WEBVTT - Damien Courvalin on OPEC+ (Audio)

0:00:00.000 --> 0:00:01.920
<v Speaker 1>All right, let's get to our next guest. We have

0:00:01.960 --> 0:00:05.400
<v Speaker 1>a Damian a coop Alan. He's had of energy research

0:00:05.480 --> 0:00:07.800
<v Speaker 1>at Goldman Sex to having looked at an OPEQE plus

0:00:07.840 --> 0:00:11.000
<v Speaker 1>decision two million barrels a day cut. But that does

0:00:11.080 --> 0:00:14.080
<v Speaker 1>not does it, to day mean translate into a supply

0:00:14.240 --> 0:00:16.119
<v Speaker 1>cut of two million barrels a day? How much does

0:00:16.160 --> 0:00:21.480
<v Speaker 1>it realistically move the needle with oil output? Yeah, exactly.

0:00:21.600 --> 0:00:25.680
<v Speaker 1>So the headline cut two million translates roughly into about

0:00:25.680 --> 0:00:30.000
<v Speaker 1>a million bills pretty of actual production reduction in the

0:00:30.040 --> 0:00:32.800
<v Speaker 1>short run. You know, we had expected OPEC output to

0:00:32.840 --> 0:00:34.840
<v Speaker 1>grow a little bit next year, so that becomes more

0:00:34.920 --> 0:00:37.479
<v Speaker 1>like a one point three million barrels today, So it's

0:00:37.520 --> 0:00:39.639
<v Speaker 1>not as big as the headline, but it still is

0:00:39.680 --> 0:00:44.080
<v Speaker 1>a significant reduction in output from the group today. It

0:00:44.159 --> 0:00:45.920
<v Speaker 1>sets up a little bit of a battle between the

0:00:45.920 --> 0:00:52.000
<v Speaker 1>Biden administration and OPEQ plus. OPEC plus is looking to

0:00:52.200 --> 0:00:54.440
<v Speaker 1>you know, support prices and the president wants to bring

0:00:54.520 --> 0:00:58.280
<v Speaker 1>them down. Uh. Does this become sort of open warfare

0:00:58.400 --> 0:01:04.440
<v Speaker 1>or is it just kind of subtle, behind the scenes maneuvering. Yes,

0:01:04.520 --> 0:01:07.160
<v Speaker 1>So maybe it's worth taking a step back to understand

0:01:07.560 --> 0:01:09.800
<v Speaker 1>the genesis of the cut. You can look at it

0:01:10.319 --> 0:01:12.760
<v Speaker 1>along three different dimensions. The first one is the pricer

0:01:12.800 --> 0:01:18.760
<v Speaker 1>down there are significant concerns where potential economic hard landing

0:01:19.360 --> 0:01:23.760
<v Speaker 1>and so OPEC is adjusting supply in response. Um. Your

0:01:23.800 --> 0:01:27.840
<v Speaker 1>second oil has actually underperformed many out of the of

0:01:27.880 --> 0:01:31.520
<v Speaker 1>the other cyclical assets over the last several months. It's

0:01:31.560 --> 0:01:35.720
<v Speaker 1>really fallen a lot more than equities, for example. And

0:01:35.959 --> 0:01:38.800
<v Speaker 1>that's the second approach is there has been a disconnect

0:01:38.840 --> 0:01:43.360
<v Speaker 1>between oil fundamental still relatively tight, and oil prices themselves,

0:01:43.720 --> 0:01:47.319
<v Speaker 1>and this cut helps to correct the two in our view.

