WEBVTT - Ed Morse Talks Oil Markets

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>We've spent a couple of weeks trying to get him

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<v Speaker 2>in here. He's with Heart Tree Partners. Edward Morris's absolutely

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<v Speaker 2>definitive on hydrocarbon. Think of Daniel Jurgen's surprise. Ed Morris

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<v Speaker 2>shows up about page twenty three in the prize from

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<v Speaker 2>a few years ago. Definitive at City Group and of

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<v Speaker 2>course now with Hart Tree Partners. When was the first

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<v Speaker 2>time you were in Riod.

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<v Speaker 1>It was in the late nineteen seventies.

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<v Speaker 2>With Faisal, with King Faisel.

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<v Speaker 1>Yes, but I didn't see him at that point in time.

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<v Speaker 2>What is the sharp okay, fine, but what is the

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<v Speaker 2>strongest difference now between the Royalty of Riod Is they

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<v Speaker 2>look out at this Maelstrom versus our stereotype of Saudi Arabia.

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<v Speaker 1>So the saudiast have come a long way. They're looking

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<v Speaker 1>at how to keep public happy. They are trying to

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<v Speaker 1>diversify their economy as quickly as they can, and it's

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<v Speaker 1>looking to the future rather than building on the present

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<v Speaker 1>or the past.

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<v Speaker 2>What is their relationship with Russia? This idea of opek

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<v Speaker 2>plus is it a what's the distinction of that relationship.

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<v Speaker 1>The relationship is kind of critical. Think about where the

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<v Speaker 1>Saudis are where Opek is. The Saudis have a production

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<v Speaker 1>capacity today between eleven and twelve million barrels a day.

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<v Speaker 1>That's what they had in nineteen eighty. Nineteen eighty was

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<v Speaker 1>a long time ago. OPEC's production capacity then was around

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<v Speaker 1>thirty two to thirty three million barrels a day. Today

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<v Speaker 1>it's thirty five thirty six million barrels a day. The

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<v Speaker 1>oil market was then sixty million barrels a day and

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<v Speaker 1>today it's one hundred million a day. So they discovered

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<v Speaker 1>that they could not on their own balance the market,

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<v Speaker 1>They could not put a floor under prices, and they

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<v Speaker 1>needed to expand, and they had the opportunity to do

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<v Speaker 1>so in the middle of the last decade, when we

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<v Speaker 1>had volatility across the planet, and a lot of that

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<v Speaker 1>volatility was the result of the two fastest growing oil

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<v Speaker 1>producing countries in the world, Russia and the United States.

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<v Speaker 1>They were looking in the middle of the last decade,

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<v Speaker 1>actually around twenty thirteen, just at the time before Russia

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<v Speaker 1>had his first invasion of Ukraine, and they saw that

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<v Speaker 1>the production growth was a million barrels a day in

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<v Speaker 1>both countries. If you look back a couple of years

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<v Speaker 1>and they decided to bring prices down. They thought if

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<v Speaker 1>they could bring prices down to around seventy dollars a barrel,

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<v Speaker 1>they would lose. They would see the world lose two

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<v Speaker 1>million barrels a day of oil. And it didn't happen.

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<v Speaker 2>Paul, I want to mention this. Everyone was looking for

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<v Speaker 2>one hundred and it was a lone voice at City Group,

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<v Speaker 2>a big chrizzled I mean Edward Morris, you know, a

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<v Speaker 2>bit older, saying well, maybe not he nailed the move

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<v Speaker 2>to seventy.

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<v Speaker 3>So ed how do you think about Russia as a

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<v Speaker 3>global supplier these days, because it seems like just in

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<v Speaker 3>the last few days, things are changing. When you think

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<v Speaker 3>about the Trump administration how they're viewing Russia. Do you

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<v Speaker 3>expect Russia to be a bigger global supplier. I'm not

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<v Speaker 3>sure where that oil went.

