WEBVTT - Javier Blas on Why Oil Could Go Much, Much Higher 0:00:02.720 --> 0:00:13.960 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.480 --> 0:00:21.400 Hello and welcome to another episode of the Odd Lots podcast. 0:00:21.560 --> 0:00:22.920 I'm Tracy Alloway. 0:00:22.680 --> 0:00:23.279 And I'm Jill. 0:00:23.320 --> 0:00:24.680 Why isn't thal Joe. 0:00:24.680 --> 0:00:28.840 One of the weirdnesses of our current market moments is 0:00:28.880 --> 0:00:31.880 that you have all these oil analysts who keep talking 0:00:31.880 --> 0:00:34.879 about how the straight of hor Moves closure is like 0:00:35.400 --> 0:00:39.400 the theoretical exercise that the entire market used to have 0:00:39.479 --> 0:00:42.720 nightmares about. This was like the big risk in the 0:00:42.880 --> 0:00:46.400 entire oil market. And yet and yet if you look 0:00:46.400 --> 0:00:48.800 at the actual price of oil and where it's traded, 0:00:49.440 --> 0:00:52.840 I mean, it's gone up, but it's not it doesn't 0:00:52.880 --> 0:00:54.920 strike me as panic levels. 0:00:55.320 --> 0:00:57.600 Yeah, I mean it's gone up a lot, and you know, 0:00:57.640 --> 0:00:59.600 it started the year I'm just looking it at Brent. 0:01:00.240 --> 0:01:02.320 It started the year around sixty. It had climbed to 0:01:02.360 --> 0:01:05.720 around seventy before the war started. Now one fifteen, So 0:01:05.720 --> 0:01:08.240 it's a huge move in some sense, but it's not 0:01:08.280 --> 0:01:11.200 even a twenty twenty two problems, which were very high 0:01:11.520 --> 0:01:14.640 and that all that's true, and yet there's this disconnect 0:01:14.720 --> 0:01:17.080 I don't understand, like, why isn't it at two hundred 0:01:17.160 --> 0:01:20.759 yet or whatever? Because Straightford moves is closed, etcetera. Why 0:01:20.800 --> 0:01:23.399 isn't it even higher? But then the other thing is, okay, 0:01:23.440 --> 0:01:26.160 like prices are up a lot, But then you look 0:01:26.200 --> 0:01:29.039 at like what governments around the world are doing, and 0:01:29.080 --> 0:01:31.880 it's like hair on fire panic, particularly in East Asia. 0:01:32.040 --> 0:01:35.720 So you get stories about Korean government workers being told 0:01:35.760 --> 0:01:39.440 to drive on every drive to work depending whether their 0:01:39.520 --> 0:01:45.280 license plate number and even an odd like extreme rationing. Yeah, 0:01:45.440 --> 0:01:48.080 and so I'm trying to like, it still feels like 0:01:48.120 --> 0:01:50.000 there are some puzzle pieces here that I'm trying to 0:01:50.000 --> 0:01:50.520 fit together. 0:01:50.760 --> 0:01:53.240 Absolutely. The other thing I would say is it feels 0:01:53.280 --> 0:01:56.080 also like there's this disconnect between what's going on in 0:01:56.080 --> 0:01:58.880 the financial world and what's going on in the physical world. 0:01:59.000 --> 0:01:59.720 I don't get. Yeah. 0:01:59.720 --> 0:02:02.120 And there was this really interesting note This wasn't purely 0:02:02.200 --> 0:02:05.720 related to oil, but you could kind of extrapolate from it, 0:02:05.920 --> 0:02:08.480 But it was from Bloomberg Green Markets the other day, 0:02:08.600 --> 0:02:10.600 and they were talking about Urea coming out of the 0:02:10.600 --> 0:02:13.000 Middle East and the pricing that they've been seeing from it, 0:02:13.240 --> 0:02:15.360 and one of the analysts says, the real issue on 0:02:15.480 --> 0:02:18.880 pricing is that while sellers and buyers can quote almost 0:02:18.880 --> 0:02:22.360 any price, nothing is actually getting out of the Gulf. 0:02:22.520 --> 0:02:26.520 That reality makes most discussion academic rather than representative of 0:02:26.560 --> 0:02:29.320 actual business. So I wonder how much of that is 0:02:29.320 --> 0:02:31.200 happening in the oil market as well, where you have 0:02:31.280 --> 0:02:33.880 all these quotes that are flashing across the screen, but 0:02:34.080 --> 0:02:37.280 like for barrels that are essentially not going anywhere for 0:02:37.320 --> 0:02:37.680 a while. 