WEBVTT - US Oil Is Booming and It's Upending Global Markets 0:00:10.119 --> 0:00:14.080 Hello, and welcome to another episode of the Odd Logs Podcast. 0:00:14.200 --> 0:00:16.520 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:16.840 --> 0:00:19.520 Tracy, remember a couple of years ago, you know, when 0:00:19.600 --> 0:00:22.720 like oil prices started booming and there was this big 0:00:22.760 --> 0:00:26.160 story that like production wasn't coming back. Then all these 0:00:26.280 --> 0:00:29.920 oil companies had found discipline, they were all focusing on profits, 0:00:29.920 --> 0:00:33.520 et cetera, not just volume, and that the expectation would 0:00:33.520 --> 0:00:36.480 be that production would be depressed for a long time. 0:00:36.600 --> 0:00:39.400 Wait, I don't think it wasn't that production was ever 0:00:39.560 --> 0:00:43.440 coming back. It was that production would slow substantially. And 0:00:43.479 --> 0:00:47.480 the idea was that this is one part of the 0:00:47.600 --> 0:00:50.360 oil boom story of the sort of mid twenty tens 0:00:50.400 --> 0:00:53.280 that always fascinated me was it was actually a capital 0:00:53.320 --> 0:00:56.360 market story. So it was all these investors who just 0:00:56.560 --> 0:01:00.840 poured money into shale oil basically and thought they were 0:01:00.880 --> 0:01:05.199 going to make millions and millions. Shale completely over expanded. 0:01:05.480 --> 0:01:08.280 It became very very difficult for them to actually pump 0:01:08.360 --> 0:01:11.520 at a profit, and so they all started collapsing. They 0:01:11.520 --> 0:01:14.640 all started pulling back. All the investors got burned and 0:01:14.680 --> 0:01:16.920 they were like, we're never going to touch this industry 0:01:16.959 --> 0:01:19.880 with a ten foot pole ever again, and then lo 0:01:20.040 --> 0:01:24.479 and behold. In sort of the early twenty twenties, shale 0:01:24.600 --> 0:01:28.720 starts to become profitable again. It starts to expand. It 0:01:28.840 --> 0:01:32.680 says it's expanding at a more disciplined pace than previously. 0:01:32.880 --> 0:01:35.680 But I have questions about that. But yeah, it's all changed, 0:01:35.720 --> 0:01:36.640 it's all turned around. 0:01:37.000 --> 0:01:39.080 Yeah, I'm glad. You know, you brought up that capital 0:01:39.200 --> 0:01:41.640 markets aspect that did seem to be you know, this 0:01:41.800 --> 0:01:45.000 idea of depressed production seemed to be all part and 0:01:45.040 --> 0:01:49.320 parcel of that that suddenly financial conditions were tightening, that 0:01:49.400 --> 0:01:52.760 the market was placing this premium in this new nonser 0:01:52.960 --> 0:01:56.560 world of you know, cash flow today, et cetera. And 0:01:56.680 --> 0:01:59.840 so like, I'm slowly confused, like what exactly happened with 0:02:00.120 --> 0:02:03.160 bad story? You know, there's lots of things. As production 0:02:03.280 --> 0:02:07.240 has come back, it seems like investors are still into 0:02:07.280 --> 0:02:11.000 the space. Prices have come down. Then there's all kinds 0:02:11.000 --> 0:02:14.320 of obviously geopolitical stuff going on. It seems like it's 0:02:14.320 --> 0:02:16.560 a time to sort of take stock of what's going 0:02:16.600 --> 0:02:17.600 on in the energy world. 0:02:17.800 --> 0:02:22.160 Yeah, well, US oil production in particular, right, I mean, 0:02:22.200 --> 0:02:25.240 I think that's an all time high. I actually if 0:02:25.280 --> 0:02:28.519 you look at domestic production in the US, I think 0:02:28.520 --> 0:02:32.600 it's something like thirteen million barrels of crude per day 0:02:32.760 --> 0:02:37.120 and twenty million including you know, energy and things like that, 0:02:37.320 --> 0:02:41.560 So an all time high. And it means that US 0:02:41.639 --> 0:02:45.960 oil basically accounts for one of every eight barrels of 0:02:46.000 --> 0:02:48.919 global outputs. So pretty big stuff there. 