move up. I don't know whether it's
Speaker 2: midyear or later on this year that the metrics get better,
Speaker 2: but I just do wonder about what really makes them
Speaker 2: wanting to increase supply even more because there is just
Speaker 2: so much out there.
Speaker 3: Well, the big the big buzz word here amongst the
Speaker 3: big oils is capital discipline. They keep preaching this to
Speaker 3: you to wall streets, saying that we're not going to
Speaker 3: spend excess money on production, We're going to focus on
Speaker 3: shareholder retterms. We're going to focus on investing in the very,
Speaker 3: very best projects that will give us the lowest breake
Speaker 3: evens in order to generate those dividends and share buybacks.
Speaker 3: And what was interestingly happened very interestingly last year is
Speaker 3: there was a bit of a departure between oil equities
Speaker 3: and the oil price. So oil went down almost twenty percent,
Speaker 3: whereas whereas the big oils actually rose about ten to
Speaker 3: fifteen percent last year. And the CEOs really believe that
Speaker 3: this this capital discipline which which will continue to drive
Speaker 3: that kind of outperformance. But the other thing that we've
Speaker 3: really seen, especially in the US oil sector, is this
Speaker 3: continual grind for efficiencies. US shale in particular continues to innovate,
Speaker 3: continues to drive down costs. They drill longer lateral wells,
Speaker 3: they put more more power into into their fracking. This
Speaker 3: is more changes and how they and how they produce oil,
Speaker 3: which really allows them to drive down their break even
Speaker 3: and to make money. At this, at this sixty dollars level,
Speaker 3: they're really on the cusp at the moment. Some companies
Speaker 3: really really don't like it. But at this, at this
Speaker 3: sixty sixty dollars level, usor productions still continues to increase. Now,
Speaker 3: if we were to drop down into the into the fifties,
Speaker 3: I think that that might change and US production may
Speaker 3: come off its record highs. But the industry really continues
Speaker 3: to surprise on the efficiencies.
Speaker 2: Yeah, it's kind of fascinating, but it makes sense right
Speaker 2: that they that they continue to do that. Tim come
Speaker 2: on back in here. Because you follow the old energy companies,
Speaker 2: you follow oil and gas. What's more promising when you
Speaker 2: think about it, maybe medium term, longer term, what's more
Speaker 2: promising the outlook for oil and gas, for the outlook
Speaker 2: for those clean energy companies.
Speaker 5: You know, even though the clean energy companies apperformed the
Speaker 5: s and P almost thirty five percent last year. You know,
Speaker 5: we think there's still room for them to do well
Speaker 5: this year if they have exposure to what we're calling
Speaker 5: the electricity shortfall. We cover several stocks with this exposure,
Speaker 5: whether it's mos Tech and yr Group, Blue Energy, even sun.
Speaker 4: Run and will Dan Group.
Speaker 5: You know, they're pretty well positioned because you know, as
Speaker 5: you probably know, the US has been the power grid
Speaker 5: was only ending about one and a half to two
Speaker 5: percent a year of supply, but the demands growing at
Speaker 5: four to five percent a year now. Half that caused
Speaker 5: by the new AI hyper scale data center is being
Speaker 5: built out. The other half cause from reshoring and ev charging,
Speaker 5: crypto mining heat pumps. You know, there's a lot of
Speaker 5: other reasons why. So we think there's a tailwind for
Speaker 5: the next three or four years of massive expend spending
Speaker 5: by the utilities. So a lot of the stocks we
Speaker 5: cover their customers are utilities or commercial industrial new plants,
Speaker 5: semiconductor plants, even American Superconductor should benefit from that. You know,
Speaker 5: we think that the utilities could probably spend about thirty
Speaker 5: five percent more on the transmission distribution side over the
Speaker 5: next five years to really close that shortfall and balance
Speaker 5: every year. That's pretty wide just the last three years.
Speaker 5: I mean for about forty years, the demand group one
Speaker 5: to two percent a year in the US.
Speaker 4: Now it's scoring you know, five six percent maybe this year.
Speaker 1: But tim on the alt energy side of things, with
Speaker 1: low oil prices, doesn't it decrease the incentive for investing
Speaker 1: in new technology?
Speaker 4: It could depending what you what you're looking at.
Speaker 5: You know, we cover sun Run, which is the biggest
Speaker 5: residential solar solar that's attaching battery storage, and you know,
Speaker 5: we think there's stocks positions to keep going up.
Speaker 4: They're number one in market share.
Speaker 5: It's it's very affordable, and you know commercial you need
Speaker 5: like like your speaker to speakers, I was saying, you
Speaker 5: need just more than one energy source. You need natural gas,
Speaker 5: you need some oil, you know, you need solar, you
Speaker 5: probably need some wind. So I think there is room
Speaker 5: for alt energy to do pretty well. Maybe not the
Speaker 5: offshore when that the truck administration.
Speaker 4: Might not be that supportive of though.
Speaker 1: Okay, Kevin, I want to throw you a crazy question
Speaker 1: that that sort of has like politics in it, because
Speaker 1: the US policymakers like to talk a lot about energy independent.
Speaker 1: Is the US energy independent.
Speaker 3: For all intents and purposes largely is I mean, clearly,
Speaker 3: we still import a fair bit of oil, but that's
Speaker 3: that's mainly due to the makeup of the of the
Speaker 3: refining system here. We need heavy oil, which comes from overseas.
Speaker 3: But essentially, you know, the US is producing nearly fourteen
Speaker 3: million barrels of oil a day, which is which is,
Speaker 3: which is more than any other country has ever produced
Speaker 3: in history. It's it's it's it's at least forty percent
Speaker 3: more than what Saudi Arabia is.
Speaker 4: Producing right now.
Speaker 3: So the US, for all intents and purposes, is as
Speaker 3: energy independent as it has been in decades.
Speaker 1: Kevin that said, it is much more expensive for the
Speaker 1: US to extract a barrel of oil than it is
Speaker 1: for Saudi Arabia to extract a barrel of oil.
Speaker 3: It is, but that it's that that crucial level. It's
Speaker 3: it's as long as it's profitable to do so, then
Speaker 3: companies here will will continue to do so. I mean, clearly, yes,
Speaker 3: Saudi Arabia can extract extract oil much more, much more profitably,
Speaker 3: but US break evens and maybe in the in the
Speaker 3: in the low fifties, so they can they can still
Speaker 3: they can still extract oil. Profitability Now, Saudi Arabia needs
Speaker 3: a much higher oil price to balance its budget, so
Speaker 3: that's something to take into consideration too well.
Speaker 1: Oil politics always intertwined. A big thank you to both
Speaker 1: of you for joining us. This is exactly the conversation,
Speaker 1: the roundtable that we wanted to have this afternoon. That
Speaker 1: was a Bloomberg Senior US OL reporter, Kevin Crowley. Also
Speaker 1: Tim More, senior research analyst over at Clear Street, covering
Speaker 1: the clean energy transition as well