0:02:37.760 --> 0:02:40.040 Yeah, and I still don't totally get it, because right, like, 0:02:40.120 --> 0:02:42.639 these things do have to settle at some point, and 0:02:43.000 --> 0:02:44.440 I don't know, I'm confused. And then there were those 0:02:44.480 --> 0:02:48.680 headlines early on about how physical oil quoted in Oman 0:02:49.040 --> 0:02:52.440 were fifty dollars a barrel above the front month. Many 0:02:52.480 --> 0:02:54.760 things I don't understand. So we have to talk to 0:02:54.760 --> 0:02:56.440 someone who can answer all these questions for us. 0:02:56.480 --> 0:02:58.560 The great thing about an oil crisis, Joe, is that 0:02:58.600 --> 0:03:01.640 we will learn about all the oil benchmarks throughout the 0:03:01.800 --> 0:03:04.800 entire world. Okay, well, we really do have the perfect guest, 0:03:05.040 --> 0:03:07.160 someone who's been on the show before, who a lot 0:03:07.160 --> 0:03:09.520 of people have requested us to bring back to talk 0:03:09.560 --> 0:03:12.919 about this particular moment in time. So without further ado, 0:03:13.080 --> 0:03:15.919 we have, of course, Javier Blast. He is the energy 0:03:15.960 --> 0:03:19.000 and commodities columnist over at Bloomberg, been writing about the 0:03:19.040 --> 0:03:21.600 stuff for a very long time. Thank you so much 0:03:21.639 --> 0:03:23.160 for coming back on our thoughts. 0:03:23.440 --> 0:03:26.799 My pleasure seems that every time that you come back 0:03:26.919 --> 0:03:28.200 is because of a crisis. 0:03:28.360 --> 0:03:29.440 Yep, that's right. 0:03:29.680 --> 0:03:32.200 Okay, well, let's just jump into it. How bad is 0:03:32.240 --> 0:03:32.640 this one? 0:03:32.919 --> 0:03:36.080 It's bad and it could get really bad. But in 0:03:36.160 --> 0:03:39.840 any energy crisis, there are two elements that are very important. 0:03:39.920 --> 0:03:42.800 One is the size of the disruption, and the size 0:03:42.840 --> 0:03:46.080 is huge. And then is the length of that disruption, 0:03:46.280 --> 0:03:51.760 how lonely goes, And so far the disruption is relatively 0:03:51.840 --> 0:03:52.440 short lived. 0:03:52.560 --> 0:03:53.880 We have been a month. 0:03:54.640 --> 0:03:57.360 So that's one of the reasons why we are not 0:03:57.600 --> 0:04:01.640 at crazy high oil prices. It's just because it's a 0:04:01.680 --> 0:04:04.480 bit too early. Give it up a few more weeks 0:04:04.520 --> 0:04:07.840 and certainly we will get there. But so far the 0:04:08.040 --> 0:04:13.240 crisis is relatively short lived. How shortly, well, look at 0:04:13.280 --> 0:04:15.760 twenty twenty two with Russia we are still at it 0:04:16.040 --> 0:04:19.679 four years later. Or look at how lonely it took 0:04:19.920 --> 0:04:24.640 for the resolution of the invasion of Kube in nineteen ninety. 0:04:24.760 --> 0:04:26.760 That was about eight months. 0:04:27.000 --> 0:04:31.839 So at times we forget how lone other crisis were, 0:04:31.920 --> 0:04:34.000 and they were a lot longer than this one. 0:04:34.120 --> 0:04:39.240 Okay, So now connect to what we're seeing with governments 0:04:39.279 --> 0:04:42.839 around the world like already going into rationing mode almost 0:04:42.839 --> 0:04:46.159 everywhere you look, particularly see a lot in Africa, already 0:04:46.480 --> 0:04:49.640 a lot in East Asia. If the story is okay, 0:04:49.680 --> 0:04:54.440 the prices haven't exploded the crazy high levels because this 0:04:54.600 --> 0:04:57.400 is still short lived, maybe there's some buffer stocks. Why 0:04:57.440 --> 0:04:59.440 this rationing reality. 