Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Jill.
Speaker 4: Why isn't thal Joe.
Speaker 2: One of the weirdnesses of our current market moments is
Speaker 2: that you have all these oil analysts who keep talking
Speaker 2: about how the straight of hor Moves closure is like
Speaker 2: the theoretical exercise that the entire market used to have
Speaker 2: nightmares about. This was like the big risk in the
Speaker 2: entire oil market. And yet and yet if you look
Speaker 2: at the actual price of oil and where it's traded,
Speaker 2: I mean, it's gone up, but it's not it doesn't
Speaker 2: strike me as panic levels.
Speaker 5: Yeah, I mean it's gone up a lot, and you know,
Speaker 5: it started the year I'm just looking it at Brent.
Speaker 5: It started the year around sixty. It had climbed to
Speaker 5: around seventy before the war started. Now one fifteen, So
Speaker 5: it's a huge move in some sense, but it's not
Speaker 5: even a twenty twenty two problems, which were very high
Speaker 5: and that all that's true, and yet there's this disconnect
Speaker 5: I don't understand, like, why isn't it at two hundred
Speaker 5: yet or whatever? Because Straightford moves is closed, etcetera. Why
Speaker 5: isn't it even higher? But then the other thing is, okay,
Speaker 5: like prices are up a lot, But then you look
Speaker 5: at like what governments around the world are doing, and
Speaker 5: it's like hair on fire panic, particularly in East Asia.
Speaker 5: So you get stories about Korean government workers being told
Speaker 5: to drive on every drive to work depending whether their
Speaker 5: license plate number and even an odd like extreme rationing. Yeah,
Speaker 5: and so I'm trying to like, it still feels like
Speaker 5: there are some puzzle pieces here that I'm trying to
Speaker 5: fit together.
Speaker 2: Absolutely. The other thing I would say is it feels
Speaker 2: also like there's this disconnect between what's going on in
Speaker 2: the financial world and what's going on in the physical world.
Speaker 4: I don't get. Yeah.
Speaker 2: And there was this really interesting note This wasn't purely
Speaker 2: related to oil, but you could kind of extrapolate from it,
Speaker 2: But it was from Bloomberg Green Markets the other day,
Speaker 2: and they were talking about Urea coming out of the
Speaker 2: Middle East and the pricing that they've been seeing from it,
Speaker 2: and one of the analysts says, the real issue on
Speaker 2: pricing is that while sellers and buyers can quote almost
Speaker 2: any price, nothing is actually getting out of the Gulf.
Speaker 2: That reality makes most discussion academic rather than representative of
Speaker 2: actual business. So I wonder how much of that is
Speaker 2: happening in the oil market as well, where you have
Speaker 2: all these quotes that are flashing across the screen, but
Speaker 2: like for barrels that are essentially not going anywhere for
Speaker 2: a while.
Speaker 5: Yeah, and I still don't totally get it, because right, like,
Speaker 5: these things do have to settle at some point, and
Speaker 5: I don't know, I'm confused. And then there were those
Speaker 5: headlines early on about how physical oil quoted in Oman
Speaker 5: were fifty dollars a barrel above the front month. Many
Speaker 5: things I don't understand. So we have to talk to
Speaker 5: someone who can answer all these questions for us.
Speaker 2: The great thing about an oil crisis, Joe, is that
Speaker 2: we will learn about all the oil benchmarks throughout the
Speaker 2: entire world. Okay, well, we really do have the perfect guest,
Speaker 2: someone who's been on the show before, who a lot
Speaker 2: of people have requested us to bring back to talk
Speaker 2: about this particular moment in time. So without further ado,
Speaker 2: we have, of course, Javier Blast. He is the energy
Speaker 2: and commodities columnist over at Bloomberg, been writing about the
Speaker 2: stuff for a very long time. Thank you so much
Speaker 2: for coming back on our thoughts.
Speaker 6: My pleasure seems that every time that you come back
Speaker 6: is because of a crisis.
Speaker 4: Yep, that's right.
Speaker 2: Okay, well, let's just jump into it. How bad is
Speaker 2: this one?
Speaker 6: It's bad and it could get really bad. But in
Speaker 6: any energy crisis, there are two elements that are very important.
Speaker 6: One is the size of the disruption, and the size
Speaker 6: is huge. And then is the length of that disruption,
Speaker 6: how lonely goes, And so far the disruption is relatively
Speaker 6: short lived.
Speaker 4: We have been a month.
Speaker 6: So that's one of the reasons why we are not
Speaker 6: at crazy high oil prices. It's just because it's a
Speaker 6: bit too early. Give it up a few more weeks
Speaker 6: and certainly we will get there. But so far the
Speaker 6: crisis is relatively short lived. How shortly, well, look at
Speaker 6: twenty twenty two with Russia we are still at it
Speaker 6: four years later. Or look at how lonely it took
Speaker 6: for the resolution of the invasion of Kube in nineteen ninety.
Speaker 4: That was about eight months.
Speaker 6: So at times we forget how lone other crisis were,
Speaker 6: and they were a lot longer than this one.
Speaker 5: Okay, So now connect to what we're seeing with governments
Speaker 5: around the world like already going into rationing mode almost
Speaker 5: everywhere you look, particularly see a lot in Africa, already
Speaker 5: a lot in East Asia. If the story is okay,
Speaker 5: the prices haven't exploded the crazy high levels because this
Speaker 5: is still short lived, maybe there's some buffer stocks. Why
Speaker 5: this rationing reality.
