WEBVTT - Crude Reality: Oil Demand Growth Falls After Tariffs 0:00:00.240 --> 0:00:02.640 This is Tom Rowlands Reese and you're listening to Switched 0:00:02.640 --> 0:00:05.160 on the podcast brought to you by bn EF. On 0:00:05.240 --> 0:00:09.280 April second, the introduction of the Trump administration's Liberation Day 0:00:09.320 --> 0:00:12.879 tariffs caused indices measuring US business and consumer sentiment to 0:00:12.960 --> 0:00:16.439 fall and global GDP forecasts to be trimmed. Sensitive to 0:00:16.480 --> 0:00:19.759 such fluctuations, oil price has declined steeply, with the Brent 0:00:19.800 --> 0:00:21.880 index even reaching as low as sixty two dollars per 0:00:21.920 --> 0:00:24.200 barrel on April fourth, and here at BNF we have 0:00:24.200 --> 0:00:26.639 cut our forecasts for global demand growth of oil. This 0:00:26.720 --> 0:00:28.760 decline in demand comes an nor quit time for global 0:00:28.800 --> 0:00:31.840 oil markets, as recent announcements from OPEC plus members and 0:00:31.960 --> 0:00:34.520 other major oil producing nations have signaled they are set 0:00:34.520 --> 0:00:37.120 to join the US in ramping their production. What does 0:00:37.120 --> 0:00:38.680 this mean for the near term future of the global 0:00:38.680 --> 0:00:41.560 oil sector and the all important price per barrel? Today 0:00:41.560 --> 0:00:44.040 I'm joined by bn EF's head of Oil Markets Research, 0:00:44.120 --> 0:00:46.920 Wayne Tan and we discuss findings from his note Oil 0:00:46.920 --> 0:00:50.760 Markets Monthly Tariff's OPEC Plus hike structural shift, which b 0:00:50.920 --> 0:00:52.839 and EF clients can find at BNF go on the 0:00:52.840 --> 0:00:55.600 Bloomberg terminal or on BNF dot com. All right, let's 0:00:55.600 --> 0:01:07.520 get to talk about global oil markets with Wayne. Hi. Wayne, 0:01:07.520 --> 0:01:09.560 thanks for coming on the podcast today. 0:01:09.840 --> 0:01:10.679 Thanks for having me. 0:01:11.000 --> 0:01:15.400 It's not exactly ever a particularly stable market. Oil is 0:01:15.440 --> 0:01:20.720 always interesting. It's always subject to various geopolitical backs and 0:01:20.760 --> 0:01:23.479 forth as well as the global economy. And so then 0:01:23.840 --> 0:01:27.960 with that backdrop, we then have the Trump administration's Liberation 0:01:28.080 --> 0:01:30.720 Day announcement, and so, I mean, my first question is 0:01:31.040 --> 0:01:33.280 how has that been changing the market, particularly from a 0:01:33.280 --> 0:01:35.280 demand perspective. We'll get to supply in a moment, but 0:01:35.560 --> 0:01:39.720 how have these tariff announcements been impacting the demand risks 0:01:40.120 --> 0:01:41.360 that impact oil? 0:01:41.640 --> 0:01:41.920 Yeah? 0:01:41.920 --> 0:01:45.399 Thanks Tom. I'd say that, like obviously, the world we 0:01:45.440 --> 0:01:48.040 are heading into in the coming years would be quite 0:01:48.080 --> 0:01:50.880 different from the one that we are quite accustomed to. 0:01:51.160 --> 0:01:55.120 We are probably entering an era of de globalization. We 0:01:55.160 --> 0:01:58.240 are all quite aware of the Liberasi and data tariffs 0:01:58.760 --> 0:02:01.720 that Trump announced, and also the escalation of the trade 0:02:01.720 --> 0:02:05.240 war between US and China, and so our job is 0:02:05.280 --> 0:02:09.920 to quantify how those terraffs would impact oil sector for 0:02:10.000 --> 0:02:12.720 oil demand, the way that we think about it is 0:02:13.080 --> 0:02:17.440 WACH countries and WACH sectors are most reliant on. 0:02:17.440 --> 0:02:18.280 Trade for growth. 0:02:18.520 --> 0:02:21.880 So that would be developing countries in particular because those 0:02:21.919 --> 0:02:26.080 countries are more dependent on trade for growth, and the 0:02:26.280 --> 0:02:29.399 sectors that are more dependent on trade are manufacturing sectors. 