WEBVTT - Oil Traders Weigh Surplus, Geopolitical Risks to Start 2026

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News. You're listening to Bloomberg

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<v Speaker 1>Business Week with Carol Masser and Tim Stenoveek on Bloomberg

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<v Speaker 1>Radio Oil.

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<v Speaker 2>When we talked about the commodity we talked about this

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<v Speaker 2>earlier with Bill mcgloone, coming off a rough year, it's

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<v Speaker 2>worst in fact since twenty twenty as concerns about a

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<v Speaker 2>surplus pressured prices, and we continue to see some of

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<v Speaker 2>that pressure. You can see that one year chart the

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<v Speaker 2>movement to the downside. Geopolitical risks still out there, seemingly

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<v Speaker 2>not enough though to stem the losses, which is kind

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<v Speaker 2>of interesting because every time we see either war picking

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<v Speaker 2>up in the Middle East or elsewhere around the globe,

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<v Speaker 2>we take a look at oil and it doesn't always

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<v Speaker 2>spike or spikes very quickly. Well. Joining us live with

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<v Speaker 2>what lies ahead for energy, the energy markets and the

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<v Speaker 2>energy supply are Bloomberg's senior US oil reporter, Kevin Crowley

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<v Speaker 2>and Tim Moore, senior research analyst at Clearstreet. He covers

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<v Speaker 2>the clean energy transition as well as oil and gas,

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<v Speaker 2>so perfect twosome to talk to. Kevin kick it off

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<v Speaker 2>with us. We just talked with our own Josh Saul

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<v Speaker 2>and Mark Gungloff talking about the draw down on energy

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<v Speaker 2>supplies that we have been seeing that are expected to

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<v Speaker 2>continue into twenty twenty six in the impact it may

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<v Speaker 2>have or is having on the climate. But kick it

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<v Speaker 2>off remind us too about the world's energy supplies. Prices

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<v Speaker 2>are low, and that's because there's a lot of oil

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<v Speaker 2>out there.

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<v Speaker 3>That's exactly right. Wall Street is almost unanimously bearish on

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<v Speaker 3>oil going into twenty twenty six. As you said at

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<v Speaker 3>the top there, oil dropped about eighteen percent last year,

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<v Speaker 3>and very few people think that it has any room

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<v Speaker 3>to increase from here. Brent Crewe trading around sixty dollars

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<v Speaker 3>a barrel, w Tweati trading in the high fifties. And

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<v Speaker 3>it's really because of this massive oversupply that you mentioned.

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<v Speaker 3>The IEA expects there to be about three point eight

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<v Speaker 3>million barrels a day of excess supply this year, mainly

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<v Speaker 3>driven by growth in non OPEC producing countries such in

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<v Speaker 3>the America's Canada, Brazil, Guyana, also US shale here which

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<v Speaker 3>despite the low prices, continues to grow, and so that's

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<v Speaker 3>really driving this period of very low prices, which of

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<v Speaker 3>course is something that is favored by President Trump. Now,

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<v Speaker 3>this has been one of the most well telegraphed oversupply

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<v Speaker 3>instances in a very long time. So the question really

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<v Speaker 3>is when do investors start to see through these short

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<v Speaker 3>term oversupply imbalances and start to really look at the

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<v Speaker 3>medium term which looks much more constructive.

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<v Speaker 2>When you say more constructive, Kevin, what does that mean

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<v Speaker 2>that there's going to be a floor under oil prices

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<v Speaker 2>and we'll start to see some move to the upside.

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<v Speaker 2>I mean this is against a backdrop where we talk

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<v Speaker 2>about data center build out and how we're going to

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<v Speaker 2>need all forms of energy to power it, and the

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<v Speaker 2>increasing demand that we are seeing on the world's energy supplies.

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<v Speaker 2>It's all needed. So do you anticipate then, or what

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<v Speaker 2>you're hearing from analysts who cover oil that prices will

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<v Speaker 2>head higher and if so, when, well.

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<v Speaker 4>That's right.