0:02:49.120 --> 0:02:52.240 Yeah, pretty extraordinary. So what happened to all the narratives? 0:02:52.320 --> 0:02:55.880 Is production coming back? Why I have prices falling? I'm 0:02:56.000 --> 0:02:59.000 very pleased to bring in the person we always love 0:02:59.080 --> 0:03:01.040 to turn to when it comes to oil and energy. 0:03:01.080 --> 0:03:03.639 We're going to be speaking to our colleague, Javier Blast, 0:03:03.680 --> 0:03:07.600 Bloomberg opinion columnists on oil and energy. Have you thank 0:03:07.639 --> 0:03:09.639 you so much for coming back on outlaws. 0:03:09.840 --> 0:03:11.040 Thank you for having me again? 0:03:11.320 --> 0:03:13.240 Have you? What is the deal with that? So like 0:03:13.280 --> 0:03:15.920 we're back at records again in the US production. 0:03:16.120 --> 0:03:20.320 We add two record levels and it's just an incredible number. 0:03:20.520 --> 0:03:23.600 As Tracey said, if you look just at what we 0:03:23.720 --> 0:03:26.280 say is crude oil, it's more than thirteen million borrows 0:03:26.280 --> 0:03:28.959 a day. But if you add on top of that 0:03:29.040 --> 0:03:32.240 number other things that they go into the oil liquids 0:03:32.760 --> 0:03:37.120 streams or like condensates and NGLs or natural gas liquids, 0:03:37.160 --> 0:03:38.560 a bit of ethanol, et. 0:03:38.520 --> 0:03:39.280 Cetera, et cetera. 0:03:39.400 --> 0:03:42.920 We are well above twenty million borrows a day of 0:03:43.080 --> 0:03:47.360 oil production. That compares to one hundred million worldwide. So 0:03:47.840 --> 0:03:51.240 you put everything together, the US is producing one in 0:03:51.400 --> 0:03:55.480 five barrels of oil consumed. That is just an incredibly 0:03:55.560 --> 0:03:59.160 high number, and it doesn't seem to be about to stop. 0:03:59.240 --> 0:04:02.160 Probably it's gonna low down a bit in twenty twenty four, 0:04:02.400 --> 0:04:04.080 but he's going to continue to go up. 0:04:04.640 --> 0:04:08.360 Okay, where is all that new oil actually coming from? 0:04:08.440 --> 0:04:11.440 Because it's been a while since I've brought up the 0:04:11.520 --> 0:04:14.320 rig count chart, But if you look at the rig 0:04:14.360 --> 0:04:16.680 count chart, I mean, this is such a fun one 0:04:16.720 --> 0:04:20.440 because you can see the big humps of the early 0:04:20.640 --> 0:04:24.279 twenty tens and then the big slide into twenty fifteen, 0:04:24.520 --> 0:04:27.960 and now it seems kind of flat. So there's been 0:04:28.000 --> 0:04:31.520 some increase between twenty twenty and twenty twenty two. The 0:04:31.600 --> 0:04:34.440 number of new rigs being drilled has gone up, but 0:04:34.560 --> 0:04:37.160 it's not like it's not like we're seeing a boom 0:04:37.520 --> 0:04:41.880 in new gas rigs and new explorations. So where is 0:04:42.200 --> 0:04:43.679 all this oil coming from? 0:04:44.000 --> 0:04:46.440 Well, it's coming from the very same places that it 0:04:46.520 --> 0:04:49.800 was coming about ten years ago. But it's coming in 0:04:49.839 --> 0:04:52.960 some way, for lack of a better war better. So 0:04:52.960 --> 0:04:55.480 it's coming from Texas, it's coming from New Mexico, and 0:04:55.520 --> 0:04:59.880 it's coming up bit from North Dakota, Oklahoma, et cetera. Exitise, 0:05:00.080 --> 0:05:02.880 it's coming from the shale regions of the United States. 0:05:02.960 --> 0:05:06.360 But we were to say where in just one single 0:05:06.480 --> 0:05:09.279 or two or in this case three single words, is 0:05:09.520 --> 0:05:12.760 Texas and New Mexico. That's where the new oil is coming. 0:05:13.000 --> 0:05:17.960 And you're right, Tracy, the recount is not significantly up. Actually, 0:05:18.000 --> 0:05:20.640 if you look at from a long perspective, it's lower 0:05:20.640 --> 0:05:24.160 than it was during the previous booms of shale. But 0:05:24.640 --> 0:05:27.560 it's just that the oil companies in Texas and New 0:05:27.600 --> 0:05:31.280 Mexico have got very good at distracting more oil from 0:05:31.320 --> 0:05:34.760 those ricks from those wells that they are drilling, and 0:05:34.760 --> 0:05:37.160 they're also doing much longer well s. 0:05:37.360 --> 0:05:38.520 If you think about. 