0:04:59.600 --> 0:05:03.000 Well, you're absolutely right that what is really cushion in 0:05:03.040 --> 0:05:06.480 the market right now is a number of buffers that 0:05:06.520 --> 0:05:11.400 we're going through. One is regular inventories that every country, 0:05:11.520 --> 0:05:16.360 every refinery has to normal functioning. Then it is also 0:05:16.440 --> 0:05:21.599 the strategic inventories that some countries own, particularly industrialized countries 0:05:21.640 --> 0:05:25.440 like the United States, Europe, Japan, and also China. Those 0:05:25.480 --> 0:05:30.240 have been mobilized in most places have been released. 0:05:30.760 --> 0:05:32.400 And also we. 0:05:32.560 --> 0:05:35.720 Enter the crisis with a market that was over supply. 0:05:36.160 --> 0:05:40.040 There was even floating storage, that is when an oil 0:05:40.120 --> 0:05:42.800 tanker has been loaded is on the high seas but 0:05:42.839 --> 0:05:45.479 they cannot find a buyer and just basically sits on 0:05:45.560 --> 0:05:48.559 the high seats looking for someone who will take the oil. 0:05:48.800 --> 0:05:50.880 And we have quite a lot of that just going 0:05:50.920 --> 0:05:53.839 into the crisis. So there was quite an element of 0:05:53.880 --> 0:05:58.279 buffer through the system, and probably a larger buffer than 0:05:58.400 --> 0:06:02.520 in normal circumstances because the market was over supply. That 0:06:02.720 --> 0:06:07.000 is helping to cushion or to mitigate the crisis. Where 0:06:07.000 --> 0:06:10.200 we are seeing some actions by government is where countries 0:06:10.200 --> 0:06:13.760 are closer to the crisis, which is destrait or hormones. 0:06:14.040 --> 0:06:17.200 So the closer that you are to that location, the 0:06:17.200 --> 0:06:20.159 more action you need to take because you typically depend 0:06:20.200 --> 0:06:22.880 more of that flow of oil coming from the Middle East, 0:06:23.080 --> 0:06:25.880 and also because you are impacted earlier. If you are 0:06:25.920 --> 0:06:30.720 moving oil from say Saudi Arabia into India, that's only 0:06:30.760 --> 0:06:33.400 a few days at most a week of sailing time. 0:06:33.720 --> 0:06:36.760 You are moving that to say the Philippines, that's about 0:06:36.800 --> 0:06:40.440 fifteen days. It's longer you are moving that oil into Europe, 0:06:40.480 --> 0:06:42.960 probably around three weeks. And it's even longer you are 0:06:42.960 --> 0:06:46.840 moving that oil into say the United States, where Saudi 0:06:46.839 --> 0:06:49.839 oil takes about forty days. So all of that means 0:06:49.880 --> 0:06:53.679 that the crisis is felt in some places. 0:06:53.400 --> 0:06:55.880 Quicker than in other places. 0:06:56.160 --> 0:07:00.359 Also, it's how the global oil market works. And to 0:07:00.400 --> 0:07:03.719 put it in quite simple terms, and I'm afraid that 0:07:03.760 --> 0:07:08.799 I have to go with colonial vocabulary, but the oil 0:07:08.880 --> 0:07:12.240 market is divided in two large chunks. 0:07:12.280 --> 0:07:14.480 East of swet and west of sweth. 0:07:14.600 --> 0:07:16.920 This is like, you know, the British Empire was still 0:07:16.960 --> 0:07:20.360 around and everything was east or west of the Sweat Canal. 0:07:20.960 --> 0:07:24.280 Countries that they are east of Swift, mostly Asia, rely 0:07:24.360 --> 0:07:27.760 a lot on Middle East oil these days, and therefore 0:07:28.000 --> 0:07:32.200 they are impacted earlier on the crisis. West of Swift Europe, 0:07:32.440 --> 0:07:36.680 Western Europe and the whole American continent is a bit 0:07:36.800 --> 0:07:40.360 detached from that market, and therefore the crisis will hit 0:07:40.400 --> 0:07:41.280 them much later. 0:07:42.160 --> 0:07:45.440 So I know a bunch of MH bros Are going 0:07:45.480 --> 0:07:47.680 to get mad at me for even asking this, But like, 0:07:47.760 --> 0:07:50.800 could you get a situation where you can't get oil 0:07:51.120 --> 0:07:53.200 at any price in certain countries? 