1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,000 --> 00:00:08,520 Speaker 2: They could be ready to do a lot of things 3 00:00:08,560 --> 00:00:12,240 Speaker 2: on day one. Some of that may include energy policy. 4 00:00:12,280 --> 00:00:17,079 Speaker 2: In trying to deregulate American energy. Donald Trump obviously talked 5 00:00:17,120 --> 00:00:18,960 Speaker 2: a lot about that on the campaign trail. We are 6 00:00:19,000 --> 00:00:23,160 Speaker 2: all familiar now with refrain, Drill, Baby Drill. But one 7 00:00:23,160 --> 00:00:25,239 Speaker 2: of the policies I was just discussing with Laura that 8 00:00:25,280 --> 00:00:28,120 Speaker 2: he floated this week could potentially impact energy prices. It 9 00:00:28,160 --> 00:00:32,600 Speaker 2: twenty five percent tariff on all goods from Canada. Products 10 00:00:32,640 --> 00:00:37,120 Speaker 2: from Canada would be inclusive of oil, and this is 11 00:00:37,159 --> 00:00:39,879 Speaker 2: something I spoke about with Bob McNally, who worked on 12 00:00:40,000 --> 00:00:43,040 Speaker 2: energy policy in the George W. Bush administration. Now at 13 00:00:43,120 --> 00:00:45,839 Speaker 2: rapid end energy about yesterday. 14 00:00:46,159 --> 00:00:50,280 Speaker 3: Especially up there in the swing states of Michigan and Ohio, 15 00:00:50,400 --> 00:00:55,160 Speaker 3: places like that, there's no alternative really to Canadian heavy oil. 16 00:00:55,360 --> 00:01:00,360 Speaker 3: So if we tearifit, that increase will be passed long 17 00:01:00,520 --> 00:01:04,400 Speaker 3: to motorists up there in the form of higher oil prices. 18 00:01:04,440 --> 00:01:06,560 Speaker 3: There's really no way around it. 19 00:01:08,400 --> 00:01:10,880 Speaker 2: So as we consider motorists, especially as many of them 20 00:01:10,920 --> 00:01:13,919 Speaker 2: take to the roads for this Thanksgiving, they are paying 21 00:01:14,440 --> 00:01:16,840 Speaker 2: some of the lowest prices of the year at the pump. 22 00:01:16,880 --> 00:01:19,160 Speaker 2: Right now, the triple A average for a gallon of 23 00:01:19,160 --> 00:01:22,680 Speaker 2: gas is three dollars and seven cents. But how quickly 24 00:01:23,000 --> 00:01:25,680 Speaker 2: could that ultimately change? That is a question I now 25 00:01:25,760 --> 00:01:28,360 Speaker 2: pose to Patrick de'han, he is head of a petroleum 26 00:01:28,400 --> 00:01:32,440 Speaker 2: analysis at GUS Buddy joining me here on balance of power. Patrick, 27 00:01:32,480 --> 00:01:35,280 Speaker 2: welcome back to the program. If we could start firstly 28 00:01:35,400 --> 00:01:38,200 Speaker 2: with what the actual translation of a tariff like this 29 00:01:38,360 --> 00:01:41,800 Speaker 2: would be to the cost that consumers see at the 30 00:01:41,840 --> 00:01:44,840 Speaker 2: gas pump, you know, post it on the board at 31 00:01:44,880 --> 00:01:47,440 Speaker 2: the station. If it's a twenty five percent tariff, what 32 00:01:47,480 --> 00:01:50,000 Speaker 2: does that translate to in terms of CeNSE per gallon? 