0:05:38.520 --> 0:05:43.480 How an oil shale well looks like, it first goes 0:05:43.680 --> 0:05:47.040 down vertically and then it just turns around ninety degrees 0:05:47.240 --> 0:05:50.200 and it goes horizontal for a while. At the beginning, 0:05:50.240 --> 0:05:54.880 those horizontal wells were relatively short. Perhaps you know, a 0:05:55.000 --> 0:05:58.480 quarter of a mile half a mile at most. Now 0:05:58.520 --> 0:06:01.120 they're going as much as three miles Antonia, and that 0:06:01.120 --> 0:06:03.400 they can get a lot more oil that they were 0:06:03.440 --> 0:06:04.880 able to do a few years back. 0:06:05.320 --> 0:06:06.240 So it's important. 0:06:06.240 --> 0:06:08.080 We're going to talk a lot about the capital market. 0:06:08.080 --> 0:06:12.200 It's an investor aspect, but it's impart just like ongoing 0:06:12.400 --> 0:06:16.280 technological improvements as well. What else is happening on this 0:06:16.320 --> 0:06:16.880 sort of Oh? 0:06:17.040 --> 0:06:19.960 So can I read? Sorry, I never get a chance 0:06:20.040 --> 0:06:22.679 to do this. Can I read one of my all 0:06:22.760 --> 0:06:26.200 time favorite leads from a story that is all about 0:06:26.279 --> 0:06:30.920 technological improvements? Oil drilling? Okay, okay, Javier, Joe, you guys 0:06:30.960 --> 0:06:31.960 are ready, I'm gonna read it. 0:06:31.960 --> 0:06:32.239 Okay. 0:06:33.160 --> 0:06:37.200 This is a story from twenty sixteen. Last spring, stat 0:06:37.200 --> 0:06:40.320 Oil announced it had used the same oil well design 0:06:40.440 --> 0:06:43.800 and components to drill three reservoirs for the price of one. 0:06:44.320 --> 0:06:47.960 While the specs for Norwegian sea drilling might provoke reactions 0:06:48.000 --> 0:06:52.760 akin to the oil field's name, the snore, such standardized 0:06:52.800 --> 0:06:55.480 pipes and casings could hold the key to a pervasive 0:06:55.520 --> 0:06:58.839 mystery about today's energy market. Why is everyone still drilling 0:06:58.880 --> 0:07:01.800 when prices are in the man snort? Get it? 0:07:02.120 --> 0:07:02.800 Oh that's good. 0:07:03.440 --> 0:07:04.400 Maybe you have to read it. 0:07:04.440 --> 0:07:07.320 So that really held up well. So what changes twenty 0:07:07.440 --> 0:07:08.120 sixteen have. 0:07:08.160 --> 0:07:14.920 You Well, technologically wise, we can read longer, particularly the laterals. 0:07:14.960 --> 0:07:19.080 We can pump fracking fluids at the higher pressure, and 0:07:19.400 --> 0:07:22.200 companies are also very good at doing this super quick 0:07:22.240 --> 0:07:25.400 and previously a well could have taken thirty days. 0:07:25.400 --> 0:07:26.160 Now it takes ten. 0:07:26.600 --> 0:07:29.640 They just companies and the crews have got very good 0:07:29.680 --> 0:07:32.560 at doing it, and that means that they can do 0:07:32.640 --> 0:07:35.400 it cheaply. And that's the funny part of the whole 0:07:35.640 --> 0:07:38.640 boom of twenty twenty three and twenty twenty four, a 0:07:38.760 --> 0:07:42.280 difference of the previous ones. Companies are making money and 0:07:42.400 --> 0:07:45.200 investors are making money, so everyone is loving it. This 0:07:45.320 --> 0:07:48.120 is the first time, and this is what really terrorized 0:07:48.480 --> 0:07:50.920 or PEG. This is the first time that shale oil 0:07:51.160 --> 0:07:54.560 is growing and making money at the same time, and 0:07:54.600 --> 0:07:56.480 that's a big problem in you are Saudi Arabia. 