0:07:55.040 --> 0:07:59.480 I mean, in an absolutely full blown crisis where we 0:07:59.560 --> 0:08:03.000 have this the hormones closed for many months, we may 0:08:03.200 --> 0:08:05.960 have a lang word in Iran. Yes, I think that 0:08:06.000 --> 0:08:08.560 we can get into a situation that, no matter what 0:08:08.720 --> 0:08:11.480 you are offering for a barrel of oil, no one 0:08:11.560 --> 0:08:13.920 is willing to sell because that will be a wall 0:08:14.040 --> 0:08:18.080 of esport bands where every country is trying to keep 0:08:18.400 --> 0:08:22.160 the oil for themselves, et cetera. And I think that, yes, 0:08:22.280 --> 0:08:25.280 I can't see an scenario in which, no matter how 0:08:25.360 --> 0:08:28.280 much you are paying for a barrel of oil. You 0:08:28.360 --> 0:08:30.720 may not find a buyer, or you may find enough 0:08:30.840 --> 0:08:33.520 barrels for whatever you are offering, but that will be 0:08:33.559 --> 0:08:35.800 in that really extreme extreme situation. 0:08:36.240 --> 0:08:39.600 I have a very rudimentary oil one on one class. Actually, 0:08:39.600 --> 0:08:42.160 I found a free book on my sidework called Oil 0:08:42.200 --> 0:08:42.960 one O one. 0:08:42.880 --> 0:08:44.400 Yesterday and I picked it up. I should have read 0:08:45.480 --> 0:08:45.840 I don't know. 0:08:45.840 --> 0:08:48.559 It's crazy, No, it's it's really it's a it's like 0:08:48.600 --> 0:08:50.720 a fall on book. You know this book, Morgan Downey. 0:08:50.760 --> 0:08:52.720 It's a very thick book Oil one on one. Someone 0:08:52.800 --> 0:08:54.880 just put it on my sidewalk. Anyway, I have an 0:08:54.880 --> 0:08:55.720 oil one on one. 0:08:55.800 --> 0:09:00.600 Wait are you sure? Someone's not like they'll lure you 0:09:00.640 --> 0:09:01.360 out of your house. 0:09:01.520 --> 0:09:03.040 But I'm gonna ask you an oil one on one 0:09:03.120 --> 0:09:07.480 question because it when we see, okay, Brent crude one 0:09:07.559 --> 0:09:10.160 fifteen twenty five is at the time, how is the 0:09:10.240 --> 0:09:11.480 Brent benchmark formed? 0:09:12.920 --> 0:09:14.000 Oh course, okay? 0:09:14.040 --> 0:09:21.000 Sorry now is a simple question and a complicated one. Effectively, 0:09:21.080 --> 0:09:23.640 we are talking about a bunch of crude oil from 0:09:23.679 --> 0:09:27.040 the North Sea ok So, mostly UK and Norway, but 0:09:27.360 --> 0:09:30.679 also crude oil from Texas that comes across the Atlantic 0:09:31.200 --> 0:09:35.360 and through effectively bias and sellers on the physical market, 0:09:35.440 --> 0:09:39.520 we get a price that then cascade into the financial market. 0:09:39.559 --> 0:09:41.480 But here is a very important. 0:09:41.160 --> 0:09:44.119 I guess the reason I'm asking is because I associate 0:09:44.240 --> 0:09:47.520 with Brent with the North Sea, and that's west of 0:09:47.559 --> 0:09:50.800 the Seuez. And so when we're talking about east of 0:09:50.840 --> 0:09:53.920 the Sewez oil, why is this the price and how 0:09:53.960 --> 0:09:58.280 connected is that price to the oil moving that actually 0:09:58.280 --> 0:10:01.199 affects these markets. I guess that's sort of why the 0:10:01.280 --> 0:10:02.160 question is on my mind. 0:10:02.440 --> 0:10:04.080 Now that that's a crucial question. 0:10:04.160 --> 0:10:08.760 They are about two hundred and fifty different grades of 0:10:08.880 --> 0:10:12.160 crude oil that we track on a given time, and 0:10:12.320 --> 0:10:16.959 Brain is used effectively a short ham for the average 0:10:17.000 --> 0:10:21.280 barrel in the world, and it's not really the average barrel, 0:10:21.360 --> 0:10:23.599 and certainly not the average barrel that comes from the 0:10:23.640 --> 0:10:26.439 Middle East. So you will have to look at benchmarks 0:10:26.520 --> 0:10:29.960 like Oman Dubai that they are closer to the quality 0:10:30.559 --> 0:10:33.600 of the Middle East oil, and those benchmarks are a 0:10:33.600 --> 0:10:38.360 bit higher than what Brain is trading today. But if 0:10:38.400 --> 0:10:41.520 I may suggest, forget about the price of a barrel 0:10:41.559 --> 0:10:45.320 of oil, Okay, no one cares about the price of 0:10:45.360 --> 0:10:49.440 oil unless you are someone producing oil in Texas or 0:10:49.440 --> 0:10:52.960 Saudi Arabia or you are someone who owns a refinery. 