33 00:01:51,400 --> 00:01:54,000 Speaker 1: Well, yeah, well, you know, as Bob had said, I mean, 34 00:01:54,040 --> 00:01:56,840 Speaker 1: this is going to be a significant impact. And a 35 00:01:56,840 --> 00:02:00,000 Speaker 1: lot of these refineries in the Great Lakes, the Midwest, 36 00:02:00,120 --> 00:02:04,800 Speaker 1: the Rockies processed Canadian heavy oil almost exclusively. So right 37 00:02:04,840 --> 00:02:08,280 Speaker 1: now Western Canadian Select, which is one of the benchmarks 38 00:02:08,720 --> 00:02:11,440 Speaker 1: at about sixty dollars a barrow, that twenty five percent 39 00:02:11,520 --> 00:02:15,040 Speaker 1: tariff would amount about fourteen or fifteen dollars, which break 40 00:02:15,080 --> 00:02:19,280 Speaker 1: it down to a gallon of gasoline, and the raw 41 00:02:19,600 --> 00:02:22,440 Speaker 1: input would be about a thirty three to thirty four 42 00:02:22,520 --> 00:02:25,600 Speaker 1: cent a gallon impact, and so this is not nothing. 43 00:02:25,639 --> 00:02:28,520 Speaker 1: I mean, this is an over ten percent impact. And 44 00:02:28,560 --> 00:02:31,000 Speaker 1: this is the baseline, would be about thirty five cents. 45 00:02:31,080 --> 00:02:34,800 Speaker 1: Keep in mind twenty five percent tariff. If oil prices rally, 46 00:02:35,400 --> 00:02:37,080 Speaker 1: you're going to see that tariff go up and up 47 00:02:37,080 --> 00:02:38,320 Speaker 1: and up, and it's going to be more of a 48 00:02:38,360 --> 00:02:41,440 Speaker 1: squeeze as that happens, especially into the summer months. 49 00:02:43,520 --> 00:02:45,720 Speaker 2: Well, that's a very good point. Of course, this kind 50 00:02:45,720 --> 00:02:49,200 Speaker 2: of policy can't actually be implemented until at least January twentieth, 51 00:02:49,240 --> 00:02:52,320 Speaker 2: when Trump takes office, which is just over a month. 52 00:02:52,360 --> 00:02:55,040 Speaker 2: And I guess two months from now, just a little 53 00:02:55,040 --> 00:02:56,840 Speaker 2: bit less than two months, where are we going to 54 00:02:56,880 --> 00:03:01,080 Speaker 2: be in terms of gas prices by then? Considering the 55 00:03:01,080 --> 00:03:04,960 Speaker 2: trajectory we are currently on, which has been pretty steadily lower. 56 00:03:06,040 --> 00:03:08,359 Speaker 1: Well, I think most consumers are going to feel that 57 00:03:08,440 --> 00:03:12,000 Speaker 1: bite very significantly, because over the next couple of months 58 00:03:12,000 --> 00:03:15,040 Speaker 1: we should see gas prices staying at relatively low levels. 59 00:03:15,080 --> 00:03:18,160 Speaker 1: We still should have half of the country, if not more, 60 00:03:18,480 --> 00:03:22,399 Speaker 1: seeing average gas prices below three dollars for comparison's sake 61 00:03:22,600 --> 00:03:25,119 Speaker 1: gas but he counts about thirty states today below three 62 00:03:25,160 --> 00:03:28,600 Speaker 1: dollars a gallon, and though there may be some volatility 63 00:03:28,600 --> 00:03:32,600 Speaker 1: and prices depending on the balance of global supply and demand, 64 00:03:32,639 --> 00:03:35,320 Speaker 1: depending on Russia and Ukraine and the Middle East, there 65 00:03:35,400 --> 00:03:38,160 Speaker 1: may be some minor fluctuations, but the seasonal low should 66 00:03:38,160 --> 00:03:41,920 Speaker 1: stick around right through inauguration. Debt and if we see 67 00:03:41,920 --> 00:03:45,200 Speaker 1: that tariff implemented, it's going to be a rather abrupt 68 00:03:45,280 --> 00:03:47,120 Speaker 1: pinch of the pump for those areas that are going 69 00:03:47,160 --> 00:03:47,760 Speaker 1: to be affected. 