0:07:56.720 --> 0:08:00.280 I definitely want to get to the possible response from Peck. 0:08:00.400 --> 0:08:02.600 But just in terms of technology, I mean one of 0:08:02.640 --> 0:08:05.239 the things and the reason I brought up that story, 0:08:05.360 --> 0:08:08.480 it was the idea of standardization. So before you used 0:08:08.520 --> 0:08:12.240 to have all these bespoke custom fittings for oil rigs 0:08:12.320 --> 0:08:15.320 or platforms or whatever. But then I think there was 0:08:15.320 --> 0:08:19.800 actually like an industry wide effort or attempt to start 0:08:19.840 --> 0:08:22.160 standardizing some of these things so you didn't have to 0:08:22.360 --> 0:08:25.880 order a bespoke component for every single oil project that 0:08:25.920 --> 0:08:29.600 you were doing, and that seems to have helped make 0:08:29.640 --> 0:08:33.640 things go faster to Havier's point, and also brought down costs. 0:08:34.040 --> 0:08:36.040 How much of a big deal is that in the industry. 0:08:36.280 --> 0:08:38.440 It is a big deal. I mean it has happened 0:08:38.440 --> 0:08:40.600 everywhere in the oil industry. Let me give you my 0:08:40.760 --> 0:08:44.240 favorite anecdote of a standards asia, please in the oil industry. 0:08:44.800 --> 0:08:47.840 So you are working on a Norsea oil platform. This 0:08:47.960 --> 0:08:51.840 is offshore outside Norway and and the United Kingdom. You 0:08:51.920 --> 0:08:53.920 need to paint a lot of the staff yello kind 0:08:53.920 --> 0:08:57.040 of you know, yellow, danger, very busy ball et cetera, 0:08:57.080 --> 0:09:01.120 et cetera, very stormy areas of the wall the Norsea folk. 0:09:01.920 --> 0:09:02.959 You get the kind. 0:09:03.120 --> 0:09:04.679 It's not the kind of place that you really want 0:09:04.720 --> 0:09:08.520 to spend an evening in winter there. So every company 0:09:08.559 --> 0:09:12.960 have their own shade of yello. They were nineteen different 0:09:13.080 --> 0:09:16.600 kinds of yello to paint things in the Norsea. Each 0:09:16.679 --> 0:09:20.040 company have their own shade with their own specification. 0:09:20.000 --> 0:09:21.280 And it was just ridiculous. 0:09:21.360 --> 0:09:24.520 So at one point a few engineers in the industry 0:09:24.520 --> 0:09:26.560 got together and said, well, this is a bit ridiculous. 0:09:26.600 --> 0:09:29.600 I mean, can we're not just doing like a Yello norsea. 0:09:29.679 --> 0:09:32.520 And so they got together and everyone decided this is 0:09:32.520 --> 0:09:34.440 the shade of Jello that we're going to use. And 0:09:34.480 --> 0:09:37.200 now everyone is painting everything that they need to paint 0:09:37.240 --> 0:09:40.080 in Yello with the same shade. That at a much 0:09:40.160 --> 0:09:43.840 bigger scale has happened across the oil industry. Everything has 0:09:43.880 --> 0:09:47.760 got a standard, and companies within themselves they like to 0:09:47.800 --> 0:09:51.480 do everything best spoke. They really in some ways gold 0:09:51.559 --> 0:09:54.320 plated a lot of projects, so each well was a 0:09:54.320 --> 0:09:57.800 bit different to the other one. Now companies are designing 0:09:57.880 --> 0:10:01.120 one single design and when they I've really thought, okay, 0:10:01.160 --> 0:10:04.360 this is it. This really works very well. Now copy 0:10:04.400 --> 0:10:07.800 and paste for the next twenty five fifty one hundred wells. 0:10:08.000 --> 0:10:09.920 And that has cut costs significantly. 0:10:10.920 --> 0:10:13.320 I love the fact that like just something as simple 0:10:13.360 --> 0:10:14.520 as the color. 0:10:14.280 --> 0:10:18.240 Painting of I'm imagining a room full of oil executives 0:10:18.320 --> 0:10:20.760 looking at different swatches of yellow and being like, no, 0:10:21.000 --> 0:10:23.840 that one's too orange. Can we get something a little 0:10:23.840 --> 0:10:24.800 bit more buttermilk. 0:10:24.960 --> 0:10:28.680 Maybe I will love to be the competition lawyer who 0:10:28.720 --> 0:10:31.040 has to stop it on the meeting to make sure 0:10:31.040 --> 0:10:34.280 that no one is saying anything inappropriate that the Department 0:10:34.360 --> 0:10:37.400 of Justice could get us, like there was a conspiracy 0:10:37.480 --> 0:10:38.560 for the yellow color. 