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<v Speaker 3>In the medium term, demand looks very very strong. Oil

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<v Speaker 3>demand continues to grow despite the despite the energy transition,

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<v Speaker 3>and with the with the with the data center build

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<v Speaker 3>out and lowering interest rates here in the US. If

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<v Speaker 3>the economy stays strong, you would expect that demand to

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<v Speaker 3>to continue to continue to grow. So eventually the world

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<v Speaker 3>will work through these this this oversupplied market, which will

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<v Speaker 3>then help to help to drive drive prices higher. But

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<v Speaker 3>the big question is when that's going to happen.

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<v Speaker 5>Now.

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<v Speaker 3>I think people are saying, really by the middle of

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<v Speaker 3>this year, we should start to start to see some

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<v Speaker 3>of that oversupply being being worked through. So I would

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<v Speaker 3>expect I would expect, certainly the market to maybe start

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<v Speaker 3>start moving around.

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<v Speaker 1>Then tim on this ices, on these prices going into

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<v Speaker 1>twenty twenty six. At what point does OPEC plus say,

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<v Speaker 1>you know, we want to see higher oil prices, we'll

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<v Speaker 1>kind of tighten the spigot, close the spigott a little bit,

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<v Speaker 1>and we'll we'll decrease supply so prices will go higher.

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<v Speaker 1>Is that still a possibility?

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<v Speaker 4>We think so, are clear Street.

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<v Speaker 5>You know, we've been watching this and we weren't too

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<v Speaker 5>surprised since last April with you know, the catch up

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<v Speaker 5>that they had to do with the two point two

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<v Speaker 5>million barrels a day, the curtailment they did the prior

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<v Speaker 5>two years and catch up with two point sevent two

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<v Speaker 5>point nine million.

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<v Speaker 4>Last year through the December.

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<v Speaker 5>So you know, we like what OPEC plus has done

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<v Speaker 5>and talked about since October you know, they vote this Sunday.

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<v Speaker 5>We don't think that they're going to be raising their

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<v Speaker 5>quota hikes for the first quarter.

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<v Speaker 4>So this kind of lines up a little bit who

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<v Speaker 4>Kevin was alluding to. You know, we like this up.

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<v Speaker 5>We like when investors are bears and think there's a

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<v Speaker 5>low oil prices and we see reason for oil price

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<v Speaker 5>you know, to maybe average possibly you know, low sixties

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<v Speaker 5>throughout the year. And what's more important to us is

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<v Speaker 5>when does that roll off and start and as soon

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<v Speaker 5>as it starts rolling off, that surplus supply, which we

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<v Speaker 5>think will probably maybe get wrapped up by the when

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<v Speaker 5>you're an anniversary of you know, Liberation Day tariffs, maybe April,

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<v Speaker 5>May June. Then you know you do have easier planning

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<v Speaker 5>by E and P companies to drill and just spending

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<v Speaker 5>and usage, which is you know, you want a tighter

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<v Speaker 5>band on oil price just for budget. So we feel

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<v Speaker 5>pretty good about oil prices for next year. Nothing where

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<v Speaker 5>it used to be, you know, in the seventies or eighties,

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<v Speaker 5>but low sixties are good and a lot of the

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<v Speaker 5>stocks that we talked to and cover, you know, they

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<v Speaker 5>break even fifty fifty four dollars for free cash flow brains.

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<v Speaker 1>So is low sixties enough tim to drill baby drill

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<v Speaker 1>as the president wants to see.

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<v Speaker 5>I think if you have some of the stocks to

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<v Speaker 5>be covered, like Magnolia Oil and Gas, yeah, they'll, they'll, they'll.

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<v Speaker 5>They're doing seven percent in net production growth. Probably next year.

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<v Speaker 5>You know, they might add a little bit more. I

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<v Speaker 5>think it depends on your economics. But you know, fifties

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<v Speaker 5>not great.

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<v Speaker 4>And having a.

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<v Speaker 5>Tighter band with less volatility probably this year than there

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<v Speaker 5>was last year. And that's because the tariffs maybe not

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<v Speaker 5>as much of a headwind. Will Peck plus quote is

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<v Speaker 5>not as much of a headwind. I think that really

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<v Speaker 5>helps have a tighter band around the oil price five

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<v Speaker 5>dollars each way in set of ten to fifteen.

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<v Speaker 2>Kevin, Yeah, well, you know, and I just do wonder too, Kevin.