0:02:29.560 --> 0:02:34.320 And because the manufacturing sector, and we know automobile manufacturing 0:02:34.520 --> 0:02:36.920 is a segment that has been hit pretty hard, the 0:02:37.000 --> 0:02:41.240 consumption of raw materials also drops. So the consumption are steel, iron, 0:02:41.280 --> 0:02:43.880 ore and whatnot also drops. And that also heats metals 0:02:43.880 --> 0:02:47.119 and mining. So because the metals, mining and manufacturing sectors 0:02:47.240 --> 0:02:50.840 are sectors that are energy intensive, so that has a 0:02:51.160 --> 0:02:54.919 pronounced impact on oil demand and the type of oil 0:02:54.919 --> 0:02:57.800 products that you will typically use in intric manufacturing sector 0:02:57.800 --> 0:03:00.520 as well as the mining sectors are diesel, an AFTA, 0:03:00.680 --> 0:03:04.800 fuel oil basically industrial fuels, but also bunker fuels. 0:03:04.919 --> 0:03:06.200 So we are a. 0:03:06.120 --> 0:03:10.560 Little bit more precautious in our outlook for diesel, fuel 0:03:10.600 --> 0:03:14.080 oil and AFTA. We have cut so far three hundred 0:03:14.280 --> 0:03:17.399 and ten thousand barrels per day of oil demand from 0:03:17.440 --> 0:03:19.360 the libration day tarrafs alone. 0:03:19.639 --> 0:03:22.600 And what is that as a percentage of global oil demand? 0:03:22.680 --> 0:03:24.640 Just for those of us who are not following the 0:03:24.680 --> 0:03:26.320 market as closely, it's. 0:03:26.160 --> 0:03:30.720 Something like zero five percent. However, there was an escalation 0:03:30.880 --> 0:03:34.040 of the TIFO tet terriers right between US and China, 0:03:34.320 --> 0:03:37.440 and so a key segment of growth for oil demand 0:03:37.520 --> 0:03:41.880 has been China's petrochemical sector. So the petrochlamical sector consumes 0:03:41.880 --> 0:03:44.800 a lot of LPG, which is liquified petrolum gas as 0:03:44.800 --> 0:03:48.600 well as ethane, and China imports a lot of natural 0:03:48.640 --> 0:03:51.520 gas liquids from the US which they will then convert 0:03:51.560 --> 0:03:55.520 into petrochemical fists such as lpgn ETHNE. So because we 0:03:55.720 --> 0:03:59.960 no longer expect China to import much, if any natural 0:04:00.040 --> 0:04:02.720 guessloicids from the US, we think that they would struggle 0:04:02.720 --> 0:04:03.800 to replace. 0:04:03.840 --> 0:04:06.240 NGAIL imports from the US. They would have to look 0:04:06.280 --> 0:04:08.160 to our Middle Eastern suppliers. 0:04:08.200 --> 0:04:10.440 But ultimately we think that they would struggle to replace 0:04:10.960 --> 0:04:14.160 US in parts of NGLs. And so we further reduced 0:04:14.320 --> 0:04:17.560 China's or demand, particularly in the petrochemical sector, by another 0:04:17.600 --> 0:04:20.120 two hundred thousand verse perdy. So overall, our new es 0:04:20.120 --> 0:04:22.080 demate right now is a little over half a million 0:04:22.160 --> 0:04:24.080 verus per day of impact to demand. 0:04:24.279 --> 0:04:26.480 And I mean, I know you mentioned that a lot 0:04:26.520 --> 0:04:30.560 of this impact is concentrated in emerging markets. How much 0:04:30.600 --> 0:04:32.719 downside risk for demand do you see in the US, 0:04:32.880 --> 0:04:36.400 which is obviously itself a huge consumer of oil products. 0:04:36.680 --> 0:04:38.520 I've got in my notes here that makes up over 0:04:38.560 --> 0:04:40.960 twenty percent of global demand volume in twenty twenty four. 0:04:41.120 --> 0:04:44.560 So I realized that there's how these tariffs affect everyone 0:04:44.560 --> 0:04:46.560 who is in the US. But how does the tariffs 0:04:46.600 --> 0:04:49.360 and the counter tariffs we're hearing about potentially effect demand 0:04:49.400 --> 0:04:50.400 from the US. 0:04:50.720 --> 0:04:53.960 There was actually like two over arching scenarios for this, 0:04:54.279 --> 0:04:57.200 for the trade war or other, how every country in 0:04:57.240 --> 0:05:01.200 the world would react to the libration day tariffs. First reaction, 0:05:01.800 --> 0:05:04.760 which will be kind of good for the US, is 0:05:04.920 --> 0:05:08.719 if everyone is sort of looking to make a deal 0:05:08.760 --> 0:05:12.440 with the US right. The second outcome is if the 0:05:12.480 --> 0:05:15.159 rest of the countries, particularly the media trading partners, are 0:05:15.200 --> 0:05:18.680 a little bit more combative, so they are looking at 0:05:18.720 --> 0:05:22.400 retatory measures such as from China, but also to some 0:05:22.480 --> 0:05:26.680 extent the EU and Canada, and in that scenario US 0:05:26.720 --> 0:05:29.040 actually gets hit a lot harder than the first scenario. 