0:10:38.760 --> 0:10:41.600 Yeah, I'll looking at the different panton of shades, but 0:10:41.679 --> 0:10:43.400 gotta do so in a legal way. All right, Let's 0:10:43.400 --> 0:10:46.440 talk about the capital markets aspect, because you know, it 0:10:46.440 --> 0:10:49.240 did seem like the way people thought about it was 0:10:49.280 --> 0:10:51.600 that the industry face had to face a choice. Would 0:10:51.600 --> 0:10:55.400 it be pursuing volume or would it be pursuing profitability? 0:10:55.440 --> 0:10:57.760 And as you just said, like there seems to be 0:10:57.800 --> 0:11:01.439 this very weird situation in which volume is ramping and 0:11:01.679 --> 0:11:05.320 productivity is sustained. How is that happening? And how sustainable 0:11:05.400 --> 0:11:05.679 is that? 0:11:06.200 --> 0:11:09.280 Well to the question of how long how sustainable? I'm 0:11:09.280 --> 0:11:12.040 gonna be honest. I either know. I thought that production 0:11:12.160 --> 0:11:14.360 growth will have a slow down in twenty twenty three, 0:11:14.640 --> 0:11:15.840 and it never happened. 0:11:16.080 --> 0:11:17.800 It did the opposite. They accelerated. 0:11:18.440 --> 0:11:21.720 You look to every oil executive, if you look at 0:11:21.760 --> 0:11:25.640 the forecasters of the industry, everyone is saying it's gonna 0:11:25.640 --> 0:11:28.000 sloan in twenty twenty four. But also they said the 0:11:28.040 --> 0:11:30.439 same for twenty twenty three and they were wrong, So 0:11:30.720 --> 0:11:34.160 we'll see what happens really. But yes, I mean the 0:11:34.200 --> 0:11:38.800 industry went into this new era thinking about profitability, So 0:11:38.880 --> 0:11:42.199 everyone cut kapex, everyone tried to get more efficient, and 0:11:42.559 --> 0:11:45.600 everyone thought that production growth was going to slow down 0:11:45.640 --> 0:11:49.160 because the focus was profitability. The fact that they were 0:11:49.240 --> 0:11:52.400 able to grow quite strongly came a bit of a 0:11:52.480 --> 0:11:56.360 surprise to the industry and then everyone kind of, you know, 0:11:56.800 --> 0:12:00.000 celebrated it. But here there is a very important question. 0:12:00.520 --> 0:12:04.080 If OPEK have not cut production to make room for 0:12:04.160 --> 0:12:07.280 all these new shale oil from the United States, prices 0:12:07.320 --> 0:12:09.880 will have come down, and then the industry will have 0:12:10.160 --> 0:12:12.840 faced the same kind of dilemma of the past. You 0:12:12.880 --> 0:12:15.880 are producing too much, then the prices come down, your 0:12:15.920 --> 0:12:18.720 profitability comes down, and then you have a problem. So 0:12:18.960 --> 0:12:22.319 a lot of these that we are putting based on efficiency, 0:12:23.440 --> 0:12:27.080 it's true. But if not for OPEC cutting production and 0:12:27.160 --> 0:12:30.520 keeping prices about seventy dollars a barrel, then shale companies 0:12:30.520 --> 0:12:31.240 will be in trouble. 0:12:47.960 --> 0:12:51.079 One thing I'm really curious about is who is actually 0:12:51.200 --> 0:12:56.200 funding production now. Versus say in the early twenty tens. 0:12:56.480 --> 0:12:58.000 And just to add on to that a little bit, 0:12:58.080 --> 0:13:02.760 is there any difference between private, publicly traded domestic US players. 