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<v Speaker 2>I mean, obviously everybody's watching policy out of the White House,

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<v Speaker 2>and we have a White House that's pretty clear about

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<v Speaker 2>their view or the president's view when it comes to

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<v Speaker 2>all the energy, whether it's wind and other. So do

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<v Speaker 2>the integrated oil companies feel confident though ultimately about drilling more?

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<v Speaker 2>I mean you said that we're looking for maybe prices

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<v Speaker 2>to start to move up. I don't know whether it's

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<v Speaker 2>midyear or later on this year that the metrics get better,

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<v Speaker 2>but I just do wonder about what really makes them

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<v Speaker 2>wanting to increase supply even more because there is just

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<v Speaker 2>so much out there.

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<v Speaker 3>Well, the big the big buzz word here amongst the

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<v Speaker 3>big oils is capital discipline. They keep preaching this to

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<v Speaker 3>you to wall streets, saying that we're not going to

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<v Speaker 3>spend excess money on production, We're going to focus on

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<v Speaker 3>shareholder retterms. We're going to focus on investing in the very,

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<v Speaker 3>very best projects that will give us the lowest breake

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<v Speaker 3>evens in order to generate those dividends and share buybacks.

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<v Speaker 3>And what was interestingly happened very interestingly last year is

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<v Speaker 3>there was a bit of a departure between oil equities

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<v Speaker 3>and the oil price. So oil went down almost twenty percent,

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<v Speaker 3>whereas whereas the big oils actually rose about ten to

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<v Speaker 3>fifteen percent last year. And the CEOs really believe that

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<v Speaker 3>this this capital discipline which which will continue to drive

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<v Speaker 3>that kind of outperformance. But the other thing that we've

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<v Speaker 3>really seen, especially in the US oil sector, is this

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<v Speaker 3>continual grind for efficiencies. US shale in particular continues to innovate,

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<v Speaker 3>continues to drive down costs. They drill longer lateral wells,

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<v Speaker 3>they put more more power into into their fracking. This

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<v Speaker 3>is more changes and how they and how they produce oil,

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<v Speaker 3>which really allows them to drive down their break even

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<v Speaker 3>and to make money. At this, at this sixty dollars level,

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<v Speaker 3>they're really on the cusp at the moment. Some companies

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<v Speaker 3>really really don't like it. But at this, at this

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<v Speaker 3>sixty sixty dollars level, usor productions still continues to increase. Now,

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<v Speaker 3>if we were to drop down into the into the fifties,

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<v Speaker 3>I think that that might change and US production may

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<v Speaker 3>come off its record highs. But the industry really continues

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<v Speaker 3>to surprise on the efficiencies.

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<v Speaker 2>Yeah, it's kind of fascinating, but it makes sense right

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<v Speaker 2>that they that they continue to do that. Tim come

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<v Speaker 2>on back in here. Because you follow the old energy companies,

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<v Speaker 2>you follow oil and gas. What's more promising when you

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<v Speaker 2>think about it, maybe medium term, longer term, what's more

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<v Speaker 2>promising the outlook for oil and gas, for the outlook

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<v Speaker 2>for those clean energy companies.

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<v Speaker 5>You know, even though the clean energy companies apperformed the

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<v Speaker 5>s and P almost thirty five percent last year. You know,

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<v Speaker 5>we think there's still room for them to do well

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<v Speaker 5>this year if they have exposure to what we're calling

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<v Speaker 5>the electricity shortfall. We cover several stocks with this exposure,

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<v Speaker 5>whether it's mos Tech and yr Group, Blue Energy, even sun.

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<v Speaker 4>Run and will Dan Group.