70 00:03:49,080 --> 00:03:52,720 Speaker 2: Would that theoretically, and I understand we're playing in hypotheticals here, 71 00:03:52,760 --> 00:03:55,680 Speaker 2: but would that lead to a just as abrupt drop 72 00:03:55,720 --> 00:03:56,960 Speaker 2: off in demand? 73 00:03:58,760 --> 00:04:01,400 Speaker 1: Well, it probably wouldn't you to such a drop off. 74 00:04:01,440 --> 00:04:05,960 Speaker 1: I mean, Americans only really have their car to drive, 75 00:04:06,000 --> 00:04:08,760 Speaker 1: whether it's an EV, then they're insulated completely from this. 76 00:04:08,920 --> 00:04:11,600 Speaker 1: But for those that are still driving around an internal 77 00:04:11,600 --> 00:04:14,480 Speaker 1: combustion engine vehicle, there's not a whole lot of alternatives here, 78 00:04:14,520 --> 00:04:17,000 Speaker 1: Nor are there really alternatives for the refineries that have 79 00:04:17,560 --> 00:04:20,680 Speaker 1: for decades been relying on Canadian crude oil. This is 80 00:04:20,760 --> 00:04:25,200 Speaker 1: upsetting the status quo that's been established really for probably 81 00:04:25,200 --> 00:04:27,640 Speaker 1: the better part of one hundred years. These refineries have 82 00:04:27,680 --> 00:04:31,160 Speaker 1: processed Canadian oil almost exclusively, and they're going to be 83 00:04:31,200 --> 00:04:33,960 Speaker 1: the ones impacted the most, and they really have no alternatives. 84 00:04:33,960 --> 00:04:39,760 Speaker 1: As Bob has said, these inland areas Illinois, Michigan, Ohio, 85 00:04:39,880 --> 00:04:43,200 Speaker 1: refineries in this region just really don't have alternatives. 86 00:04:44,880 --> 00:04:48,680 Speaker 2: Well, so explain that to those who might say, hey, 87 00:04:48,960 --> 00:04:52,720 Speaker 2: Donald Trump has promised to deregulate American energy to make 88 00:04:52,760 --> 00:04:55,599 Speaker 2: it easier for them to build that new infrastructure to 89 00:04:55,720 --> 00:04:59,680 Speaker 2: increase their production capacity. That's going to mean we produce 90 00:04:59,720 --> 00:05:03,039 Speaker 2: more and potentially that means prices go lower. Why is 91 00:05:03,080 --> 00:05:05,880 Speaker 2: that not true when we think about the need to 92 00:05:06,000 --> 00:05:09,400 Speaker 2: potentially directly replace some of these imports. 93 00:05:10,680 --> 00:05:13,160 Speaker 1: Yeah, I mean absolutely. I mean you're talking about a 94 00:05:13,320 --> 00:05:16,080 Speaker 1: huge change in the status quo. I mean a president 95 00:05:16,080 --> 00:05:19,479 Speaker 1: that would potentially on day one levy massive tariffs is 96 00:05:19,520 --> 00:05:21,920 Speaker 1: not something we're used to a president seeing. And so 97 00:05:22,400 --> 00:05:24,120 Speaker 1: you know, I've heard folks say, well, how can the 98 00:05:24,120 --> 00:05:27,920 Speaker 1: president have such a vast impact? Well, because presidents typically 99 00:05:27,920 --> 00:05:30,440 Speaker 1: don't upset the status quo in such a huge way. 100 00:05:30,520 --> 00:05:35,800 Speaker 1: And you know, these refineries have long for as I mentioned, decades, 101 00:05:35,839 --> 00:05:39,640 Speaker 1: been set up. They've been configured specifically to process more 102 00:05:39,680 --> 00:05:44,080 Speaker 1: of this heavy Canadian oil that have additionally units coking units, desulfurization. 