0:13:02.920 --> 0:13:06.040 Okay, so let's go from parts on Tracy's question, who 0:13:06.080 --> 0:13:09.760 is founding this well? Back ten years ago, five years ago, 0:13:09.920 --> 0:13:12.600 it was Waller Street. It was a mix of equity 0:13:12.640 --> 0:13:15.800 and credit markets which were founding or all of these 0:13:16.120 --> 0:13:19.960 growth through different instruments. I mean, sometimes it was just 0:13:20.040 --> 0:13:24.640 issue of fresh equity. Sometimes it was bond high till bonds, 0:13:25.120 --> 0:13:28.240 research lending, where a bank is lending to an oil 0:13:28.280 --> 0:13:31.040 company based on the research underground, more or less like 0:13:31.040 --> 0:13:34.040 a mortgage rather than a house. You mortgage the oil 0:13:34.040 --> 0:13:36.360 research that they are underground, and a lot of that 0:13:36.520 --> 0:13:39.000 is still there, but a lot of the money now 0:13:39.400 --> 0:13:43.400 needed for the expansion and to finance in all these 0:13:43.440 --> 0:13:46.960 new growth is coming from cash flow. Generation is the 0:13:46.960 --> 0:13:50.840 internal cash flow of these companies. They generate enough cash 0:13:51.200 --> 0:13:54.400 to pay for all the new drilling that they are doing, 0:13:54.840 --> 0:13:57.400 to pay for all the capital investment that they need 0:13:57.440 --> 0:14:01.559 to do alongside new pipelines, et cetera, and to pay 0:14:01.960 --> 0:14:05.120 the shareholders. These companies now for the very first time, 0:14:05.400 --> 0:14:10.040 are paying dividends and that's that sounds like well companies, 0:14:10.040 --> 0:14:13.240 publicly listed companies would be paying dividends, that that's like normal. 0:14:13.480 --> 0:14:15.840 Well that was not the case a few years back, 0:14:15.840 --> 0:14:18.440 but now they're generat enough cash to do all of 0:14:18.440 --> 0:14:22.520 them both. And in terms of there is there a difference. Yes, 0:14:22.720 --> 0:14:25.840 publicly listed companies have been a bit more caustios. They 0:14:25.880 --> 0:14:29.480 have been trying to They have the shareholders, they have 0:14:29.600 --> 0:14:31.840 wall strips on top of them, and they have to 0:14:32.040 --> 0:14:34.880 really try to focus as much as possible on paying 0:14:34.920 --> 0:14:39.160 dividends and buying back shares privately on they don't have 0:14:39.240 --> 0:14:42.800 that pressure, that super strong pressure, so they have done 0:14:42.800 --> 0:14:45.520 a bit more of growing, and there is a suspicion 0:14:45.560 --> 0:14:47.560 in the industry. A lot of that growth was to 0:14:47.680 --> 0:14:50.520 try to maximize the amount of production that you are 0:14:50.560 --> 0:14:53.680 doing so you can sell yourself to a big player, 0:14:53.760 --> 0:14:57.520 say Exomobile or Chevron, and perhaps that's not as sustainable 0:14:57.560 --> 0:14:58.240 as it looks like. 0:14:59.120 --> 0:15:03.160 Talk more about OPEK, because you mentioned that US shell 0:15:03.240 --> 0:15:06.160 has benefited from OPEC cutting production. You know, I remember, 0:15:06.280 --> 0:15:08.960 I guess it was twenty fifty fifteen, I think when 0:15:09.000 --> 0:15:11.720 OPEK did that huge increase in production to try to 0:15:11.760 --> 0:15:15.560 kneecap us shell. Why are they sort of I guess 0:15:15.560 --> 0:15:20.640 in alignment these days where OPEC's impulse to maintain production 0:15:20.800 --> 0:15:23.880 is good for Opek, but also I guess clearly as 0:15:23.880 --> 0:15:26.000 you say, benefiting US production. 0:15:26.360 --> 0:15:29.040 Well, Opek is trying to keep oil prices as closed 0:15:29.040 --> 0:15:31.440 as he can to one hundred dollars. It's not as 0:15:31.480 --> 0:15:35.120 successful as they will hope. Prices have been between seventy 0:15:35.200 --> 0:15:37.520 and eighty despite a lot of geopolitical tension that you 0:15:37.600 --> 0:15:40.960 wually mind will have pushed prices even higher. I think 0:15:41.040 --> 0:15:44.720 that the key question here is that OPEK is convenced 0:15:44.800 --> 0:15:46.880 that this is a bit of a bleep that at 0:15:46.920 --> 0:15:50.840 some point the growth in US production slows down, the 0:15:50.920 --> 0:15:54.320 demand remains there, the annual demand growth remains there, and 0:15:54.360 --> 0:15:57.080 then they have room to expand their production to bring 0:15:57.360 --> 0:15:59.680 some of the production that they have taken off the market. 