0:05:29.279 --> 0:05:33.240 So the first scenario is where Trump's tariffs go according 0:05:33.240 --> 0:05:36.400 to plan, and so US demand is a lot more solid. 0:05:36.520 --> 0:05:40.000 And the second one is that the world responds aggressively, 0:05:40.200 --> 0:05:43.599 and that would have a downside impact on US oil 0:05:43.640 --> 0:05:45.960 demand and therefore global world demand precisely. 0:05:46.040 --> 0:05:50.240 So it does seem like the second scenario is more 0:05:50.279 --> 0:05:52.800 likely to happen in some shape or form, and so 0:05:52.839 --> 0:05:55.960 we think that the risk to oil demand in the 0:05:56.080 --> 0:05:59.719 US is pretty high. We actually estimate a demand impact 0:05:59.760 --> 0:06:02.120 of around one hundred and fifty thousand births per day 0:06:02.279 --> 0:06:04.599 downside to all the money in the US, and it 0:06:04.600 --> 0:06:08.560 will be across different sectors because when you know, prices 0:06:08.640 --> 0:06:11.400 increase due to the terriffs, people spend less and people 0:06:11.400 --> 0:06:15.160 spend less, particular retail consumers span less, gasoline demand falls, 0:06:15.240 --> 0:06:18.440 people lose their jobs, and people would also spend less 0:06:18.440 --> 0:06:19.159 on air. 0:06:19.040 --> 0:06:22.400 Travel and whatnot. So the impact will be across different segments. 0:06:22.440 --> 0:06:25.000 And so you can see from our estimates and the 0:06:25.040 --> 0:06:28.680 monthly report published that the negative impact of demand is 0:06:28.680 --> 0:06:31.200 is pretty well distributed across the barrel. 0:06:31.480 --> 0:06:33.360 Before we started to talk about the US, I think 0:06:33.360 --> 0:06:36.560 you said we've gotten estimated downside of was it two 0:06:36.640 --> 0:06:37.960 hundred thousand barrels per day? 0:06:38.320 --> 0:06:39.680 That's to North America. 0:06:39.760 --> 0:06:43.720 So, because Canada is also very exposed to the US economy, 0:06:43.720 --> 0:06:45.960 and if the US doesn't do very well moving ahead, 0:06:46.120 --> 0:06:47.720 Canada would also. 0:06:47.520 --> 0:06:49.160 Be hit pretty hard as well as Mexico. 0:06:49.200 --> 0:06:52.280 Actually, so Mexico and Canada gets hit very hard if 0:06:52.279 --> 0:06:53.599 the US economy is loose. 0:06:54.240 --> 0:06:56.800 So Wayne, we talked about the demand risks and the 0:06:57.160 --> 0:06:59.839 sort of the downside from the tariffs. That of course 0:07:00.200 --> 0:07:03.680 ignores the fact that also these tariffs could potentially impact supply, 0:07:03.880 --> 0:07:07.440 or this brilliant global trade war could impact supplies. So 0:07:07.480 --> 0:07:09.080 tell us about that a little bit. 0:07:09.480 --> 0:07:13.640 So when de month falls, oil prices fall, and that's 0:07:13.680 --> 0:07:16.800 a natural headwind for oil production because where oil prices 0:07:16.800 --> 0:07:19.680 are load producers are less incentivized to produce more right, 0:07:19.800 --> 0:07:22.560 they'd rather keep you know, oil underground if they can, 0:07:22.800 --> 0:07:26.560 or in storage. However, our analysis suggest that a lot 0:07:26.600 --> 0:07:29.880 of the break events, particularly in the US, the show 0:07:29.920 --> 0:07:33.440 oil plays well in the fifties or forties, even the thirties. 0:07:33.960 --> 0:07:34.520 Some of the. 0:07:34.680 --> 0:07:38.000 Other fast growing producers at Guiana, they have break events 0:07:38.040 --> 0:07:39.720 of that is even lower than that. 0:07:39.840 --> 0:07:41.400 It's like in the twenties and thirties. 