Speaker 6: Well, you're absolutely right that what is really cushion in
Speaker 6: the market right now is a number of buffers that
Speaker 6: we're going through. One is regular inventories that every country,
Speaker 6: every refinery has to normal functioning. Then it is also
Speaker 6: the strategic inventories that some countries own, particularly industrialized countries
Speaker 6: like the United States, Europe, Japan, and also China. Those
Speaker 6: have been mobilized in most places have been released.
Speaker 4: And also we.
Speaker 6: Enter the crisis with a market that was over supply.
Speaker 6: There was even floating storage, that is when an oil
Speaker 6: tanker has been loaded is on the high seas but
Speaker 6: they cannot find a buyer and just basically sits on
Speaker 6: the high seats looking for someone who will take the oil.
Speaker 6: And we have quite a lot of that just going
Speaker 6: into the crisis. So there was quite an element of
Speaker 6: buffer through the system, and probably a larger buffer than
Speaker 6: in normal circumstances because the market was over supply. That
Speaker 6: is helping to cushion or to mitigate the crisis. Where
Speaker 6: we are seeing some actions by government is where countries
Speaker 6: are closer to the crisis, which is destrait or hormones.
Speaker 6: So the closer that you are to that location, the
Speaker 6: more action you need to take because you typically depend
Speaker 6: more of that flow of oil coming from the Middle East,
Speaker 6: and also because you are impacted earlier. If you are
Speaker 6: moving oil from say Saudi Arabia into India, that's only
Speaker 6: a few days at most a week of sailing time.
Speaker 6: You are moving that to say the Philippines, that's about
Speaker 6: fifteen days. It's longer you are moving that oil into Europe,
Speaker 6: probably around three weeks. And it's even longer you are
Speaker 6: moving that oil into say the United States, where Saudi
Speaker 6: oil takes about forty days. So all of that means
Speaker 6: that the crisis is felt in some places.
Speaker 4: Quicker than in other places.
Speaker 6: Also, it's how the global oil market works. And to
Speaker 6: put it in quite simple terms, and I'm afraid that
Speaker 6: I have to go with colonial vocabulary, but the oil
Speaker 6: market is divided in two large chunks.
Speaker 4: East of swet and west of sweth.
Speaker 6: This is like, you know, the British Empire was still
Speaker 6: around and everything was east or west of the Sweat Canal.
Speaker 6: Countries that they are east of Swift, mostly Asia, rely
Speaker 6: a lot on Middle East oil these days, and therefore
Speaker 6: they are impacted earlier on the crisis. West of Swift Europe,
Speaker 6: Western Europe and the whole American continent is a bit
Speaker 6: detached from that market, and therefore the crisis will hit
Speaker 6: them much later.
Speaker 2: So I know a bunch of MH bros Are going
Speaker 2: to get mad at me for even asking this, But like,
Speaker 2: could you get a situation where you can't get oil
Speaker 2: at any price in certain countries?
Speaker 6: I mean, in an absolutely full blown crisis where we
Speaker 6: have this the hormones closed for many months, we may
Speaker 6: have a lang word in Iran. Yes, I think that
Speaker 6: we can get into a situation that, no matter what
Speaker 6: you are offering for a barrel of oil, no one
Speaker 6: is willing to sell because that will be a wall
Speaker 6: of esport bands where every country is trying to keep
Speaker 6: the oil for themselves, et cetera. And I think that, yes,
Speaker 6: I can't see an scenario in which, no matter how
Speaker 6: much you are paying for a barrel of oil. You
Speaker 6: may not find a buyer, or you may find enough
Speaker 6: barrels for whatever you are offering, but that will be
Speaker 6: in that really extreme extreme situation.
Speaker 5: I have a very rudimentary oil one on one class. Actually,
Speaker 5: I found a free book on my sidework called Oil
Speaker 5: one O one.
Speaker 3: Yesterday and I picked it up. I should have read
Speaker 3: I don't know.
Speaker 5: It's crazy, No, it's it's really it's a it's like
Speaker 5: a fall on book. You know this book, Morgan Downey.
Speaker 5: It's a very thick book Oil one on one. Someone
Speaker 5: just put it on my sidewalk. Anyway, I have an
Speaker 5: oil one on one.
Speaker 2: Wait are you sure? Someone's not like they'll lure you
Speaker 2: out of your house.
Speaker 5: But I'm gonna ask you an oil one on one
Speaker 5: question because it when we see, okay, Brent crude one
Speaker 5: fifteen twenty five is at the time, how is the
Speaker 5: Brent benchmark formed?
Speaker 3: Oh course, okay?
Speaker 6: Sorry now is a simple question and a complicated one. Effectively,
Speaker 6: we are talking about a bunch of crude oil from
Speaker 6: the North Sea ok So, mostly UK and Norway, but
Speaker 6: also crude oil from Texas that comes across the Atlantic
Speaker 6: and through effectively bias and sellers on the physical market,
Speaker 6: we get a price that then cascade into the financial market.
Speaker 4: But here is a very important.
Speaker 5: I guess the reason I'm asking is because I associate
Speaker 5: with Brent with the North Sea, and that's west of
Speaker 5: the Seuez. And so when we're talking about east of
Speaker 5: the Sewez oil, why is this the price and how
Speaker 5: connected is that price to the oil moving that actually
Speaker 5: affects these markets. I guess that's sort of why the
Speaker 5: question is on my mind.