0:10:53.320 --> 0:10:56.000 Those are the people that care about the price of 0:10:56.080 --> 0:11:00.440 a barrel of crude. The rest of us, you and I, 0:11:00.520 --> 0:11:03.280 we care about the price of our refined product because 0:11:03.280 --> 0:11:06.800 that's what we consume. We consume gasoline, we consume diesel, 0:11:07.160 --> 0:11:10.480 or we consume other refined products that they are embedded 0:11:10.600 --> 0:11:13.000 into a service that we are buying. Think about an 0:11:13.000 --> 0:11:16.720 airfare ticket where inside that ticket there is a big 0:11:16.760 --> 0:11:20.000 proportion of it that is jet fuel, or you are 0:11:20.040 --> 0:11:23.280 buying I don't know, a cap made of plastic, well, 0:11:23.320 --> 0:11:27.840 that is, you are buying effectively some kind of transformed NAFTA. 0:11:27.880 --> 0:11:31.120 And obviously you know the transformation and the retail marking 0:11:31.400 --> 0:11:34.040 and so on. But what matters really is the price 0:11:34.040 --> 0:11:37.920 of refined products, and they're actually we are beginning to see, 0:11:38.080 --> 0:11:43.480 particularly in the East, in the Southeast Asian markets, some 0:11:43.679 --> 0:11:46.360 very extreme prices. So well, if you look at the 0:11:46.400 --> 0:11:51.080 price of crude or brain or WTI or Roman, things 0:11:51.200 --> 0:11:54.800 look relatively contained. You know, we are treading around one 0:11:54.880 --> 0:11:57.240 hundred and one hundred and ten dollars a barrel, that 0:11:57.480 --> 0:12:00.839 is well below the all time high. You look at 0:12:00.880 --> 0:12:05.640 the course of diesel in Singapore, which is a benchmark 0:12:05.679 --> 0:12:07.920 for the Southeast Asia market. 0:12:08.040 --> 0:12:09.240 The price there is. 0:12:09.200 --> 0:12:12.360 Approaching two hundred dollars a barrel, which is something that 0:12:12.360 --> 0:12:15.959 we have never seen. So the refined product is where 0:12:16.040 --> 0:12:17.880 really we are seeing the real tension. 0:12:18.160 --> 0:12:20.040 This is exactly what I want to ask you. So 0:12:20.200 --> 0:12:23.440 if you look at the benchmark prices for crude oil, 0:12:23.800 --> 0:12:27.640 we've seen higher prices before, right and relatively recently in 0:12:27.679 --> 0:12:30.640 twenty twenty two. But if you look at the refined products, 0:12:31.000 --> 0:12:36.240 we're getting to places again that we haven't seen. What 0:12:36.440 --> 0:12:39.880 explains that disconnect, Like back in twenty twenty two, why 0:12:39.920 --> 0:12:43.320 didn't we see the higher cost of crude feed into 0:12:43.440 --> 0:12:47.000 refined products the way that we seem to be seeing now. 0:12:47.320 --> 0:12:50.800 For two reasons. One is because we have lost not 0:12:50.840 --> 0:12:53.360 only a lot of crude oil production, but we have 0:12:53.480 --> 0:12:58.720 lost a significant chunk of refined production. The Middle East 0:12:58.720 --> 0:13:02.240 also has a lot of refinedes which are esport refineries. 0:13:02.480 --> 0:13:05.160 They are just devoted to the xport market. 0:13:05.480 --> 0:13:09.600 And the global trade of refined products is a lot 0:13:09.760 --> 0:13:13.120 smaller than the global trade of crude oil, So even 0:13:13.160 --> 0:13:16.920 a small reduction of supply could have a much larger impact. 