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<v Speaker 1>You know, it all depends on when you're talking about

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<v Speaker 1>what your horizon is and what could possibly happen. And

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<v Speaker 1>you have to remember that it wasn't that long ago.

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<v Speaker 1>It was twenty nineteen when Putin visited Russia, visited Saddi

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<v Speaker 1>Raby right after the attack on the app cake facility.

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<v Speaker 1>And said, listen, we're going to be cooperating with you

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<v Speaker 1>through your Ramco IPO, and then we're going to be

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<v Speaker 1>out on our own. And section the CEO of Roznev

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<v Speaker 1>said right after that IPO, we're out on our own.

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<v Speaker 1>We are going to be growing oil production at home

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<v Speaker 1>and abroad. They have right now the Vastok field in

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<v Speaker 1>northern Siberia, and that field can produce its schedule to

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<v Speaker 1>produce two million incremental barrels a day. They are a

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<v Speaker 1>wash in oil and they need to do something about it.

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<v Speaker 2>So President Trump says, drill, baby, drill, and we don't

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<v Speaker 2>waste time on that. But what we can state with

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<v Speaker 2>Edward Morse is oil a weapon for the United States

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<v Speaker 2>in our geopolitics.

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<v Speaker 1>Oil is certainly an important part of the foreign policy

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<v Speaker 1>in the country. It cannot be weaponized other than the

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<v Speaker 1>degree to which you can put sanctions on a country.

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<v Speaker 1>I don't know what weaponizing it means. I don't know

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<v Speaker 1>what we're going to pursue. Energy dominance means. I know

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<v Speaker 1>what it means as a soft, powerful instrument of policy.

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<v Speaker 1>And let me give you an example. We have become

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<v Speaker 1>the largest exporter of energy in the world. The largest

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<v Speaker 1>exporter of ellain that LNG export growth enabled the United

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<v Speaker 1>States to replace every drop of Russian energy, but particularly

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<v Speaker 1>natural gas going into Europe, and it did so at

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<v Speaker 1>a time when it was able to globalize a gas

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<v Speaker 1>market that had not been globalized. We have made oil

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<v Speaker 1>because we don't allow destination restrictions. We've enabled natural gas

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<v Speaker 1>to be global and the price of it is based

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<v Speaker 1>at Henry Hubb in the United States. That's kind of

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<v Speaker 1>soft diplomacy. We have an ability to expand LNG globally,

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<v Speaker 1>but it's a soft ability. We have an ability to

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<v Speaker 1>say multilateral lending institutions ought to be pushing natural gas.

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<v Speaker 1>They ought to be backstopping regasification. It's cleaner than coal,

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<v Speaker 1>it's helpful to the global economy. But that's soft diplomacy.

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<v Speaker 1>It's not using it as a weapon.

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<v Speaker 3>So talk to us about the demand side of the equation,

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<v Speaker 3>and know, when you think about some of these commodities

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<v Speaker 3>like global oil, you really have to have a call

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<v Speaker 3>on demand. What do you think demand?

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<v Speaker 2>Is brilliant question, but even more brilliant, do you drive

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<v Speaker 2>an EV?

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<v Speaker 1>I got to tell you I did drive an EV

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<v Speaker 1>until we moved back to New York. Full time, and

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<v Speaker 1>then I discovered that it was too expensive to have

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<v Speaker 1>a car and to deal with actually the rush on

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<v Speaker 1>garages right at the edge of the zone from where

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<v Speaker 1>New York didn't want to go south there.

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<v Speaker 2>Coming up on the congestion text, Paul, continue with your.

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<v Speaker 3>Good your demand view here of the next year or two.