Speaker 4: Now that that's a crucial question.
Speaker 6: They are about two hundred and fifty different grades of
Speaker 6: crude oil that we track on a given time, and
Speaker 6: Brain is used effectively a short ham for the average
Speaker 6: barrel in the world, and it's not really the average barrel,
Speaker 6: and certainly not the average barrel that comes from the
Speaker 6: Middle East. So you will have to look at benchmarks
Speaker 6: like Oman Dubai that they are closer to the quality
Speaker 6: of the Middle East oil, and those benchmarks are a
Speaker 6: bit higher than what Brain is trading today. But if
Speaker 6: I may suggest, forget about the price of a barrel
Speaker 6: of oil, Okay, no one cares about the price of
Speaker 6: oil unless you are someone producing oil in Texas or
Speaker 6: Saudi Arabia or you are someone who owns a refinery.
Speaker 6: Those are the people that care about the price of
Speaker 6: a barrel of crude. The rest of us, you and I,
Speaker 6: we care about the price of our refined product because
Speaker 6: that's what we consume. We consume gasoline, we consume diesel,
Speaker 6: or we consume other refined products that they are embedded
Speaker 6: into a service that we are buying. Think about an
Speaker 6: airfare ticket where inside that ticket there is a big
Speaker 6: proportion of it that is jet fuel, or you are
Speaker 6: buying I don't know, a cap made of plastic, well,
Speaker 6: that is, you are buying effectively some kind of transformed NAFTA.
Speaker 6: And obviously you know the transformation and the retail marking
Speaker 6: and so on. But what matters really is the price
Speaker 6: of refined products, and they're actually we are beginning to see,
Speaker 6: particularly in the East, in the Southeast Asian markets, some
Speaker 6: very extreme prices. So well, if you look at the
Speaker 6: price of crude or brain or WTI or Roman, things
Speaker 6: look relatively contained. You know, we are treading around one
Speaker 6: hundred and one hundred and ten dollars a barrel, that
Speaker 6: is well below the all time high. You look at
Speaker 6: the course of diesel in Singapore, which is a benchmark
Speaker 6: for the Southeast Asia market.
Speaker 4: The price there is.
Speaker 6: Approaching two hundred dollars a barrel, which is something that
Speaker 6: we have never seen. So the refined product is where
Speaker 6: really we are seeing the real tension.
Speaker 2: This is exactly what I want to ask you. So
Speaker 2: if you look at the benchmark prices for crude oil,
Speaker 2: we've seen higher prices before, right and relatively recently in
Speaker 2: twenty twenty two. But if you look at the refined products,
Speaker 2: we're getting to places again that we haven't seen. What
Speaker 2: explains that disconnect, Like back in twenty twenty two, why
Speaker 2: didn't we see the higher cost of crude feed into
Speaker 2: refined products the way that we seem to be seeing now.
Speaker 6: For two reasons. One is because we have lost not
Speaker 6: only a lot of crude oil production, but we have
Speaker 6: lost a significant chunk of refined production. The Middle East
Speaker 6: also has a lot of refinedes which are esport refineries.
Speaker 4: They are just devoted to the xport market.
Speaker 6: And the global trade of refined products is a lot
Speaker 6: smaller than the global trade of crude oil, So even
Speaker 6: a small reduction of supply could have a much larger impact.
Speaker 6: You think about the market for the global market for
Speaker 6: clude oil, which is one hundred million barrels. Around sixty
Speaker 6: million are traded globally, but if you look at the
Speaker 6: market for say, get fuel, that market is a lot smaller,
Speaker 6: and we have lost a significant proportion of the refineries
Speaker 6: who are serving that international market for jet fuel, and
Speaker 6: therefore prices are reacting much more stronger than we saw
Speaker 6: in previous crisis. There is also the way that the
Speaker 6: whole of refining works. So refineries are slowing down intake
Speaker 6: of clude oil because there is not enough crude oil
Speaker 6: in the market, but we have not really seen get
Speaker 6: the consumers reacting the same way. So what is happening
Speaker 6: is the refining wall is acting as a buffer in
Speaker 6: between crude oil that is not there and consumers that
Speaker 6: they have not yet realized that the crude oil is
Speaker 6: not there. So the refined market is trying to basically
Speaker 6: get that two together, and the way that it can
Speaker 6: only do it is by extreme pricing and indicating the consumers, hey,
Speaker 6: I don't have enough crewe to make these refined products,
Speaker 6: so please can you stop demanding the refined products? And
Speaker 6: the police is basically two hundred dollars a barrel.
Speaker 2: Diesel I should just say. We're recording this on March
Speaker 2: thirty first, and a headline related to this, Trump tells
Speaker 2: allies to buy us jet fuel or take it from horrormos.
Speaker 5: I have no idea if we have spare jet fuel,
Speaker 5: you know that, speaking of refined products doing East Asia,
Speaker 5: one of the charts that's probably gone the most viral
Speaker 5: is that Singapore jet fuel chart, and that, more than
Speaker 5: any other chart, price shows that gap that Havevier is
Speaker 5: talking about between the underlying quoted prices of barrels, which
Speaker 5: is high, but that getual price is way above now
Speaker 5: the twenty twenty two highs.
Speaker 3: So that speaks to it.