0:07:41.600 --> 0:07:43.720 Can can you just explain quickly what we mean by 0:07:43.920 --> 0:07:45.840 break events, what these numbers mean. 0:07:46.360 --> 0:07:50.000 So break even is the price point where a producer 0:07:50.440 --> 0:07:54.480 is able to cover its operating costs of producing a 0:07:54.480 --> 0:07:55.120 betre of oil. 0:07:55.360 --> 0:07:58.160 So if we say a break even the twenty five 0:07:58.200 --> 0:08:01.120 you mean when the oil price is above twenty five 0:08:01.160 --> 0:08:04.000 dollars borol per day, that producers should be able to 0:08:04.040 --> 0:08:05.080 operate profitably. 0:08:05.160 --> 0:08:05.720 Is that right? 0:08:05.920 --> 0:08:08.360 Yeah, at a break even, So any higher than a 0:08:08.400 --> 0:08:10.840 break even point it would be in an operating profit 0:08:11.000 --> 0:08:14.400 to be precise, Currently prices are still well above sixty. 0:08:14.640 --> 0:08:16.840 When we look at WTIM brands. 0:08:16.480 --> 0:08:19.560 We do not see a lot of negative impact to 0:08:20.000 --> 0:08:22.840 global oil production at least as of right now, but 0:08:22.920 --> 0:08:24.960 we do think that it would impact growth a lot 0:08:25.120 --> 0:08:27.320 for next year, although we haven't really come out of 0:08:27.320 --> 0:08:30.680 an estimate, but because prices are by and large are 0:08:30.720 --> 0:08:33.680 lower now and they are much closer to break events now, 0:08:33.960 --> 0:08:37.040 so it's quite likely that our companies will practice prudence 0:08:37.360 --> 0:08:40.439 when it comes to expanding their production, and they could 0:08:40.559 --> 0:08:44.880 more likely prioritize other things like dividend payouts, share buybacks, 0:08:45.080 --> 0:08:45.760 that kind of stuff. 0:08:45.760 --> 0:08:48.200 Physical discipline. So that's one part of the equation. 0:08:48.440 --> 0:08:51.120 But on the supply side, the biggest factor so far, 0:08:51.520 --> 0:08:54.800 and the main reason why oil prices haven't really crashed 0:08:55.120 --> 0:08:59.439 as much as we anticipated, is because of President Trump 0:09:00.000 --> 0:09:06.239 basically ended any foreign entities ability to export oil from Venezuela. 0:09:06.360 --> 0:09:10.080 So we've actually cut our estimates of Venezuela's OI production 0:09:10.280 --> 0:09:13.280 by about three hundred thousand barros per day from May onwards. 0:09:13.360 --> 0:09:17.040 And any country that that intends to import Venezuelan oil 0:09:17.320 --> 0:09:20.520 will be subjected to twenty five percent import terrifs from 0:09:20.520 --> 0:09:23.240 the US. So they called that secondary tariffs. 0:09:23.480 --> 0:09:27.800 So three hundred thousand barrels per day effectively cut from 0:09:27.840 --> 0:09:30.360 the global market from Venezuela. And can you just remind 0:09:30.400 --> 0:09:33.040 us what the number you said was the downside for 0:09:33.160 --> 0:09:36.760 supply with all of this global turmoil. 0:09:36.640 --> 0:09:40.679 It's roughly equivalent to half of the downside to demand 0:09:40.960 --> 0:09:43.439 due to the terriffs as well as the tip for 0:09:43.520 --> 0:09:44.920 tet between China and the US. 0:09:45.240 --> 0:09:48.120 So it was around six hundred thousand was the downside 0:09:48.120 --> 0:09:51.920 in demand, And we just think just from Venezuela and this, Yeah, 0:09:51.920 --> 0:09:54.800 three hundred thousand. Also I read a new report that 0:09:54.840 --> 0:09:58.000 there's also been threats to do something similar for Russian 0:09:58.000 --> 0:10:01.440 oil and around as well, So yeah, took us through that. 0:10:01.840 --> 0:10:04.960 Yeah, so I think it's more the res is higher 0:10:05.000 --> 0:10:05.520 for Iran. 0:10:05.640 --> 0:10:09.240 So basically President Donald US President Donna Trump is threatening 0:10:09.320 --> 0:10:13.480 similar terrors on Iran and Russia, and so the market 0:10:13.559 --> 0:10:16.240 is gradually pricing in that risk, which is why I 0:10:16.400 --> 0:10:19.040 price US sticked up in the last few days. Basically, 0:10:19.040 --> 0:10:23.040 traders are gradually pricing in risks