0:13:17.240 --> 0:13:20.360 You think about the market for the global market for 0:13:20.480 --> 0:13:24.760 clude oil, which is one hundred million barrels. Around sixty 0:13:24.840 --> 0:13:28.280 million are traded globally, but if you look at the 0:13:28.320 --> 0:13:32.080 market for say, get fuel, that market is a lot smaller, 0:13:32.360 --> 0:13:35.800 and we have lost a significant proportion of the refineries 0:13:35.840 --> 0:13:39.840 who are serving that international market for jet fuel, and 0:13:39.880 --> 0:13:43.600 therefore prices are reacting much more stronger than we saw 0:13:43.720 --> 0:13:47.839 in previous crisis. There is also the way that the 0:13:47.840 --> 0:13:53.880 whole of refining works. So refineries are slowing down intake 0:13:53.960 --> 0:13:56.560 of clude oil because there is not enough crude oil 0:13:56.559 --> 0:13:59.960 in the market, but we have not really seen get 0:14:00.080 --> 0:14:04.600 the consumers reacting the same way. So what is happening 0:14:04.720 --> 0:14:07.520 is the refining wall is acting as a buffer in 0:14:07.559 --> 0:14:11.880 between crude oil that is not there and consumers that 0:14:11.920 --> 0:14:14.520 they have not yet realized that the crude oil is 0:14:14.559 --> 0:14:17.800 not there. So the refined market is trying to basically 0:14:18.640 --> 0:14:21.320 get that two together, and the way that it can 0:14:21.320 --> 0:14:26.120 only do it is by extreme pricing and indicating the consumers, hey, 0:14:26.720 --> 0:14:29.040 I don't have enough crewe to make these refined products, 0:14:29.080 --> 0:14:32.320 so please can you stop demanding the refined products? And 0:14:32.360 --> 0:14:35.400 the police is basically two hundred dollars a barrel. 0:14:35.160 --> 0:14:38.640 Diesel I should just say. We're recording this on March 0:14:38.680 --> 0:14:43.000 thirty first, and a headline related to this, Trump tells 0:14:43.040 --> 0:14:47.520 allies to buy us jet fuel or take it from horrormos. 0:14:47.960 --> 0:14:50.080 I have no idea if we have spare jet fuel, 0:14:50.560 --> 0:14:53.880 you know that, speaking of refined products doing East Asia, 0:14:54.160 --> 0:14:56.320 one of the charts that's probably gone the most viral 0:14:56.480 --> 0:15:00.320 is that Singapore jet fuel chart, and that, more than 0:15:00.320 --> 0:15:02.760 any other chart, price shows that gap that Havevier is 0:15:02.800 --> 0:15:06.360 talking about between the underlying quoted prices of barrels, which 0:15:06.400 --> 0:15:08.840 is high, but that getual price is way above now 0:15:09.160 --> 0:15:10.480 the twenty twenty two highs. 0:15:10.480 --> 0:15:11.360 So that speaks to it. 0:15:11.520 --> 0:15:14.320 Have you you're this down in Houston, are any Americans 0:15:14.440 --> 0:15:16.880 from your perspective, are we going to pick up the slack? 0:15:16.960 --> 0:15:20.720 Do you see American oil entrepreneurs doing more drilling and 0:15:20.800 --> 0:15:23.200 exploration to take advantage of these high prices? 0:15:23.480 --> 0:15:25.840 I mean, for sure, at one hundred dollars oil, everyone 0:15:25.920 --> 0:15:27.880 is going to try to do more. It just basically 0:15:27.960 --> 0:15:30.120 because he makes a lot of money. I mean, a 0:15:30.280 --> 0:15:33.720 US shale producer in Texas was looking to sell his 0:15:33.840 --> 0:15:37.640 oil about six weeks ago for sixty dollars a barroil 0:15:37.960 --> 0:15:39.880 and it can sell the oil at one hundred today, 0:15:40.000 --> 0:15:43.280 So everyone who can increase production a bit is going 0:15:43.320 --> 0:15:46.360 to try. But do I see a massive amount of 0:15:46.360 --> 0:15:49.640 extra drilling coming in the US over the next three months, 0:15:49.720 --> 0:15:51.920 which is what really we needed. No, that's not going 0:15:51.960 --> 0:15:54.720 to happen over the next three months. And also we 0:15:54.760 --> 0:15:57.760 are losing so much oil that you know, it doesn't 0:15:57.880 --> 0:16:01.160 matter what the US shale producers do. I mean, it 0:16:01.200 --> 0:16:04.280 will help on the margins, but the gap is big. 0:16:04.360 --> 0:16:06.840 And you know, I have been discussing with some of 0:16:06.840 --> 0:16:09.480 the colleagues on the newsroom and with analyst and traders. 0:16:09.720 --> 0:16:12.280 How big is the gap? Is eight million? Is a 0:16:12.400 --> 0:16:14.160 nine million? Is ten? Is twelve? 