Speaker 5: Have you you're this down in Houston, are any Americans
Speaker 5: from your perspective, are we going to pick up the slack?
Speaker 5: Do you see American oil entrepreneurs doing more drilling and
Speaker 5: exploration to take advantage of these high prices?
Speaker 6: I mean, for sure, at one hundred dollars oil, everyone
Speaker 6: is going to try to do more. It just basically
Speaker 6: because he makes a lot of money. I mean, a
Speaker 6: US shale producer in Texas was looking to sell his
Speaker 6: oil about six weeks ago for sixty dollars a barroil
Speaker 6: and it can sell the oil at one hundred today,
Speaker 6: So everyone who can increase production a bit is going
Speaker 6: to try. But do I see a massive amount of
Speaker 6: extra drilling coming in the US over the next three months,
Speaker 6: which is what really we needed. No, that's not going
Speaker 6: to happen over the next three months. And also we
Speaker 6: are losing so much oil that you know, it doesn't
Speaker 6: matter what the US shale producers do. I mean, it
Speaker 6: will help on the margins, but the gap is big.
Speaker 6: And you know, I have been discussing with some of
Speaker 6: the colleagues on the newsroom and with analyst and traders.
Speaker 4: How big is the gap? Is eight million? Is a
Speaker 4: nine million? Is ten? Is twelve?
Speaker 6: I mean, at the end of the day, it almost
Speaker 6: doesn't matter because we are talking about that about ten
Speaker 6: percent of the global oil supply. I mean, whether it's
Speaker 6: eight percent or eleven percent, it really doesn't really matter.
Speaker 6: We are losing so much oil that either the conflict
Speaker 6: and soon or prices need to move much much higher.
Speaker 6: I mean, I am surprised that we are not much higher.
Speaker 6: And in some ways it really speaks how good the
Speaker 6: White House has been at joubone in the market, make
Speaker 6: verbal intervention, make threats, make promises, a lot of them falls,
Speaker 6: but it has worked in preventing a lot of the
Speaker 6: panic buying that we have seen in previous crisis.
Speaker 2: What's going on with you as natural gas because if
Speaker 2: you look there, I mean we're talking about like muted
Speaker 2: market moves in the oil market, even though those have risen.
Speaker 2: If you look at that gas, not gas has actually
Speaker 2: come down.
Speaker 6: Yeah, not gas in the United States is trading almost
Speaker 6: as a six month low, which, considering what is happening
Speaker 6: on the global energy market, almost incredible. I mean, the
Speaker 6: reason there is US shale, and the reason is that
Speaker 6: you cannot esport gas easily. For exporting gas, you first
Speaker 6: need to cool it down liquifi. That basically means having
Speaker 6: an enormous fridge that cools gas from you know, room
Speaker 6: temperature to minus one hundred.
Speaker 4: And sixty celsius.
Speaker 6: The illiquifies, and then you can put it on a
Speaker 6: tanker and send it to the rest of the market.
Speaker 6: Because we have limited equofaction capacity. When it does increase
Speaker 6: in quite quickly, that creates a bottleneck. That means that
Speaker 6: the US and Canadian gas effectively strapped inside North America,
Speaker 6: and that's keeping prices completely detached from the global market,
Speaker 6: and that is a huge difference from previous episodes of
Speaker 6: high energy prices. Even in twenty twenty two, the price
Speaker 6: of US natural GUS went from around three and a
Speaker 6: half dollars four dollars to almost ten dollars per British
Speaker 6: thermal unit. This time's staying at around three, actually below
Speaker 6: three dollars at mbtu, And that is incredible because it
Speaker 6: means that the heavy US industry electricity generators, chemical companies,
Speaker 6: fertilizer companies, is like, there is no crisis. Well, everyone
Speaker 6: else in the world is suffering. The US is completely insulated.
Speaker 5: There is something odded perverse about some of the disparate
Speaker 5: impacts here in terms of who is behind and who
Speaker 5: has catalyzed this war, and which side of the Suez
Speaker 5: you're on there, and who is feeling the brunt of it.
Speaker 5: But that actually, you know, you mentioned fertilizer. We've talked
Speaker 5: about fertilizer on the podcast.
Speaker 3: These are the.
Speaker 5: Type of things in a food insecurity that creates serious
Speaker 5: political instability potentially around the world.
Speaker 3: How worried are you you?
Speaker 5: We all know you as the oil and the oil guy,
Speaker 5: but you've written a lot about food over the years.
Speaker 5: I remember you wrote a great piece about in twenty
Speaker 5: twenty two about how rice is going to come to
Speaker 5: the rescue and people couldn't get as much wheat, So
Speaker 5: I know you know the food world too. How concerned
Speaker 5: are you about food? And yeah, the sort of fallout
Speaker 5: from that.
Speaker 4: Today, I'm not very concerned.
Speaker 6: This could all change if the war just goes on
Speaker 6: for months, if President Trump decides that he wants to
Speaker 6: invade Iran with ground troops, et cetera, et cetera. But
Speaker 6: now I'm not very concerned for a number of reasons.
Speaker 6: Twenty twenty two was a huge shock to the global
Speaker 6: food market because it affected a bread basket region of
Speaker 6: the world. If you look at Russia and Ukraine at
Speaker 6: the time, combined, the accounted for around a quarter of
Speaker 6: global exports of wheat and barley, around fifteen percent of
Speaker 6: global exports of corn, and even much higher percentage for
Speaker 6: some vegetable oil like rape seed and some flour. The
Speaker 6: Russian invasion of Ukraine, the battleground was one of the
Speaker 6: most some of the richest fertile farmland in the planet.