of supply disruption from 0:10:23.080 --> 0:10:25.320 those two countries, in particularly Iran. 0:10:25.800 --> 0:10:28.080 This is so interesting it kind of will lead on 0:10:28.080 --> 0:10:30.080 to my next question, which which I'll get into it 0:10:30.120 --> 0:10:33.959 in a moment. But in effect, US foreign foreign policy, 0:10:34.160 --> 0:10:39.480 specifically President Donald Trump's foreign policy has had an impact 0:10:39.600 --> 0:10:42.440 on the outlook for global oil demand via his tariff 0:10:42.480 --> 0:10:45.240 strategy and how that is going to affect global economy 0:10:45.240 --> 0:10:48.400 generally and the disruptions there, and then also through specific 0:10:48.720 --> 0:10:53.080 geopolitical leavers. His policies are impacting the outlook for supply 0:10:53.160 --> 0:10:56.679 by about an equal amount. So the price outlook I'm 0:10:56.679 --> 0:11:00.760 presuming isn't changing that much in the near term. Certainly, 0:11:00.800 --> 0:11:04.480 the US's impact on the market is a lot more 0:11:04.520 --> 0:11:08.400 significant than it was, which kind of leads me to 0:11:08.920 --> 0:11:13.400 asking about OPEK and their decision of OPEK plus to 0:11:13.480 --> 0:11:16.000 accelerate the easing of production cuts for the month of 0:11:16.040 --> 0:11:18.640 me and I want to just pick up on something 0:11:18.679 --> 0:11:24.840 you said earlier about suppliers practicing fiscal discipline, returning dividends 0:11:24.880 --> 0:11:30.640 to shareholders, and that became the paradigm for the oil market, 0:11:30.720 --> 0:11:33.480 to my understand particularly the shale industry, which was at 0:11:33.480 --> 0:11:36.960 the time the marginal barrel around twenty twenty, because there 0:11:37.000 --> 0:11:39.520 was a drop in global oil demand because of the 0:11:39.559 --> 0:11:44.840 COVID pandemic, and then OPEK plus agreed to increase output, 0:11:44.880 --> 0:11:48.040 which absolutely crashed the oil price and was sort of 0:11:48.120 --> 0:11:51.160 devastating for those shell producers which up until that point 0:11:51.200 --> 0:11:54.679 had been getting cheap capital with the understanding that expansion 0:11:54.840 --> 0:11:57.120 of supply was the goal. Son after that it was 0:11:57.480 --> 0:12:00.840 they were very much rained in and were operating in 0:12:00.880 --> 0:12:04.000 a much more conservative fashion and following that paradigm that 0:12:04.040 --> 0:12:07.880 you described, fiscal discipline, return value to shareholders. So where 0:12:07.920 --> 0:12:10.560 I'm going with this is, at the time, it really 0:12:10.559 --> 0:12:13.079 felt like, in this moment of chaos and the COVID 0:12:13.120 --> 0:12:16.080 pandemic and the US at the time exerting itself more 0:12:16.120 --> 0:12:18.800 on global oil markets, OPEK did this thing that kind 0:12:18.800 --> 0:12:21.720 of really reminded everyone who was in charge and sort 0:12:21.720 --> 0:12:24.960 of set the narrative along terms that were favorable to 0:12:25.040 --> 0:12:27.960 OPEK and in particular sort of really slowed down this 0:12:28.000 --> 0:12:30.000 expansion of US shale. Do you think this is a 0:12:30.040 --> 0:12:33.040 similar kind of play that in the middle all of 0:12:33.080 --> 0:12:35.360 this chaos that's happening, all of this this change and 0:12:35.360 --> 0:12:37.640 a lot of it centering around the US, OPEK is 0:12:37.840 --> 0:12:41.240 increasing output and really reminding the oil market. You know, 0:12:41.280 --> 0:12:42.120 who's in charge. 0:12:42.360 --> 0:12:43.160 That's a great question. 0:12:43.200 --> 0:12:45.520 Actually, I mean the way that we think about it 0:12:45.559 --> 0:12:48.880 is the OPEK PLUS, which stands for the Organization of 0:12:48.960 --> 0:12:53.079 Petroleum Exporting Countries history over arching strategies. 0:12:53.280 --> 0:12:55.080 So the first is what you mentioned. 