Speaker 1: All right, let's get to our next guest. We have
Speaker 1: a Damian a coop Alan. He's had of energy research
Speaker 1: at Goldman Sex to having looked at an OPEQE plus
Speaker 1: decision two million barrels a day cut. But that does
Speaker 1: not does it, to day mean translate into a supply
Speaker 1: cut of two million barrels a day? How much does
Speaker 1: it realistically move the needle with oil output? Yeah, exactly.
Speaker 1: So the headline cut two million translates roughly into about
Speaker 1: a million bills pretty of actual production reduction in the
Speaker 1: short run. You know, we had expected OPEC output to
Speaker 1: grow a little bit next year, so that becomes more
Speaker 1: like a one point three million barrels today, So it's
Speaker 1: not as big as the headline, but it still is
Speaker 1: a significant reduction in output from the group today. It
Speaker 1: sets up a little bit of a battle between the
Speaker 1: Biden administration and OPEQ plus. OPEC plus is looking to
Speaker 1: you know, support prices and the president wants to bring
Speaker 1: them down. Uh. Does this become sort of open warfare
Speaker 1: or is it just kind of subtle, behind the scenes maneuvering. Yes,
Speaker 1: So maybe it's worth taking a step back to understand
Speaker 1: the genesis of the cut. You can look at it
Speaker 1: along three different dimensions. The first one is the pricer
Speaker 1: down there are significant concerns where potential economic hard landing
Speaker 1: and so OPEC is adjusting supply in response. Um. Your
Speaker 1: second oil has actually underperformed many out of the of
Speaker 1: the other cyclical assets over the last several months. It's
Speaker 1: really fallen a lot more than equities, for example. And
Speaker 1: that's the second approach is there has been a disconnect
Speaker 1: between oil fundamental still relatively tight, and oil prices themselves,
Speaker 1: and this cut helps to correct the two in our view.
Speaker 1: And the third one, as you said, is this divergence
Speaker 1: in desired outcome lower energy prices gasoline price in the
Speaker 1: US and higher prices for any oil producer. I think
Speaker 1: at the end of the day, the outcome has to
Speaker 1: be above current prices because as we look at the
Speaker 1: last several years, what we've seen now is just structural
Speaker 1: under investment UM and so you know, when you try
Speaker 1: to combine the two views, you ultimately end up requiring
Speaker 1: a higher price because investment is just not happening. And
Speaker 1: this will actually prolong the period of below trend economic
Speaker 1: growth because you're simply not growing supply enough to grow
Speaker 1: the global economy fast enough. So it's really then about
Speaker 1: a time horizon. Right. Yes, in the short term or
Speaker 1: gasoline prices may be prefer in the US, but unfortunately
Speaker 1: the measures that have been deployed to achieve that, think
Speaker 1: spr release for example, are not sustainable solutions. You do
Speaker 1: need higher prices to finally get investments flowing, and that
Speaker 1: is eventually where oil prices have to go. Damon, why
Speaker 1: are Western nations of wasting that time putting price cuts
Speaker 1: on Russian oil which is already a sanctioned b They
Speaker 1: couldn't care less about what the West doesn't. Secondly, it's
Speaker 1: a China and India buying the stuff anyway. Yeah, So
Speaker 1: I think the key here is really that Europe has
Speaker 1: two embargoes in place at this time. There is a
Speaker 1: physical embargo that kicks in starting in December, and that
Speaker 1: there's this financial embargo on shipping insurance. So the price
Speaker 1: cap tries to avoid the second or replace the second,
Speaker 1: But at the end of the day, the first one
Speaker 1: is what ultimately forces Russian exports to be diverted. It's
Speaker 1: the one that creates production losses and ultimately yet China
Speaker 1: and India to benefit from lower oil prices. That's the one. Unfortunately,
Speaker 1: that is you know, at this point inconceivable to lift.
Speaker 1: So the price cabin itself doesn't really matter to the
Speaker 1: outlook for oil production globally. You know, Russia is being sanctioned,
Speaker 1: is having to redivert barrels. That's not an easy process
Speaker 1: in terms of boats, in terms of refineries. And that's
Speaker 1: the supply laws that on top of the open cut
Speaker 1: will be coming at the end of this year. It's
Speaker 1: puts Europe and the West in a very difficult position, unfortunately,
Speaker 1: as your sanction of the ultimately do create those supply losses.
Speaker 1: What should we make of the Wall Street General report
Speaker 1: about sanctions on Venezuela, the Biden administration UH scaling down
Speaker 1: or planning to scale down those sanctions for Chevron to
Speaker 1: resume pumping there is that? Is that a Does that
Speaker 1: actually bring a lot of oil back onto the market. Yeah.
Speaker 1: So if you think about areas of production destruction, really
Speaker 1: are three around the world of scale. There is Russia,
Speaker 1: of Courses, I, Ran and Venezuela. UM so attempts to
Speaker 1: ramp up production from Venezuela could help. I think what's
Speaker 1: important to give in mind, though, is that This would
Speaker 1: take a very long time. We actually had a precedent
Speaker 1: after the Civil war in Colombia and it took five
Speaker 1: years of investment to get production to ramp up. This
Speaker 1: is heavy oil that takes processing. Assets have been dismantled
Speaker 1: for the steel content. They're competing claims on assets, likely
Speaker 1: between US, Russia China. The recovery in Venezuela production is
Speaker 1: a five year endeavor. It's not a short term solution. Again,
Speaker 1: still is needed at this point is investment by producers
Speaker 1: around the world to increase supply. You know, those short solutions,
Speaker 1: short term solution just are not that okay, very quickly
Speaker 1: before we have to leave things. It gives a sense
Speaker 1: of what are going to be the main drivers of
Speaker 1: the oil price different to what they are now, and
Speaker 1: where will oil prices be in six months time. Sure,
Speaker 1: so we think oil prices will and this year out
Speaker 1: a hundred and fifteen dollars. The main drivers for that
Speaker 1: will be ultimately lower supply. Between the Russian redirection and
Speaker 1: now it's open cut in the face of demand that
Speaker 1: is resilient, Demands resilient through September heading into winter, there
Speaker 1: is no natural gas. People will consume gasoline and diesel. Instead,
Speaker 1: demand will rise, will start from me near regular level
Speaker 1: of inventories and fall to a new record law that
Speaker 1: is a driver for higher prices. Where could this play
Speaker 1: out differently? Well, you cannot make hard landing, not just
Speaker 1: a recession, all right, Damien, good stuff, Thank you. Damian
Speaker 1: Curve all and there, head of Energy Research at Goldman
Speaker 1: Sachs