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<v Speaker 1>So as we know, there's been a difference of demand

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<v Speaker 1>views between people in this country, between OPEK and the

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<v Speaker 1>ia OPEK and the IAU. Demand is kind of very

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<v Speaker 1>simple if you look at it. Historically, we've had a

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<v Speaker 1>regular drop in the oil intensity of GDP around the world,

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<v Speaker 1>starting at the really end of the post World War

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<v Speaker 1>Two growth of road transport in reconstructed Europe, reconstructed Japan,

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<v Speaker 1>and in the unterstate highway system in the US, We've

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<v Speaker 1>had year after year a drop in the percentage of

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<v Speaker 1>demand growth per unit of GDP growth. Now, that doesn't

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<v Speaker 1>mean that oil demand comes to an end. It means

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<v Speaker 1>it slows down, okay. And to give you an example,

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<v Speaker 1>if we go back to nineteen seventy seventy one, for

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<v Speaker 1>every one percent increase in the world in global oil

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<v Speaker 1>demand and GDP, there was a one point one one

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<v Speaker 1>point two percent increase in oil demand. Today's about zero

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<v Speaker 1>point three to one. So if we have three percent

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<v Speaker 1>global GDP growth, we have a million barrels a day

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<v Speaker 1>on a one percent based on one hundred million barrel

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<v Speaker 1>a day market of oil demand, and that's continuing to slide.

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<v Speaker 1>So think of it as we're not going to have

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<v Speaker 1>much more than million barrels a day demand growth.

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<v Speaker 2>We have thrilled out with us today, Edward Morris. Of

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<v Speaker 2>course you know I'm from City Group at Heart treet

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<v Speaker 2>Partners now definitive on the geopolitics of oil and also

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<v Speaker 2>of course pricing of Well do you have at heart treater?

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<v Speaker 2>Are you allowed to have a brent guess? Do you

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<v Speaker 2>have an oil barrel guess? Or is it a folk spot?

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<v Speaker 1>No, No, it's not a problem. We live in the

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<v Speaker 1>most volatile market the world has seen, based on things

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<v Speaker 1>that are out of our control. We don't know what's

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<v Speaker 1>going to happen here and there. It's a relatively evenly

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<v Speaker 1>balanced market. But for the fact that Opek, going back

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<v Speaker 1>to your first question, Opey plus has taken so much

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<v Speaker 1>oil out of the market that it now amounts to

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<v Speaker 1>eight million barrels a day. That's a lot of shut

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<v Speaker 1>in production capacity that can come on. And if we

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<v Speaker 1>look at the volatility today, we have prices going up

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<v Speaker 1>in part because of the drone attacks on the CPC

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<v Speaker 1>pipeline coming out of the Caspi and bringing Russian and

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<v Speaker 1>Kazakh oil into the Mediterranean. We have an announcement from

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<v Speaker 1>Kurdistan from Baghdad that the pipeline from Kurdistan through Turkey

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<v Speaker 1>into the Mediterranean is going to be revived next week.

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<v Speaker 1>That's we've lost maybe three hundred thousand barrels a day

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<v Speaker 1>out of the CPC pipeline. We'll get perhaps three hundred

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<v Speaker 1>thousand barrels a day out of Iraq unexpected by next week.

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<v Speaker 1>So given that volatility, we think oil is in the range.

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<v Speaker 1>The range is sixty eight to seventy eight.

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<v Speaker 2>I assume it's Ghosh, that's French ghoshe of you to

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<v Speaker 2>do buy, hold, sell right now. I don't want to

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<v Speaker 2>buy hoold sell in big oil. But how do you

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<v Speaker 2>position big oil when I see Chevron announcing massive layoffs,

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<v Speaker 2>massive restructure and you know it's weak double digit return

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<v Speaker 2>over thirty years. Is big oil prosperous? Is it thriving?

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<v Speaker 2>Is it the stereotype of our ute.

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<v Speaker 1>Well, as we know, some big oil is prospering and

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<v Speaker 1>some big oil is not prospering. Maybe for some investments

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<v Speaker 1>that they were making in the past, in the recent past,

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<v Speaker 1>in the drive to go heavily into renewables and into

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<v Speaker 1>things that weren't providing the same level of return. But

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<v Speaker 1>look at the production growth of Chevron, the production growth

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<v Speaker 1>of Exxon on a global platform based in part of

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<v Speaker 1>the United States. They're increasing their output. They're increasing their

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<v Speaker 1>output of oil and gas in a world in which

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<v Speaker 1>they're very competitive. Ed talk to us.