0:12:55.440 --> 0:12:58.320 We just to protect market share or even to expand 0:12:58.320 --> 0:13:03.040 the market share by increasingduction, which crashes prices oil prices 0:13:03.040 --> 0:13:05.280 so that non no pepe plass producers will be more 0:13:05.320 --> 0:13:07.720 careful right with exercise fiscal discipline. 0:13:08.120 --> 0:13:10.800 There are two other oter strategies that we can think of. 0:13:11.000 --> 0:13:14.480 So the second one is actually cutting production, right the 0:13:14.520 --> 0:13:18.360 obvious one, and that's to support prices to hopefully increase 0:13:18.400 --> 0:13:21.199 overall revenue. And that is what OPAC class has been 0:13:21.240 --> 0:13:25.520 doing for almost the entire period since COVID hit, so 0:13:25.840 --> 0:13:29.920 they have been basically putting a restraint on production since then. 0:13:30.280 --> 0:13:33.120 There's actually a third one, which is to preserve unity 0:13:33.160 --> 0:13:37.040 within OPEC plus. So what we've seen in especially in 0:13:37.080 --> 0:13:41.960 the last two months. Is Kazakhstan overproducing significantly against their 0:13:42.040 --> 0:13:45.320 production quotas. The problem that Kazakhstan is facing is actually 0:13:45.320 --> 0:13:48.280 because they have a lot of independent oil producers. Basically, 0:13:48.320 --> 0:13:51.120 they have US and European oil companies operating in the 0:13:51.120 --> 0:13:54.520 country and they do not have any incentive to abide 0:13:54.559 --> 0:13:57.960 by Kazakhstans or black class targets, right they are like 0:13:58.040 --> 0:14:01.040 they only care about profit and loss. So Kazakhstan has 0:14:01.080 --> 0:14:05.000 been overproducing and they actually had new capacity coming online 0:14:05.080 --> 0:14:07.800 in its largest oil field, the tank Is Feel and 0:14:07.800 --> 0:14:10.680 that actually boosted production in the last couple of months. 0:14:10.840 --> 0:14:13.800 Since February and March it grew by even more, and 0:14:13.840 --> 0:14:16.680 so that created a lot of feelings of unfairness within 0:14:16.720 --> 0:14:20.240 old back Plus, why is Kazakhstan able to overproduce by 0:14:20.240 --> 0:14:23.440 so much? And so I think the group as a whole, 0:14:23.680 --> 0:14:26.200 particularly Saudi Arabia, which which kind of leads the group 0:14:26.240 --> 0:14:28.760 and has most to lose if O back plast unity 0:14:28.760 --> 0:14:32.760 falls apart, a push for an easing of production cards 0:14:32.880 --> 0:14:36.000 so as to kind of preserve that unity within the 0:14:36.040 --> 0:14:39.480 member countries, because we've seen what happens when the unity 0:14:39.520 --> 0:14:42.680 falls apart. So back in March or April twenty twenty, 0:14:42.800 --> 0:14:45.760 Saudia and Russia couldn't agree to a production target, and 0:14:45.840 --> 0:14:49.720 so overnight they produced however much they wanted or supplied 0:14:49.800 --> 0:14:51.840 rules by I think it was something like ten million 0:14:51.880 --> 0:14:55.280 barrels per day just overnight, and that obviously was inconvenient 0:14:55.320 --> 0:14:58.800 timing because demand was also crashing, and so that led 0:14:58.800 --> 0:15:01.520 to negative aidprisers. So I think what OPEC PLUSZ is 0:15:01.520 --> 0:15:03.680 trying to do is to avoid that from happening. And 0:15:03.720 --> 0:15:06.239 that really stemmed from Kazakhstan overproducing. 0:15:06.640 --> 0:15:08.920 So that's interesting. So it's not really like I was, 0:15:09.160 --> 0:15:11.720 you know, my theory, which was this is another decisive 0:15:11.840 --> 0:15:15.000 move to bring oil producers globally in line. This is 0:15:15.040 --> 0:15:19.320 more of a gentle concession to some of OPEC plus's 0:15:19.360 --> 0:15:22.800 own members to try and have targets that are achievable 0:15:22.840 --> 0:15:25.520 that everyone can say is fair. It may very well. 0:15:25.320 --> 0:15:28.080 Be partly due to preserving market. 