0:01:47.760 --> 0:01:50.160
<v Speaker 1>And the third one, as you said, is this divergence

0:01:50.400 --> 0:01:55.200
<v Speaker 1>in desired outcome lower energy prices gasoline price in the

0:01:55.280 --> 0:01:58.880
<v Speaker 1>US and higher prices for any oil producer. I think

0:01:58.920 --> 0:02:01.480
<v Speaker 1>at the end of the day, the outcome has to

0:02:01.480 --> 0:02:04.520
<v Speaker 1>be above current prices because as we look at the

0:02:04.600 --> 0:02:07.240
<v Speaker 1>last several years, what we've seen now is just structural

0:02:07.320 --> 0:02:10.280
<v Speaker 1>under investment UM and so you know, when you try

0:02:10.280 --> 0:02:13.880
<v Speaker 1>to combine the two views, you ultimately end up requiring

0:02:13.880 --> 0:02:17.359
<v Speaker 1>a higher price because investment is just not happening. And

0:02:17.480 --> 0:02:22.000
<v Speaker 1>this will actually prolong the period of below trend economic

0:02:22.040 --> 0:02:24.720
<v Speaker 1>growth because you're simply not growing supply enough to grow

0:02:24.760 --> 0:02:27.959
<v Speaker 1>the global economy fast enough. So it's really then about

0:02:28.040 --> 0:02:30.679
<v Speaker 1>a time horizon. Right. Yes, in the short term or

0:02:30.760 --> 0:02:33.840
<v Speaker 1>gasoline prices may be prefer in the US, but unfortunately

0:02:33.840 --> 0:02:36.120
<v Speaker 1>the measures that have been deployed to achieve that, think

0:02:36.440 --> 0:02:39.960
<v Speaker 1>spr release for example, are not sustainable solutions. You do

0:02:40.120 --> 0:02:43.320
<v Speaker 1>need higher prices to finally get investments flowing, and that

0:02:43.560 --> 0:02:46.760
<v Speaker 1>is eventually where oil prices have to go. Damon, why

0:02:46.760 --> 0:02:50.560
<v Speaker 1>are Western nations of wasting that time putting price cuts

0:02:50.600 --> 0:02:53.760
<v Speaker 1>on Russian oil which is already a sanctioned b They

0:02:53.760 --> 0:02:57.119
<v Speaker 1>couldn't care less about what the West doesn't. Secondly, it's

0:02:57.160 --> 0:03:01.480
<v Speaker 1>a China and India buying the stuff anyway. Yeah, So

0:03:01.560 --> 0:03:04.240
<v Speaker 1>I think the key here is really that Europe has

0:03:04.240 --> 0:03:06.840
<v Speaker 1>two embargoes in place at this time. There is a

0:03:06.880 --> 0:03:10.760
<v Speaker 1>physical embargo that kicks in starting in December, and that

0:03:10.880 --> 0:03:14.880
<v Speaker 1>there's this financial embargo on shipping insurance. So the price

0:03:14.919 --> 0:03:17.920
<v Speaker 1>cap tries to avoid the second or replace the second,

0:03:18.280 --> 0:03:20.240
<v Speaker 1>But at the end of the day, the first one

0:03:20.280 --> 0:03:24.240
<v Speaker 1>is what ultimately forces Russian exports to be diverted. It's

0:03:24.280 --> 0:03:27.880
<v Speaker 1>the one that creates production losses and ultimately yet China

0:03:27.880 --> 0:03:32.200
<v Speaker 1>and India to benefit from lower oil prices. That's the one. Unfortunately,

0:03:32.280 --> 0:03:35.360
<v Speaker 1>that is you know, at this point inconceivable to lift.

0:03:35.760 --> 0:03:37.960
<v Speaker 1>So the price cabin itself doesn't really matter to the

0:03:38.000 --> 0:03:42.080
<v Speaker 1>outlook for oil production globally. You know, Russia is being sanctioned,

0:03:42.120 --> 0:03:45.080
<v Speaker 1>is having to redivert barrels. That's not an easy process

0:03:45.080 --> 0:03:47.800
<v Speaker 1>in terms of boats, in terms of refineries. And that's

0:03:47.840 --> 0:03:50.200
<v Speaker 1>the supply laws that on top of the open cut

0:03:50.320 --> 0:03:52.440
<v Speaker 1>will be coming at the end of this year. It's

0:03:52.560 --> 0:03:56.000
<v Speaker 1>puts Europe and the West in a very difficult position, unfortunately,

0:03:56.120 --> 0:03:59.960
<v Speaker 1>as your sanction of the ultimately do create those supply losses.