103 00:05:44,600 --> 00:05:47,799 Speaker 1: I mean, they have decades of experience processing Canadian oil 104 00:05:47,839 --> 00:05:51,760 Speaker 1: and specifically designing their refineries around this type of oil. 105 00:05:51,920 --> 00:05:55,000 Speaker 1: Keep in mind, the largest refinery in the Midwest, four 106 00:05:55,120 --> 00:05:59,200 Speaker 1: hundred and thirty five thousand barrels a day down in Whiting, Indiana, 107 00:05:59,279 --> 00:06:02,360 Speaker 1: that's Northwest Indiana, in two thousand and eight spent three 108 00:06:02,400 --> 00:06:05,840 Speaker 1: and a half billion dollars essentially making itself more reliant 109 00:06:06,120 --> 00:06:09,280 Speaker 1: on processing more Canadian crude oil. So, I mean, that's 110 00:06:09,279 --> 00:06:11,880 Speaker 1: just how reliant these refineries are. There's been a steady 111 00:06:11,880 --> 00:06:15,240 Speaker 1: supply of Canadian oil and an increasing amount for decades 112 00:06:15,279 --> 00:06:17,920 Speaker 1: and decades. We're now receiving four million barrels of Canadian 113 00:06:17,960 --> 00:06:20,240 Speaker 1: oil a day. So this is a drastic and sudden 114 00:06:20,279 --> 00:06:21,120 Speaker 1: potential shift. 115 00:06:22,640 --> 00:06:25,440 Speaker 2: Well, so when we consider the refiners, obviously we have 116 00:06:25,520 --> 00:06:28,440 Speaker 2: to take into account refining margins here, and as we 117 00:06:28,480 --> 00:06:32,120 Speaker 2: consider tariffs especially, we have heard this notion propagated by 118 00:06:32,400 --> 00:06:35,719 Speaker 2: Trump and those who think similarly to him, this idea 119 00:06:35,760 --> 00:06:39,240 Speaker 2: that not all tariffs are necessarily a direct cost that 120 00:06:39,320 --> 00:06:42,320 Speaker 2: the consumer will pay. Companies could eat some of this. 121 00:06:42,360 --> 00:06:45,640 Speaker 2: For example, could we see instead of it being passed 122 00:06:45,680 --> 00:06:48,279 Speaker 2: on to the end consumer at the gas pump just 123 00:06:48,279 --> 00:06:51,080 Speaker 2: a shrinking of refining margins, or are they likely to 124 00:06:51,080 --> 00:06:54,920 Speaker 2: want to pass all of that additional cost on well. 125 00:06:55,000 --> 00:06:57,800 Speaker 1: Refinery margins are already at some of the worst levels 126 00:06:57,800 --> 00:07:00,760 Speaker 1: we've seen in multiple years. I mean, refiner probably in 127 00:07:00,800 --> 00:07:03,080 Speaker 1: this region are only clearing a few dollars a barrow, 128 00:07:03,200 --> 00:07:06,480 Speaker 1: So you know, can they absorb some of it? Maybe, 129 00:07:06,839 --> 00:07:09,840 Speaker 1: you know, in iota of it, But for now refining margins, 130 00:07:09,840 --> 00:07:11,880 Speaker 1: I mean, this is the time of year that they 131 00:07:11,960 --> 00:07:14,760 Speaker 1: are very much challenged. And keep in mind the irony 132 00:07:14,800 --> 00:07:17,160 Speaker 1: here is the only way that these refineries have been 133 00:07:17,200 --> 00:07:21,080 Speaker 1: profitable is because Western Canadian crude oil generally comes to 134 00:07:21,120 --> 00:07:23,240 Speaker 1: the US at a pretty big discount because of its 135 00:07:23,320 --> 00:07:26,840 Speaker 1: landlocked status. Now, the interesting dynamic here that few people 136 00:07:26,880 --> 00:07:28,920 Speaker 1: are talking about is at the same time these terrafts 137 00:07:28,960 --> 00:07:32,800 Speaker 1: could be implemented, Trump may again green light the Keystone 138 00:07:32,920 --> 00:07:37,000 Speaker 1: XL pipeline, which ironically could give Canada exactly what it 139 00:07:37,040 --> 00:07:40,400 Speaker 1: wants is it wants another market besides the US refiners, 140 00:07:40,800 --> 00:07:43,760 Speaker 1: and so if the Keystone XL is suddenly greenlit, that 141 00:07:43,800 --> 00:07:46,760 Speaker 1: could essentially give a huge win to Canada, allowing a 142 00:07:46,760 --> 00:07:49,960 Speaker 1: lot more of that Canadian heavy crude oil to be exported, 143 00:07:50,000 --> 00:07:52,760 Speaker 1: and it could further inflict more pain on refineries down 144 00:07:52,760 --> 00:07:56,120 Speaker 1: in the US which are already dealing with razor than margins. 145 00:07:58,040 --> 00:08:01,280 Speaker 2: It's really valuable information and as we consider what could 146 00:08:01,320 --> 00:08:04,040 Speaker 2: come in this second Trump administration. Before we get there, though, 147 00:08:04,080 --> 00:08:06,080 Speaker 2: I do want to ask you quickly about what's happening 148 00:08:06,120 --> 00:08:09,280 Speaker 2: this week, which is of course the Thanksgiving holiday tomorrow 149 00:08:09,280 --> 00:08:11,320 Speaker 2: and hence a lot of people taking to the roads. 150 00:08:11,360 --> 00:08:14,600 Speaker 2: For those who are on road trips, where in the 151 00:08:14,640 --> 00:08:16,560 Speaker 2: country can they find the cheapest gas. 152 00:08:17,800 --> 00:08:20,560 Speaker 1: Well, you can see that map behind me. Generally the South, 153 00:08:20,640 --> 00:08:23,640 Speaker 1: the Gulf Coast, the areas with low gas lead taxes 154 00:08:23,640 --> 00:08:26,480 Speaker 1: and with proximity to large refiners are those that are 155 00:08:26,800 --> 00:08:30,280 Speaker 1: benefiting the most. Areas like Oklahoma City some stations down 156 00:08:30,320 --> 00:08:35,880 Speaker 1: to two ten or two twenty a gallon, But you know, Texas, Oklahoma, Arkansas, Louisiana, 157 00:08:35,960 --> 00:08:38,640 Speaker 1: the Deep South generally the place to be when it 158 00:08:38,640 --> 00:08:41,280 Speaker 1: comes to lower prices, whereas the West Coast the place 159 00:08:41,360 --> 00:08:43,880 Speaker 1: not to be. California is still struggling with prices that 160 00:08:43,920 --> 00:08:46,520 Speaker 1: are well over four dollars a gallon, although many of 161 00:08:46,559 --> 00:08:48,960 Speaker 1: California's neighbors are quite a bit lower than that. So 162 00:08:49,040 --> 00:08:51,680 Speaker 1: we still have quite the extremes. You have the lowest 163 00:08:51,679 --> 00:08:54,160 Speaker 1: price state averaging two forty a gallon, and you have 164 00:08:54,200 --> 00:08:56,880 Speaker 1: the highest price state averaging two dollars a gallon more 165 00:08:56,920 --> 00:08:59,480 Speaker 1: in California, where prices are four to forty four, so 166 00:09:00,240 --> 00:09:04,440 Speaker 1: massive spread for those especially traveling for Thanksgiving, crossing those 167 00:09:04,440 --> 00:09:06,760 Speaker 1: state lines is still a danger zone for seeing a 168 00:09:06,800 --> 00:09:08,360 Speaker 1: big fluctuation in prices. 169 00:09:09,840 --> 00:09:13,560 Speaker 2: All right, Patrick Dehan, head of petroleum analysis at gas Buddy, 170 00:09:13,559 --> 00:09:15,679 Speaker 2: thank you so much for joining me in a very 171 00:09:15,720 --> 00:09:18,320 Speaker 2: happy Thanksgiving to you and yours.