0:15:27.760 --> 0:15:31.160 Share, but the key, I would say, the key change 0:15:31.520 --> 0:15:34.360 is that Kazakhstan started to really ramp up production in 0:15:34.360 --> 0:15:37.000 the last two months. I mean, you could argue that 0:15:37.120 --> 0:15:40.640 OPEK plus could have increased production last year, right, why 0:15:40.640 --> 0:15:43.680 didn't they do so earlier? Because non OPEC plus suppli 0:15:43.680 --> 0:15:46.080 has been growing over the last few years already. Why 0:15:46.120 --> 0:15:48.280 didn't OPEK plus do anything right? Why do the opet 0:15:48.280 --> 0:15:51.000 plas only choose to take action one day after the 0:15:51.040 --> 0:15:53.440 LIB version day tarries were announced, which is such a 0:15:53.480 --> 0:15:56.760 sensitive timing. And I think that that's slightly because Kazakhstan 0:15:56.800 --> 0:15:59.040 started to ramp up production a lot, and that is 0:15:59.040 --> 0:16:01.040 a pretty recent devent, got it. 0:16:01.200 --> 0:16:03.960 I suppose sort of a broader question I have before 0:16:04.000 --> 0:16:06.240 we move on to was we're on the topic of OPEK, 0:16:06.400 --> 0:16:09.160 but this idea of you know, OPEK has operated on 0:16:09.320 --> 0:16:12.320 unity and discipline, and I wouldn't say, you know, it's 0:16:12.360 --> 0:16:16.240 ever been perfect, But I've always wondered whether that unity 0:16:16.280 --> 0:16:19.240 and discipline is possible in a world of falling oil 0:16:19.280 --> 0:16:23.360 demand or slow or slower growth, because that organization has 0:16:23.440 --> 0:16:26.160 always existed in a world where year on year oil 0:16:26.160 --> 0:16:28.800 demand pretty much every year has grown. So maybe this 0:16:28.880 --> 0:16:31.640 sort of discipline around production is has always been maybe 0:16:31.760 --> 0:16:35.640 easier to stomach because the growth has enabled high prices 0:16:35.840 --> 0:16:38.520 and without having to cut too hard. I realized, you know, 0:16:38.760 --> 0:16:43.280 there's this specific issue around non government independent producers operating 0:16:43.320 --> 0:16:46.520 in Kazakhstan, But is it maybe a omen of what 0:16:46.560 --> 0:16:50.440 could potentially happen with OPEK as oil demand growth slows 0:16:50.480 --> 0:16:52.760 with you know, the electric vehicles revolution and maybe even 0:16:52.800 --> 0:16:55.600 peaks and starts to decline. Is this unity really going 0:16:55.640 --> 0:16:58.200 to persist? Is it possible for OPEC to continue to 0:16:58.240 --> 0:17:00.480 operate the way it has in the last have many 0:17:00.520 --> 0:17:03.480 decades for the next you know, two or three decades 0:17:03.880 --> 0:17:07.479 given what we we fail about you know, global oil demand. 0:17:08.080 --> 0:17:14.560 Well, OPEC class producers are mostly export to growth regions, 0:17:14.560 --> 0:17:18.400 particularly in the East of Swiss, so that includes Asia, 0:17:18.680 --> 0:17:22.560 which by and large is still a key growth region 0:17:22.720 --> 0:17:27.520 for oil demand, so the pie for them is still expanding. 0:17:27.800 --> 0:17:31.399 We are right to say that globally oil demand growth 0:17:31.480 --> 0:17:34.439 is slowing, but it is still growing and we do 0:17:34.520 --> 0:17:39.080 not expect oil demand for geometrically to pay until like 0:17:39.280 --> 0:17:42.080 the early to mid twenty thirties as of now our 0:17:42.119 --> 0:17:46.520 current estimates, so that's still a long runway until we 0:17:46.560 --> 0:17:47.439 get to that point. 0:17:47.760 --> 0:17:48.919 I think that. 0:17:49.400 --> 0:17:53.600 OPAC class would still be incentivized to preserve the unity 0:17:53.840 --> 0:17:57.200 in the coming years, even in the coming months, even 0:17:57.240 --> 0:17:59.920 in the immediate term, because if they do not do that, 0:18:00.320 --> 0:18:03.080 everyone loses out right, well, all. 0:18:02.960 --> 0:18:05.960 Of OPEC plus loses out, I mean, everyone else could 0:18:05.960 --> 0:18:07.280 benefit from really cheap oil. 0:18:08.200 --> 0:18:11.359 Yeah, Like, basically, a lot of these member countries don't 0:18:11.480 --> 0:18:17.600 have these spare government reserves to tie through an extended 0:18:17.720 --> 0:18:21.880 period of very low oil prices, and so as much 0:18:21.960 --> 0:18:25.240 as they could go on a more aggressive strategy to 0:18:25.440 --> 0:18:28.960 really ramp up production to price out non OPEC past producers, 0:18:29.359 --> 0:18:31.360 they may not have the ability to do so. And 0:18:31.640 --> 0:18:34.840 it is in ORPEC plus self interest to continue to 0:18:34.920 --> 0:18:37.720 maintain united going ahead because it benefits all of them. 0:18:37.800 --> 0:18:38.240 Basically. 