0:15:59.760 --> 0:16:02.400 Now so they were able to bring it back and. 0:16:02.320 --> 0:16:04.960 I was, to be honest, the same kind of bed 0:16:05.040 --> 0:16:09.200 that Opek made in twenty eleven twenty twelve. You know, 0:16:09.280 --> 0:16:12.200 this is a blip. Usl growth is going to slow 0:16:12.240 --> 0:16:15.520 down at some point and after a few years, by 0:16:15.520 --> 0:16:19.120 twenty and fifteen, twenty sixteen, they cannot discovered Actually, no, 0:16:19.240 --> 0:16:22.640 this is not working. At seventy five eighty one hundred 0:16:22.640 --> 0:16:25.560 dollars oil. These guys can grow and they can grow forever. 0:16:25.960 --> 0:16:28.240 We need to change the strategy. And that's when OPEK 0:16:28.320 --> 0:16:32.080 decided to float the market kill prices. The price of 0:16:32.200 --> 0:16:35.840 West Texas and a brand crew the two global benchmark 0:16:35.920 --> 0:16:39.280 collapsed to thirty dollars a barrel, and that's what really 0:16:39.280 --> 0:16:42.600 brought down shale growth for a few years. The jury 0:16:42.680 --> 0:16:45.400 is out whether they're making the same mistake or not, 0:16:45.520 --> 0:16:47.680 and I think that we are going to see it 0:16:47.720 --> 0:16:50.320 by the middle of this year, at most Q three 0:16:50.360 --> 0:16:53.520 of this year. We are going to see whether ushale 0:16:53.640 --> 0:16:57.320 really is slowing down or not, and whether demand is 0:16:57.400 --> 0:17:00.560 either sustaining the growth or where you need to see 0:17:00.560 --> 0:17:03.680 a slowdown in demand because you know, electric vehicles and 0:17:03.760 --> 0:17:06.840 more energy efficiency, et cetera, et cetera. So this is 0:17:07.000 --> 0:17:10.320 this is a very important year for OPEK because if 0:17:10.359 --> 0:17:13.359 it doesn't really go as plan, OPEK really needs to 0:17:13.400 --> 0:17:14.800 change the strategy completely. 0:17:15.600 --> 0:17:17.600 What can it do in that scenario. 0:17:17.920 --> 0:17:19.840 Well, they can only do two things. 0:17:20.200 --> 0:17:23.879 One is to accept that you know, the one current 0:17:23.920 --> 0:17:26.640 prices of seventy five dollars, plus they need to cut 0:17:26.640 --> 0:17:30.679 even more production, giving shale more share of the market, 0:17:31.320 --> 0:17:35.119 or they accept that they need to bring prices down 0:17:35.280 --> 0:17:39.440 because shale can grow at seventy five dollars and perhaps 0:17:39.440 --> 0:17:42.639 cannot grow at say fifty or forty and then OPEK 0:17:42.720 --> 0:17:44.679 and that's how the Arabbia puts a lot more production 0:17:44.760 --> 0:17:46.879 into the market and triggers a crash. 0:17:47.080 --> 0:17:49.040 But that means lower prices for OPEK. 0:17:49.160 --> 0:17:51.320 Yeah, and it didn't really work the last time because 0:17:51.320 --> 0:17:54.199 it just incentivized everyone to cut costs and streamline and 0:17:54.240 --> 0:17:55.080 become more efficient. 0:17:55.280 --> 0:17:59.120 Indeed, you're absolutely right, and on both options means lower revenue, 0:17:59.440 --> 0:18:01.879 either because you are producing less or because you are 0:18:01.920 --> 0:18:03.880 accepting lower oil prices. 0:18:03.920 --> 0:18:06.040 But if the strategy of OPEK. 0:18:05.760 --> 0:18:08.399 Doesn't work, and I am not really one hundred percent 0:18:08.440 --> 0:18:11.119 sure that OPEK really has a much of a strategy 0:18:11.280 --> 0:18:13.280 of the next six months, I think that they are 0:18:13.680 --> 0:18:15.840 holding the line for the next six months and then 0:18:15.840 --> 0:18:16.400 they will. 0:18:16.200 --> 0:18:17.320 See what they do. 0:18:17.720 --> 0:18:20.760 But if they are wrong, it means a period of 0:18:20.800 --> 0:18:24.240 lower revenues for open countries and that will be very painful. 