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<v Speaker 3>I'm watching the television show Landman at the life in

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<v Speaker 3>the oil patch in West Texas, So I now consider

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<v Speaker 3>myself an expert on global oil and gas. Here talk

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<v Speaker 3>to us about the US. We're now a net exporter

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<v Speaker 3>of energy. What is our role in the global energy market?

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<v Speaker 3>Visav said, maybe like an OPEC pluster or something.

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<v Speaker 1>We have transformed the energy market, so the world, including

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<v Speaker 1>the oil market. If you go back to twenty ten,

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<v Speaker 1>we were a gross importer and a net importer, and

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<v Speaker 1>our production base if you add NGLs and other liquids,

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<v Speaker 1>was around eight million barrels a day the last month

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<v Speaker 1>for which we have data. Our production of liquids was

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<v Speaker 1>twenty three million barrels a day. We have moved from

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<v Speaker 1>being the largest gross and net import of the world

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<v Speaker 1>to being the largest gross exporter. We export sixteen to

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<v Speaker 1>seventeen million barrels a day of liquids. Nobody. That's more

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<v Speaker 1>than the combined exports of Russia and Saudi Arabia. Our

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<v Speaker 1>production is more than the total production of Russia and

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<v Speaker 1>Saudi Arabia combined. And we've become a net exporter on

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<v Speaker 1>the order of magnitude of four million barrels a day.

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<v Speaker 1>So that has made the basic difference in the global

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<v Speaker 1>market is a wild difference. Is what gives the US leverage.

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<v Speaker 2>I'd love to get you back in here in a

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<v Speaker 2>six months three month basis, Doctor Morris. Let me ask

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<v Speaker 2>you one final question, and it's sort of from sixty

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<v Speaker 2>thousand feet in philosophical how bad did Angel and Miracle

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<v Speaker 2>screw up? I mean within the arch of Edward Morris's

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<v Speaker 2>tenure owning the high ground on this how bad did

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<v Speaker 2>German leadership screw up? From abnaw or forward.

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<v Speaker 1>So my personal experience in it is dealing with the

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<v Speaker 1>effort by Germany to become dependent on Russian gas. So

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<v Speaker 1>I was in the State Department at the time that

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<v Speaker 1>the servant.

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<v Speaker 2>Both Carter and Reagan.

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<v Speaker 1>And the US and France were the only NATO countries

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<v Speaker 1>that said, hey, you've got to look at you Germany

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<v Speaker 1>have to look at dependence. Yes you can import gas,

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<v Speaker 1>but think about what it will do to your foreign policy.

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<v Speaker 1>Think about what leverage you've lost in terms of that dependency,

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<v Speaker 1>your inability to say no. And we saw that over time,

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<v Speaker 1>and I think Germany has really learned that lesson in

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<v Speaker 1>terms of being very reluctant as they go through this

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<v Speaker 1>election process this coming Sunday, Almost all of the parties

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<v Speaker 1>are reluctant to do more than say we might consider

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<v Speaker 1>importing oil on a spot basis, but not on a

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<v Speaker 1>full contract basis.

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<v Speaker 2>Thirty seconds. Does Tesla have a future?

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<v Speaker 1>I think evs have a future. I'm not going to

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<v Speaker 1>pick one versus another. But they're fun cars to drive,

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<v Speaker 1>They're cleaner than other cars to drive, and they're getting

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<v Speaker 1>more and more mileage. So if I were to buy

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<v Speaker 1>a car again, I would certainly not hesitate to buy it.

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<v Speaker 2>Now. There we are the endorse that we need. Edward Morris,

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<v Speaker 2>thank you so much. Thank you for joining Bloomberg and

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<v Speaker 2>Bloomberg Surveillance today, doctor Morris. Of course, they are in

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<v Speaker 2>the tumult, the maelstrom that is oil today,