0:18:38.520 --> 0:18:41.040 Yeah, So what I'm I'm kind of hearing from you, 0:18:41.040 --> 0:18:44.000 We're in this moment of a lot of turmoil around 0:18:44.000 --> 0:18:48.240 oil markets. We've got the US both imposing tariffs, also 0:18:48.520 --> 0:18:54.879 taking positions on Venezuela, Russia, Iran. It's a very dicey moment, 0:18:55.000 --> 0:18:58.119 and then we have maybe on the horizon this prospect 0:18:58.320 --> 0:19:01.600 of a slow down in growth and then declining demand. 0:19:01.920 --> 0:19:05.120 So right now, the thing that you're saying is critical 0:19:05.160 --> 0:19:07.040 to OPEC plus that a lot of it's focused on 0:19:07.200 --> 0:19:09.880 is just building that unity because it's going to need 0:19:09.920 --> 0:19:12.960 it more than ever as the market dynamics change. Is 0:19:13.160 --> 0:19:16.360 that what I'm hearing is OPEC plus's current actions are 0:19:16.359 --> 0:19:18.560 not about flexing its muscles for the rest of the world. 0:19:18.720 --> 0:19:22.000 It's about growing that sort of consensus among the group. 0:19:22.480 --> 0:19:26.520 Yeah, precisely, when growth are slower, there is less room. 0:19:26.400 --> 0:19:28.280 For chaos right within the group. 0:19:28.359 --> 0:19:31.479 Yeah, because if our demand grows significantly and your production 0:19:31.560 --> 0:19:34.120 increas significantly, that impact wouldn't be as bed as if 0:19:34.280 --> 0:19:37.360 demand growth slows and supply grows significantly. 0:19:38.080 --> 0:19:40.240 Use an expression earlier, by the way, which I've never 0:19:40.280 --> 0:19:42.280 heard before. I presume this is an oil market thing, 0:19:42.280 --> 0:19:44.280 but I'm going to try and use this in conversation. 0:19:44.440 --> 0:19:47.440 Think you said east of Suez? Is that? Did you 0:19:47.480 --> 0:19:50.200 say east of Sewers? So speaking of east of Sewers, 0:19:50.800 --> 0:19:53.720 let's talk about China, the world's second largest economy, which 0:19:53.800 --> 0:19:59.040 obviously is a significant part of future demand growth, but 0:19:59.240 --> 0:20:03.760 is also a major driver of future demand destruction, particularly 0:20:04.040 --> 0:20:07.719 because of the country's integral role in the emerging electric 0:20:07.840 --> 0:20:12.360 vehicle market. So China's adopting electric vehicles at pace, how 0:20:12.400 --> 0:20:14.879 significant a shift are we seeing away from internal combustion 0:20:14.960 --> 0:20:15.720 engine vehicles. 0:20:16.119 --> 0:20:20.320 We actually track the seales of cars by different field 0:20:20.320 --> 0:20:23.280 type or what we call drive trains in China pretty closely, 0:20:23.480 --> 0:20:27.439 and with what we saw is that the sales of 0:20:27.680 --> 0:20:31.359 gasoline cars in China actually picked eight years ago in 0:20:31.480 --> 0:20:35.400 twenty seventeen, and it's been declining really really quickly since then, 0:20:35.680 --> 0:20:39.120 just under ten percent every year compounded, and that is 0:20:39.160 --> 0:20:43.240 if you include hybrid non pluging gasoline hybrid cars, right, 0:20:43.280 --> 0:20:45.760 So it's falling very quickly, and a lot of that 0:20:45.920 --> 0:20:49.919 seals have been replaced by battery electric vehicle and we 0:20:50.000 --> 0:20:53.440 include plug in hybrids as well in that category. And 0:20:53.480 --> 0:20:56.000 the reason why the seals, we think the sales of 0:20:56.160 --> 0:20:58.520 evs have been very strong, obviously, is due to policies 0:20:58.560 --> 0:21:02.640 upon in China, particularly something called the vehicle scrab page program, 0:21:02.840 --> 0:21:07.159