Speaker 6: The battleground of the crisis in the Middle East is
Speaker 6: desert and a piece of seed that we call the
Speaker 6: Strait of Hormuz. It doesn't have the same impact in
Speaker 6: terms of global supply. It does have an impact on
Speaker 6: fertilizer prices. So it did also the twenty twenty two
Speaker 6: war between Asia and Ukraine, which is still ongoing. But
Speaker 6: fertilizer prices require time to have an impact on food production.
Speaker 6: And also, while yes, the numbers are very scary, and
Speaker 6: you look at the global fertilizer market, just focusing on Yurea,
Speaker 6: you look at that market and say, oh boy, it's
Speaker 6: going up a lot. We are approaching the twenty twenty
Speaker 6: two record high. But that is a problem in many markets.
Speaker 6: It is a problem that is not a food problem.
Speaker 6: It will be a fyscal problem. And the reason is
Speaker 6: that Yurea fertilizer in particular, is massively subsidized in the
Speaker 6: developing world, particularly in places like India and Pakistan. So
Speaker 6: the problem there is going to be for the Indian
Speaker 6: government Cana the Ford and spend billions of dollars estra
Speaker 6: subsidizing fertilizer less. So is it going to be a
Speaker 6: food crisis in India because the fertilizer, i think, is
Speaker 6: going to be there it's just that you are the
Speaker 6: finance minister in India.
Speaker 4: You have a big problem. And there that's how I'm
Speaker 4: seeing the problem.
Speaker 6: And also the global food market is in a better
Speaker 6: position that almost any.
Speaker 4: Time in the last two or three DCS.
Speaker 6: Inventories of weed are very high, inventories of rice in
Speaker 6: particular an all time high. And while you mentioned rice,
Speaker 6: while we are worried about fertilizer prices, et cetera, et cetera,
Speaker 6: if you look at the most important benchmark for rice
Speaker 6: prices in Asia is about to hit at nineteen year low.
Speaker 3: Good.
Speaker 2: Well, if you're a farmer, no, not if.
Speaker 3: You're the vast majority of people who need eat. Most
Speaker 3: people aren't farmers.
Speaker 6: Sure, but look, as I said, this all depends on
Speaker 6: how lonely it stays. Because you know, you have fertilizer
Speaker 6: prices for several months high, diesel prices very high. Then
Speaker 6: you start eroding the flexibility on the system and you
Speaker 6: don't want to go. The weather can be very funny
Speaker 6: and you we get bad weather when we just really
Speaker 6: need good weather. So my main concern right now will
Speaker 6: be what I'm going to be looking at. This lasts
Speaker 6: a couple of more months. Then my main focus is
Speaker 6: going to be how good is the monsoon. Are we
Speaker 6: going to have a good monsoon season in India or
Speaker 6: is it going to be a bad one, because if
Speaker 6: we have a bad one, then we have a problem.
Speaker 5: Yeah.
Speaker 2: I've been reading about the fertilizer urea tenders that the
Speaker 2: Indian government does periodically. It's just really interesting, like, you know,
Speaker 2: this big exercise to purchase subsidized urea and so far
Speaker 2: from what I understand, they've been putting it off because
Speaker 2: of the uncertainty and prices. So who knows what's going
Speaker 2: to happen. But okay, Ukraine and Russia have come up
Speaker 2: a couple of times in this conversation. What's going on
Speaker 2: with Russian oil? Right now? Listeners can't see, but Javier
Speaker 2: is smiling, tell us have you.
Speaker 6: Well it's almost like, oh boy, if we didn't have
Speaker 6: enough with the Middle East, here is Ukraine and you
Speaker 6: can not blame. Ukraine is fighting for survival. So they
Speaker 6: are hitting Russia as hard as they can wherever they can,
Speaker 6: and that means hitting the oil terminals. In the past,
Speaker 6: they were hitting the terminals in the south of the
Speaker 6: country that's the Black Sea. But they have found a
Speaker 6: corridor to send drones, long distant drones into the north,
Speaker 6: into the Baltic and I think that the Russians were
Speaker 6: caught completely off guard. They didn't think that that Ukraine
Speaker 6: will be able to hit the terminals in the far
Speaker 6: north of Russian territory, so they were not very well
Speaker 6: protected or Ukrainians were extremely good at it. But the
Speaker 6: terminas have been damaged significantly. We don't know for sure
Speaker 6: the stand of the damage, but looking at the satellite pictures,
Speaker 6: it looks bad enough. So we may be also losing
Speaker 6: potentially one million barros a day of Russian oil. And
Speaker 6: it's not really the time. Again, you cannot blame Ukraine,
Speaker 6: but it's not really the time when you want to
Speaker 6: be losing more oil.
Speaker 3: Yeah, it's pretty well right.
Speaker 5: So in some sense there have been the stories about okay,
Speaker 5: Russia benefiting because of relaxed sanctions and surging prices. But
Speaker 5: on the other hand, just from the global perspective, here
Speaker 5: is more supply that's being taken off the market. So
Speaker 5: I mentioned, or it's been Tracy mentioned recording this March thirty.