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<v Speaker 5>You know, they're pretty well positioned because you know, as

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<v Speaker 5>you probably know, the US has been the power grid

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<v Speaker 5>was only ending about one and a half to two

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<v Speaker 5>percent a year of supply, but the demands growing at

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<v Speaker 5>four to five percent a year now. Half that caused

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<v Speaker 5>by the new AI hyper scale data center is being

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<v Speaker 5>built out. The other half cause from reshoring and ev charging,

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<v Speaker 5>crypto mining heat pumps. You know, there's a lot of

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<v Speaker 5>other reasons why. So we think there's a tailwind for

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<v Speaker 5>the next three or four years of massive expend spending

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<v Speaker 5>by the utilities. So a lot of the stocks we

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<v Speaker 5>cover their customers are utilities or commercial industrial new plants,

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<v Speaker 5>semiconductor plants, even American Superconductor should benefit from that. You know,

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<v Speaker 5>we think that the utilities could probably spend about thirty

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<v Speaker 5>five percent more on the transmission distribution side over the

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<v Speaker 5>next five years to really close that shortfall and balance

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<v Speaker 5>every year. That's pretty wide just the last three years.

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<v Speaker 5>I mean for about forty years, the demand group one

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<v Speaker 5>to two percent a year in the US.

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<v Speaker 4>Now it's scoring you know, five six percent maybe this year.

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<v Speaker 1>But tim on the alt energy side of things, with

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<v Speaker 1>low oil prices, doesn't it decrease the incentive for investing

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<v Speaker 1>in new technology?

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<v Speaker 4>It could depending what you what you're looking at.

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<v Speaker 5>You know, we cover sun Run, which is the biggest

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<v Speaker 5>residential solar solar that's attaching battery storage, and you know,

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<v Speaker 5>we think there's stocks positions to keep going up.

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<v Speaker 4>They're number one in market share.

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<v Speaker 5>It's it's very affordable, and you know commercial you need

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<v Speaker 5>like like your speaker to speakers, I was saying, you

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<v Speaker 5>need just more than one energy source. You need natural gas,

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<v Speaker 5>you need some oil, you know, you need solar, you

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<v Speaker 5>probably need some wind. So I think there is room

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<v Speaker 5>for alt energy to do pretty well. Maybe not the

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<v Speaker 5>offshore when that the truck administration.

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<v Speaker 4>Might not be that supportive of though.

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<v Speaker 1>Okay, Kevin, I want to throw you a crazy question

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<v Speaker 1>that that sort of has like politics in it, because

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<v Speaker 1>the US policymakers like to talk a lot about energy independent.

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<v Speaker 1>Is the US energy independent.

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<v Speaker 3>For all intents and purposes largely is I mean, clearly,

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<v Speaker 3>we still import a fair bit of oil, but that's

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<v Speaker 3>that's mainly due to the makeup of the of the

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<v Speaker 3>refining system here. We need heavy oil, which comes from overseas.

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<v Speaker 3>But essentially, you know, the US is producing nearly fourteen

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<v Speaker 3>million barrels of oil a day, which is which is,

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<v Speaker 3>which is more than any other country has ever produced

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<v Speaker 3>in history. It's it's it's it's at least forty percent

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<v Speaker 3>more than what Saudi Arabia is.

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<v Speaker 4>Producing right now.

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<v Speaker 3>So the US, for all intents and purposes, is as

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<v Speaker 3>energy independent as it has been in decades.

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<v Speaker 1>Kevin that said, it is much more expensive for the

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<v Speaker 1>US to extract a barrel of oil than it is

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<v Speaker 1>for Saudi Arabia to extract a barrel of oil.

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<v Speaker 3>It is, but that it's that that crucial level. It's

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<v Speaker 3>it's as long as it's profitable to do so, then

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<v Speaker 3>companies here will will continue to do so. I mean, clearly, yes,

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<v Speaker 3>Saudi Arabia can extract extract oil much more, much more profitably,

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<v Speaker 3>but US break evens and maybe in the in the

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<v Speaker 3>in the low fifties, so they can they can still

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<v Speaker 3>they can still extract oil. Profitability Now, Saudi Arabia needs

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<v Speaker 3>a much higher oil price to balance its budget, so

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<v Speaker 3>that's something to take into consideration too well.

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<v Speaker 1>Oil politics always intertwined. A big thank you to both

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<v Speaker 1>of you for joining us. This is exactly the conversation,

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<v Speaker 1>the roundtable that we wanted to have this afternoon. That

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<v Speaker 1>was a Bloomberg Senior US OL reporter, Kevin Crowley. Also

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<v Speaker 1>Tim More, senior research analyst over at Clear Street, covering

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<v Speaker 1>the clean energy transition as well