0:16:14.600 --> 0:16:17.000 I mean, at the end of the day, it almost 0:16:17.040 --> 0:16:21.160 doesn't matter because we are talking about that about ten 0:16:21.200 --> 0:16:23.880 percent of the global oil supply. I mean, whether it's 0:16:23.960 --> 0:16:28.640 eight percent or eleven percent, it really doesn't really matter. 0:16:28.680 --> 0:16:32.320 We are losing so much oil that either the conflict 0:16:32.360 --> 0:16:35.840 and soon or prices need to move much much higher. 0:16:35.960 --> 0:16:39.440 I mean, I am surprised that we are not much higher. 0:16:40.040 --> 0:16:44.440 And in some ways it really speaks how good the 0:16:44.680 --> 0:16:48.040 White House has been at joubone in the market, make 0:16:48.240 --> 0:16:52.840 verbal intervention, make threats, make promises, a lot of them falls, 0:16:53.000 --> 0:16:55.600 but it has worked in preventing a lot of the 0:16:55.640 --> 0:17:11.119 panic buying that we have seen in previous crisis. 0:17:13.920 --> 0:17:17.119 What's going on with you as natural gas because if 0:17:17.160 --> 0:17:20.560 you look there, I mean we're talking about like muted 0:17:20.640 --> 0:17:23.200 market moves in the oil market, even though those have risen. 0:17:23.400 --> 0:17:25.800 If you look at that gas, not gas has actually 0:17:26.119 --> 0:17:26.720 come down. 0:17:27.600 --> 0:17:30.359 Yeah, not gas in the United States is trading almost 0:17:30.359 --> 0:17:34.159 as a six month low, which, considering what is happening 0:17:34.160 --> 0:17:38.720 on the global energy market, almost incredible. I mean, the 0:17:38.760 --> 0:17:41.679 reason there is US shale, and the reason is that 0:17:41.720 --> 0:17:46.680 you cannot esport gas easily. For exporting gas, you first 0:17:46.760 --> 0:17:51.359 need to cool it down liquifi. That basically means having 0:17:51.400 --> 0:17:56.520 an enormous fridge that cools gas from you know, room 0:17:56.560 --> 0:17:58.360 temperature to minus one hundred. 0:17:58.160 --> 0:17:59.680 And sixty celsius. 0:18:00.000 --> 0:18:01.879 The illiquifies, and then you can put it on a 0:18:01.920 --> 0:18:04.879 tanker and send it to the rest of the market. 0:18:05.080 --> 0:18:08.399 Because we have limited equofaction capacity. When it does increase 0:18:08.440 --> 0:18:11.360 in quite quickly, that creates a bottleneck. That means that 0:18:11.840 --> 0:18:16.640 the US and Canadian gas effectively strapped inside North America, 0:18:16.720 --> 0:18:20.520 and that's keeping prices completely detached from the global market, 0:18:20.960 --> 0:18:24.879 and that is a huge difference from previous episodes of 0:18:25.080 --> 0:18:28.719 high energy prices. Even in twenty twenty two, the price 0:18:28.880 --> 0:18:31.960 of US natural GUS went from around three and a 0:18:32.000 --> 0:18:35.919 half dollars four dollars to almost ten dollars per British 0:18:35.960 --> 0:18:39.760 thermal unit. This time's staying at around three, actually below 0:18:39.800 --> 0:18:44.359 three dollars at mbtu, And that is incredible because it 0:18:44.440 --> 0:18:50.800 means that the heavy US industry electricity generators, chemical companies, 0:18:50.840 --> 0:18:56.120 fertilizer companies, is like, there is no crisis. Well, everyone 0:18:56.160 --> 0:19:01.400 else in the world is suffering. The US is completely insulated. 0:19:01.840 --> 0:19:06.040 There is something odded perverse about some of the disparate 0:19:06.160 --> 0:19:08.760 impacts here in terms of who is behind and who 0:19:08.760 --> 0:19:11.840 has catalyzed this war, and which side of the Suez 0:19:11.880 --> 0:19:14.439 you're on there, and who is feeling the brunt of it. 0:19:14.480 --> 0:19:16.800 But that actually, you know, you mentioned fertilizer. We've talked 0:19:16.800 --> 0:19:18.760 about fertilizer on the podcast. 