Speaker 5: First in the morning. Last night we got the Wall
Speaker 5: Street Journal headline that maybe Trump will be comfortable ending
Speaker 5: this war even if the straight of horror moves is
Speaker 5: not back to normal, and Iran passed a law that
Speaker 5: codified that said the straight of horror moves won't go
Speaker 5: back to normal, and it's going to collect a toll,
Speaker 5: it says, and so forth, Let's say, okay, the war ends.
Speaker 5: Let's say Trump decides to unilaterally and the war without
Speaker 5: resolution here, and like, how big of a fundamental change
Speaker 5: is this to the Middle East? If it's sort of
Speaker 5: accepted that Iran has a straight of horror moves toll booth,
Speaker 5: could this be a tolerable situation for the region.
Speaker 3: Like what is the significance of that?
Speaker 6: I would be so price if the region was to
Speaker 6: be happy with Iran having a toll boot on the straight.
Speaker 6: I don't think that any countries would be happy that
Speaker 6: an international astraite just becomes, you know, a toll boot
Speaker 6: for passing ships. I mean, like what it stops Morocco
Speaker 6: or Gibraltar or Spain to impose a similar situation in
Speaker 6: the Mediterranean or Denmark, in in the Danish streets, in
Speaker 6: in the Baltic I mean you or Singapore on the
Speaker 6: Singapore and Australia, you create a very very bad precedent
Speaker 6: for international piece and I'm free shipping. I would be
Speaker 6: surprised if countries in the in the Middle East were
Speaker 6: happy to it.
Speaker 4: Would they needed to accept it?
Speaker 6: I mean a current prices of one hundred dollars, say
Speaker 6: that you you know, you are an export country and
Speaker 6: you have to pay half a dollar per barrel as
Speaker 6: a fee. I think that that's something that everyone will say, Well,
Speaker 6: you know, I mean, we're still selling the oil at
Speaker 6: one hundred dollars, so instead of one hundred, we are
Speaker 6: selling that ninety nine and a half. That's pretty good
Speaker 6: to me. So I suppose that some of the oil
Speaker 6: will flow. But you led Iran basically to dictate terms
Speaker 6: and dictate terms forever, and that will mean also that
Speaker 6: that Iran has a very tight grip on policy and
Speaker 6: economic decisions that his neighbors have been doing independently before.
Speaker 6: So I cannot see that on the long term. I
Speaker 6: don't see also countries like China being particularly happy with
Speaker 6: that arrangement. But if anything, over the last five years
Speaker 6: or so, we have seen things on international diplomacy and
Speaker 6: international security that I said before, Now that's not going
Speaker 6: to happen, and then I have to eat my heart.
Speaker 2: Sorry, I just got a visual of having eating his hat.
Speaker 4: Okay with with I sprinkles and olive oil on top of.
Speaker 2: Tomatoes. Yeah, okay. One thing that people have talked about
Speaker 2: for I'm pretty sure the duration of all of our
Speaker 2: careers are attempts to move away from pricing oil in dollars.
Speaker 4: And if you think.
Speaker 2: About the current situation, there's something very poor verse about
Speaker 2: seeing the dollar go up because there's a scramble for
Speaker 2: barrels of oil because of an action taken by the
Speaker 2: United States. From your contacts in the oil market, is
Speaker 2: anyone talking about like actual currency pricing for barrels at
Speaker 2: the moment? Is this something that is going to get
Speaker 2: renewed traction?
Speaker 4: No, I don't hear anyone.
Speaker 6: I mean, certainly Iran may be happy to take other currencies,
Speaker 6: has been relatively happy to take Chinese juan and also
Speaker 6: the other currencies, which has problems on compatibility. Everyone else
Speaker 6: will still want the dollar. And the way that it
Speaker 6: was put to me to a leading producing country in
Speaker 6: the Middle East, and I was talking to the head
Speaker 6: of the central bank. I'm gonna not name the country,
Speaker 6: but they said to me, so if I switched from
Speaker 6: the dollar to say the Juan. I moved from a
Speaker 6: relatively high interest rate to a low interest rate. I
Speaker 6: moved from full compatibility to a lot of problems to convert.
Speaker 6: And I moved from maximum liquidity to no liquidity whatsoever.
Speaker 6: And then the central bank governors like, why I would
Speaker 6: like to do that? Why I would like to really
Speaker 6: take a step back on my currency. And I think
Speaker 6: that the Juan is not there yet. For oil producers
Speaker 6: and everyone that is using other currencies that the dollar
Speaker 6: to price the oil or to invoice the oil, they
Speaker 6: are doing it because they are under American sanctions. They
Speaker 6: are not doing it because they want to do it.
Speaker 6: They are doing it because they have no other options
Speaker 6: that to do it, just because they are on the
Speaker 6: naughty corner of the US dressury.
Speaker 5: So I feel like the twenty twenty two twenty twenty
Speaker 5: three inflation crisis, commodities crisis really delivered a near death
Speaker 5: blow to a lot of the decarbonization dreams of the
Speaker 5: twenty tens and so forth. And we saw, you know,
Speaker 5: we know, a bunch of companies and country sort of
Speaker 5: quietly ditched their goals of zero and all that. It
Speaker 5: seems like this is going to have a further effect
Speaker 5: on this, but especially because Asian economies, I imagine it sounds
Speaker 5: like coal is going to be ramped back up, et cetera.