0:18:24.680 --> 0:18:29.080 Just in mind, lower revenues when you have experience a 0:18:29.160 --> 0:18:33.600 significant increase in inflation. That means that the purchasing power 0:18:33.600 --> 0:18:36.119 of your barrel goes even lower. That's very painful for 0:18:36.160 --> 0:18:36.840 Saudi Arabia. 0:18:37.160 --> 0:18:40.600 This is a slightly off topic question, but shale producers 0:18:40.640 --> 0:18:43.879 in the US cannot join OPEK right because we do 0:18:43.960 --> 0:18:46.520 not like price fixing cartels. 0:18:46.720 --> 0:18:48.960 I think that the Department of Justice may have one 0:18:49.040 --> 0:18:49.320 or two. 0:18:49.440 --> 0:18:52.280 Yeah, it might have something to say, yeah, you know. 0:18:52.400 --> 0:18:57.359 Like no, I mean, it's not a completely you know, 0:18:57.600 --> 0:18:58.800 it's not a crazy question. 0:18:58.920 --> 0:18:59.959 Tracy Texas. 0:19:00.440 --> 0:19:02.160 I know it's come up every once in a while. 0:19:02.600 --> 0:19:06.639 The State of Texas sent observice to OPEK meetings in 0:19:06.680 --> 0:19:09.960 the eighties. They never joined, but actually they sent up 0:19:10.040 --> 0:19:12.760 service and the state of Alaska so send observers to 0:19:12.840 --> 0:19:14.879 the OPEC meetings. I mean they will be you know, 0:19:14.920 --> 0:19:19.000 an American gentleman sit down during the OPEC meeting as 0:19:19.040 --> 0:19:19.680 an observer. 0:19:19.880 --> 0:19:21.120 I mean, I think at. 0:19:20.960 --> 0:19:24.080 Some point cool heads and so legal advice decided that 0:19:24.119 --> 0:19:25.080 I was not very cool. 0:19:26.119 --> 0:19:29.040 It's funny the things that like one remembers from like 0:19:29.119 --> 0:19:33.119 the sort of fever swamp days of spring twenty twenty 0:19:33.240 --> 0:19:35.679 during the peak of the pandemic. But I just remember 0:19:35.720 --> 0:19:38.359 there was like some like railroad commissioner in Texas, and 0:19:38.359 --> 0:19:41.320 of course the Railroad commission in Texas is the oil regulator. 0:19:41.480 --> 0:19:42.359 There was some oil. 0:19:42.480 --> 0:19:45.439 There was some railroad commissioner who was like trying to 0:19:45.480 --> 0:19:48.800 like do diplomacy with Opek in the middle of it. 0:19:48.880 --> 0:19:50.840 I can't remember his name, but he was like some 0:19:50.880 --> 0:19:52.560 guy on Twitter. Do you guys remember that? 0:19:53.200 --> 0:19:56.399 Yes, there was someone. I cannot remember one hundred percent, 0:19:56.520 --> 0:19:57.400 but I will come back. 0:19:57.720 --> 0:19:58.000 It was. 0:19:58.520 --> 0:20:02.080 Yeah, there was some random guys. 0:20:02.600 --> 0:20:03.560 Let's not forget that. 0:20:03.600 --> 0:20:06.680 When Opek and an Opek plush with this this alliance 0:20:06.720 --> 0:20:10.080 between Opek and and other oil producers including Russia, they 0:20:10.119 --> 0:20:13.800 were negotiating how to respond to the pandemic and just 0:20:13.840 --> 0:20:16.840 basically trying to agree how to split a ten million 0:20:16.880 --> 0:20:19.240 bottles that they cut. Ten percent of global oil production 0:20:19.680 --> 0:20:22.560 was taken out of the market by Opek and his allies. 0:20:23.119 --> 0:20:26.200 A lot of the negotiations Donald Trump. That the point 0:20:26.280 --> 0:20:30.080 President Donald Trump was heavily involved. I mean, the whole 0:20:30.400 --> 0:20:34.120 final deal was effectively cook on a three way phone 0:20:34.160 --> 0:20:38.439 conversation between President Donald Trump, President bladymir Putting, which was 0:20:38.600 --> 0:20:40.960 still you know, negotiating these things with the White House 0:20:41.200 --> 0:20:45.000 face to face effectively and King salmon or Saudi Arabia, 0:20:45.119 --> 0:20:48.040 So the US in some ways it was not part 0:20:48.080 --> 0:20:50.520 of the cartel or anything like that, but it was 0:20:50.800 --> 0:20:52.680 participating in the conversations. 0:20:52.760 --> 0:20:55.440 And Trump got actually acquired. 0:20:55.119 --> 0:20:57.840