0:04:00.520 --> 0:04:02.720
<v Speaker 1>What should we make of the Wall Street General report

0:04:02.760 --> 0:04:07.680
<v Speaker 1>about sanctions on Venezuela, the Biden administration UH scaling down

0:04:07.800 --> 0:04:10.920
<v Speaker 1>or planning to scale down those sanctions for Chevron to

0:04:11.040 --> 0:04:15.360
<v Speaker 1>resume pumping there is that? Is that a Does that

0:04:15.400 --> 0:04:19.159
<v Speaker 1>actually bring a lot of oil back onto the market. Yeah.

0:04:19.240 --> 0:04:21.960
<v Speaker 1>So if you think about areas of production destruction, really

0:04:22.000 --> 0:04:24.520
<v Speaker 1>are three around the world of scale. There is Russia,

0:04:24.560 --> 0:04:28.440
<v Speaker 1>of Courses, I, Ran and Venezuela. UM so attempts to

0:04:28.640 --> 0:04:31.839
<v Speaker 1>ramp up production from Venezuela could help. I think what's

0:04:31.839 --> 0:04:34.599
<v Speaker 1>important to give in mind, though, is that This would

0:04:34.600 --> 0:04:36.719
<v Speaker 1>take a very long time. We actually had a precedent

0:04:36.920 --> 0:04:39.760
<v Speaker 1>after the Civil war in Colombia and it took five

0:04:39.839 --> 0:04:42.880
<v Speaker 1>years of investment to get production to ramp up. This

0:04:43.000 --> 0:04:48.000
<v Speaker 1>is heavy oil that takes processing. Assets have been dismantled

0:04:48.080 --> 0:04:51.520
<v Speaker 1>for the steel content. They're competing claims on assets, likely

0:04:51.560 --> 0:04:55.960
<v Speaker 1>between US, Russia China. The recovery in Venezuela production is

0:04:56.000 --> 0:04:59.360
<v Speaker 1>a five year endeavor. It's not a short term solution. Again,

0:05:00.120 --> 0:05:03.400
<v Speaker 1>still is needed at this point is investment by producers

0:05:03.440 --> 0:05:07.120
<v Speaker 1>around the world to increase supply. You know, those short solutions,

0:05:07.160 --> 0:05:11.599
<v Speaker 1>short term solution just are not that okay, very quickly

0:05:11.720 --> 0:05:13.760
<v Speaker 1>before we have to leave things. It gives a sense

0:05:13.800 --> 0:05:16.080
<v Speaker 1>of what are going to be the main drivers of

0:05:16.200 --> 0:05:18.520
<v Speaker 1>the oil price different to what they are now, and

0:05:18.560 --> 0:05:22.040
<v Speaker 1>where will oil prices be in six months time. Sure,

0:05:22.160 --> 0:05:24.000
<v Speaker 1>so we think oil prices will and this year out

0:05:24.040 --> 0:05:27.560
<v Speaker 1>a hundred and fifteen dollars. The main drivers for that

0:05:27.600 --> 0:05:33.040
<v Speaker 1>will be ultimately lower supply. Between the Russian redirection and

0:05:33.080 --> 0:05:35.479
<v Speaker 1>now it's open cut in the face of demand that

0:05:35.600 --> 0:05:39.280
<v Speaker 1>is resilient, Demands resilient through September heading into winter, there

0:05:39.360 --> 0:05:43.080
<v Speaker 1>is no natural gas. People will consume gasoline and diesel. Instead,

0:05:43.480 --> 0:05:46.640
<v Speaker 1>demand will rise, will start from me near regular level

0:05:46.680 --> 0:05:49.120
<v Speaker 1>of inventories and fall to a new record law that

0:05:49.240 --> 0:05:52.560
<v Speaker 1>is a driver for higher prices. Where could this play

0:05:52.600 --> 0:05:56.160
<v Speaker 1>out differently? Well, you cannot make hard landing, not just

0:05:56.200 --> 0:05:59.680
<v Speaker 1>a recession, all right, Damien, good stuff, Thank you. Damian

0:05:59.720 --> 0:06:02.160
<v Speaker 1>Curve all and there, head of Energy Research at Goldman

0:06:02.279 --> 0:06:02.599
<v Speaker 1>Sachs