Speaker 5: But there's an interesting dynamic, and I forget who talked
Speaker 5: about it. You know, we did this episode about how
Speaker 5: this could even further accelerate the Chinese ev exports, et cetera.
Speaker 5: And efforts to reduce oil consumption. Could we see this
Speaker 5: situation in which we essentially have electrification without decarbonization, that
Speaker 5: basically we see this boom for electrification. Maybe you're the
Speaker 5: one who used this term. Someone was talking about it
Speaker 5: might have just been new but more electric cars and
Speaker 5: more coal at the same time.
Speaker 4: I think that we can.
Speaker 6: I think that that's a very good way to put it,
Speaker 6: because I think that we can't have a simultaneous poosh
Speaker 6: to try to get to reduce your dependence on oil
Speaker 6: and to reduce your dependence on middle least oil. In particular,
Speaker 6: it's going to be see unsafe, particularly if we run
Speaker 6: somehow still has some control, whether it's a tool both
Speaker 6: or some kind of de facto control over the over
Speaker 6: the street or hormones who would like to be dependent
Speaker 6: of of you know, Middle East and oil in that situation,
Speaker 6: because you think that there's going to be a crisis
Speaker 6: six months down the road, and the solution for that
Speaker 6: is going to be, you know, more generation with coal.
Speaker 6: And we are seeing that just you know, across the
Speaker 6: whole of Asia, whether it's poor countries like Pakistan or
Speaker 6: India or the most developed countries in the region like Japan,
Speaker 6: all of them are going for more coal right now.
Speaker 4: But I think that we're going to see also.
Speaker 6: Over the medium and a longer time, we're going to
Speaker 6: see a movement for more solar alongside batteries. So I
Speaker 6: can see the role of energy liquefied natural gas squeeze
Speaker 6: out of the electricity system with a push for more
Speaker 6: coal as the immediate future, and more you know down
Speaker 6: the road with more solar and more batteries. Effectively, you know,
Speaker 6: at least for a few years, means perhaps more electrification,
Speaker 6: but with more carbon intensive production of that electricity, which
Speaker 6: is not exactly what the doctor recommended.
Speaker 2: Now, Havy. One of the reasons we wanted to talk
Speaker 2: to you other than a bunch of our listeners have
Speaker 2: been clamoring for us to have you on. But you
Speaker 2: of course, wrote an excellent book called The World for Sale, Money, Power,
Speaker 2: and the Traders who Barter the Earth's resources. You're very
Speaker 2: plugged in to the commodity You've seen what's been the
Speaker 2: most surprising reaction or thing that you've heard from that
Speaker 2: space over the past month or so.
Speaker 6: I mean, I think that there are a couple of
Speaker 6: things that they are very interesting. One is how little
Speaker 6: relative the price of natural guys in Europe, which was
Speaker 6: the epicenter of the twenty twenty two.
Speaker 4: Crisis, has moved.
Speaker 6: Yes, sure, the price of natural gas we refer to
Speaker 6: the benchmar as TTF as a Dutch benchmark for Europe,
Speaker 6: has gone up a lot, about seventy percent since the
Speaker 6: crisis started, but it's around the same level as it
Speaker 6: was fourteen months ago. And actually today, or the last
Speaker 6: time I checked the price this morning was lower than
Speaker 6: four weeks ago.
Speaker 4: So it went up a lot.
Speaker 6: At the beginning of the war and since then has
Speaker 6: kind of flattened or came down. That is an indication
Speaker 6: of how much allergy supplies coming into the market. A
Speaker 6: lot of it is coming from North America, the US
Speaker 6: and Canada. That really is something that a lot of
Speaker 6: traders physical traders knew was coming, but I think it
Speaker 6: still has surprise on hedge funds. And alongside is the
Speaker 6: price of electricity, because at times we focus on oil
Speaker 6: and we see energy crisis through the lens still of
Speaker 6: nineteen seventy, nineteen seventy three, nineteen seventy nine, the first
Speaker 6: and second oil crisis. But the global economy has changed
Speaker 6: a lot since then. And yes, of course gasoline and
Speaker 6: diesel are very important, but electricity is really what powers
Speaker 6: today the global economy. You go to your bakery downstairs
Speaker 6: or your coffee shop, that's all electricity. And the price
Speaker 6: of electricity increase a lot. In twenty twenty two, particularly
Speaker 6: here in Europe, we saw prices. We look at German
Speaker 6: prices as a benchmark for the whole of Europe, and
Speaker 6: I typically look at the one year forward because they
Speaker 6: kind of smooth out a lot of the you know,
Speaker 6: months and.
Speaker 4: Day to day volatility.
Speaker 6: The one year forward for electricity prices in Germany went
Speaker 6: up to nearly one thousand euros per meke up an hour.
Speaker 4: It's now around ninety.
Speaker 6: So when people talk about are we seeing an energy
Speaker 6: crisis like twenty twenty two, I said, look, you look
Speaker 6: at refined products or even clude oil. Yes, it's bad.
Speaker 6: You look at gas in Europe, it's getting uncomfortable, but
Speaker 6: it's not bad.
Speaker 4: In the US.
Speaker 6: They have not even noticed that there is a crisis.
Speaker 6: You look at the electricity market, it's like someone said
Speaker 6: the word crisis because we are a normal prices here.
Speaker 6: I mean like I have not seen anything moving, and
Speaker 6: I think that that has been quite at the center conversations.