0:19:19.200 --> 0:19:19.800 These are the. 0:19:19.800 --> 0:19:24.760 Type of things in a food insecurity that creates serious 0:19:24.760 --> 0:19:27.840 political instability potentially around the world. 0:19:28.000 --> 0:19:29.080 How worried are you you? 0:19:29.600 --> 0:19:31.920 We all know you as the oil and the oil guy, 0:19:31.960 --> 0:19:34.280 but you've written a lot about food over the years. 0:19:34.359 --> 0:19:36.520 I remember you wrote a great piece about in twenty 0:19:36.560 --> 0:19:38.520 twenty two about how rice is going to come to 0:19:38.560 --> 0:19:40.760 the rescue and people couldn't get as much wheat, So 0:19:40.760 --> 0:19:43.200 I know you know the food world too. How concerned 0:19:43.320 --> 0:19:47.480 are you about food? And yeah, the sort of fallout 0:19:47.760 --> 0:19:48.480 from that. 0:19:49.040 --> 0:19:51.080 Today, I'm not very concerned. 0:19:51.560 --> 0:19:55.399 This could all change if the war just goes on 0:19:55.560 --> 0:20:00.760 for months, if President Trump decides that he wants to 0:20:01.000 --> 0:20:04.199 invade Iran with ground troops, et cetera, et cetera. But 0:20:04.359 --> 0:20:08.240 now I'm not very concerned for a number of reasons. 0:20:08.280 --> 0:20:11.520 Twenty twenty two was a huge shock to the global 0:20:11.560 --> 0:20:15.239 food market because it affected a bread basket region of 0:20:15.280 --> 0:20:18.040 the world. If you look at Russia and Ukraine at 0:20:18.040 --> 0:20:21.239 the time, combined, the accounted for around a quarter of 0:20:21.520 --> 0:20:25.720 global exports of wheat and barley, around fifteen percent of 0:20:25.760 --> 0:20:30.040 global exports of corn, and even much higher percentage for 0:20:30.160 --> 0:20:33.919 some vegetable oil like rape seed and some flour. The 0:20:34.000 --> 0:20:37.119 Russian invasion of Ukraine, the battleground was one of the 0:20:37.200 --> 0:20:41.840 most some of the richest fertile farmland in the planet. 0:20:42.280 --> 0:20:46.240 The battleground of the crisis in the Middle East is 0:20:46.440 --> 0:20:48.840 desert and a piece of seed that we call the 0:20:48.840 --> 0:20:51.920 Strait of Hormuz. It doesn't have the same impact in 0:20:52.000 --> 0:20:55.359 terms of global supply. It does have an impact on 0:20:55.440 --> 0:20:58.880 fertilizer prices. So it did also the twenty twenty two 0:20:58.880 --> 0:21:02.600 war between Asia and Ukraine, which is still ongoing. But 0:21:02.920 --> 0:21:08.080 fertilizer prices require time to have an impact on food production. 0:21:08.840 --> 0:21:12.959 And also, while yes, the numbers are very scary, and 0:21:13.119 --> 0:21:16.280 you look at the global fertilizer market, just focusing on Yurea, 0:21:16.840 --> 0:21:19.400 you look at that market and say, oh boy, it's 0:21:19.440 --> 0:21:22.440 going up a lot. We are approaching the twenty twenty 0:21:22.480 --> 0:21:27.199 two record high. But that is a problem in many markets. 0:21:27.000 --> 0:21:29.080 It is a problem that is not a food problem. 0:21:29.320 --> 0:21:31.960 It will be a fyscal problem. And the reason is 0:21:32.000 --> 0:21:36.280 that Yurea fertilizer in particular, is massively subsidized in the 0:21:36.320 --> 0:21:40.160 developing world, particularly in places like India and Pakistan. So 0:21:40.920 --> 0:21:43.040 the problem there is going to be for the Indian 0:21:43.080 --> 0:21:47.000 government Cana the Ford and spend billions of dollars estra 0:21:47.320 --> 0:21:51.439 subsidizing fertilizer less. So is it going to be a 0:21:51.440 --> 0:21:54.720 food crisis in India because the fertilizer, i think, is 0:21:54.760 --> 0:21:57.119 going to be there it's just that you are the 0:21:57.200 --> 0:21:58.800 finance minister in India. 0:21:58.880 --> 0:22:01.560 You have a big problem. And there that's how I'm 0:22:01.600 --> 0:22:02.440 seeing the problem. 0:22:02.760 --> 0:22:07.639 And also the global food market is in a better 0:22:07.720 --> 0:22:09.720