Speaker 6: And it's also one of the reasons when I told
Speaker 6: to central banks which they are a bit more at
Speaker 6: ease that they were in twenty twenty two, because in
Speaker 6: twenty twenty two, the four major energy commodities electricity, natural gas,
Speaker 6: call an oil, all of them went out simultaneously and
Speaker 6: they went to a stream crisis. So far from these
Speaker 6: crisis we have seen a movement in oil and a
Speaker 6: bit of natural gas in Europe and Asia, not everywhere
Speaker 6: else has barely moved. Electricity is just basically relaxing and
Speaker 6: having a very Spanish Yesta.
Speaker 2: All right, HARBYA, thank you so much for coming back
Speaker 2: on our thoughts. Really appreciate it.
Speaker 4: My pleasure.
Speaker 2: Joe, great to talk to have you as always. A
Speaker 2: couple of things stood out to me from that conversation,
Speaker 2: So it seems like everything is very relative in commodities
Speaker 2: at the moment, Like the relative price moves really seem
Speaker 2: to matter and like be quite different to each other.
Speaker 2: So the idea that maybe we shouldn't be focusing on
Speaker 2: the crude price so much. It's more the refined products
Speaker 2: where we're releasing the impact, which is what matters for
Speaker 2: you know, everyday consumption and economic growth. And then secondly
Speaker 2: the idea that we still don't have that much movement
Speaker 2: in natural gas, yeah, which is kind of weird, but
Speaker 2: also relevant if you're worried about inflation, because that would
Speaker 2: be I think like the primary channel electricity prices through
Speaker 2: which you would see higher prices through the economy.
Speaker 5: Yeah, I mean, look also, I mean gasoline prices are
Speaker 5: going to go to five dollars very plausibly. Diesel prices
Speaker 5: in the US are up, So it's gonna there's gonna
Speaker 5: be a strain. But I do think that is, as
Speaker 5: you say, the really key thing it is like that
Speaker 5: that you know, what really helped me understand this was
Speaker 5: just this idea of distance between the straight and where
Speaker 5: you're an end consumer, right, and you have to figure
Speaker 5: too that like, if the distance is fairly narrow and
Speaker 5: short and you're getting your oil from your next door neighbor,
Speaker 5: you're gonna have less, you know, less reason to hold
Speaker 5: a lot of stocks and so forth. And so when
Speaker 5: you see these headlines in East Asia, like they're already
Speaker 5: in rationing mode, Like I sort of get it. Whereas
Speaker 5: in other parts, you know, there's not a ton of
Speaker 5: imports west of Suez from Saudi Arabia Saudi Arabia, but
Speaker 5: there is some. So in some of these areas or
Speaker 5: some of these longer distances, like the Philippines, et cetera,
Speaker 5: this sort of drop dead date or whatever. Maybe that's
Speaker 5: a little too extreme, but the sort of the true
Speaker 5: moment the crisis hits hasn't hit yet.
Speaker 2: Everything's relative, Joe, especially geography. Well, the other thing I
Speaker 2: was thinking, though, is, you know, these buffer stocks have
Speaker 2: helped the market whether this crisis so far. But I
Speaker 2: just like, I have to imagine that if things were
Speaker 2: to get resolved in the next I don't know a
Speaker 2: week or two or even month, that everyone around the
Speaker 2: world is going to be scrambling to rebuild some of
Speaker 2: their stoles oil. So I just don't see like that
Speaker 2: immediate pressure on price necessarily dissipating that fast. But there
Speaker 2: still seem to be a lot of people in the
Speaker 2: oil market who think it is.
Speaker 5: It's a pretty weird time. And you know, one of
Speaker 5: the things I think, like in the very early days
Speaker 5: of the war, well, one thing that perhaps kept oil
Speaker 5: prices someone contained was like, oh, Trump is going to
Speaker 5: talk over right, There's not much appetite for any pain.
Speaker 5: And then I think the next step, which we're in
Speaker 5: right now, is and this next leg up that we've seen,
Speaker 5: we have seen bent futures trade closed yesterday at the
Speaker 5: highest prices yet in this crisis, the next leg is
Speaker 5: probably well Trump couldn't check it out if you wanted to,
Speaker 5: because Iran get to say. And then the next stage
Speaker 5: maybe well maybe Trump latterly decides to end the war.
Speaker 5: Iran's still controls the straight Uorford moods to some extent.
Speaker 5: How does the world live with a toll booth, etc.
Speaker 5: Which is not great for anyone not thrilled, But also
Speaker 5: perhaps I don't know, maybe like the market could live
Speaker 5: with that for a while. So we seem to be
Speaker 5: maybe moving I don't know. It'll be interesting to see
Speaker 5: if this latest headline, how long that stays with us?
Speaker 5: And if that becomes the new meta that or the
Speaker 5: new narrative that will just be Yes, this is not great.
Speaker 3: But this is not great is better than no movement
Speaker 3: at all.
Speaker 2: It's very seven stages of great.
Speaker 3: Yeah, it does feel it does.
Speaker 2: Feel like we moved from denial to like depression and
Speaker 2: then reconstruction, acceptance finally exceptions. Yeah, all right, shall we
Speaker 2: leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 5: Follow our guest Javier Bloss at Javier Bloss, and of course,
Speaker 5: check out all of his Bloomberg opinion columns. Follow our
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