Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I want to take
Speaker 1: a closer look now at the oil market, as the
Speaker 1: prospect for a peace plan between the US and Iran
Speaker 1: and along with the threat of further escalation the world
Speaker 1: were to continue, have led to wild price springs. Let's
Speaker 1: bring in Swings, I should say, let's bring in Stephen
Speaker 1: Shork for some analysis of what we've been seeing in
Speaker 1: the crude market. Stephen as the president of the energy
Speaker 1: analysis firm, the Short Group. It's great to speak with
Speaker 1: you once again, Stephen. Thanks for being here as we
Speaker 1: watch Brent plunge more than four percent this morning. I
Speaker 1: think we saw fourteen percent drop after President Trump announced
Speaker 1: who was going to hold off on going after Ironni
Speaker 1: and energy for five days. I wonder what you make
Speaker 1: of these big moves that we've seen in your neck
Speaker 1: of the woods. Good morning, Good.
Speaker 2: Morning, Nathan, and absolutely and I think it is just
Speaker 2: the ministative of the amount of speculation that we've seen
Speaker 2: in this market. Point. We're all focused on the ice
Speaker 2: BRN market and the NIMES WTI market, which are Atlantic
Speaker 2: basin markets. That is to say that these are futures contracts,
Speaker 2: and the futures is what they derivative, and they derive
Speaker 2: their value off of a physical asset. In the case
Speaker 2: of nomics WTI, that physical acid is landlocked in the
Speaker 2: middle of the country in Cushing, Oklahoma, quite a distance
Speaker 2: away from the Strada hor moves. So what we really
Speaker 2: want to focus on is the Asian based markets, and
Speaker 2: that would be the Oman market or the Dubai futures market,
Speaker 2: and there we see a massive disconnect where the Brent
Speaker 2: crude oil market is trading at around a thirty thirty
Speaker 2: five dollars discount to Dubai for instance, So in other words,
Speaker 2: oil where we needed, the oil that is pent up
Speaker 2: in the Strada Hoo moves is trading at upwards of
Speaker 2: one hundred and thirty one hundred and forty one hundred
Speaker 2: and fifty dollars today. So that distance that skids them
Speaker 2: between the Brent market the WTI market, those large discounts
Speaker 2: just tells you that where the shortage is and the
Speaker 2: shortage of oil is not in the Atlantic basin. So
Speaker 2: we're focused on these prices that are now ok Yes,
Speaker 2: Brent and WTI are plunging right now, but their discounts
Speaker 2: are growing relative to where the actual war is so
Speaker 2: what we're still seeing is a market that is now
Speaker 2: pulling back sharply today based on some rhetoric, based on
Speaker 2: some headlines. There's no reality there. The Iranians attack Demona,
Speaker 2: the Israeli nuclear site, over the weekend. The attacks don't
Speaker 2: seem to have stopped, at least on the Iranian side,
Speaker 2: and their rhetoric on the Iranian side still seems rather belligerent,
Speaker 2: regardless of what the administration is saying. So we are
Speaker 2: still in the midst of a war. The headlines are
Speaker 2: being pulled back on a headline, but in reality, the
Speaker 2: spreads are telling us that this war is far from resolved.
Speaker 1: So when you see this kind of disconnect between the
Speaker 1: physical market and what we're seeing play out in the
Speaker 1: futures contract, what does that tell you about where prices
Speaker 1: could be once the war gets resolved.
Speaker 2: Yeah. Absolutely, So what we do is we'll look at
Speaker 2: you know, we'll do a little quantitative probabilistic modeling here
Speaker 2: and at this point based on over the next four
Speaker 2: weeks we just rolled into the new contract contracting WTI.
Speaker 2: I'll pick right now, we have a cluster of right
Speaker 2: around ninety two sixty one, So right now, WTI is
Speaker 2: treading just around eighty eight dollars. Our first band, our
Speaker 2: first envelope in the area where you would expect it
Speaker 2: to kind of be range bound, runs from about one
Speaker 2: hundred and two dollars to about eighty five dollars. So
Speaker 2: we're still within that band Nathan of eighty eight dollars
Speaker 2: eighty five dollars. That's where from a statistical standpoint, I
Speaker 2: would expect to see support. But if we do see resolution, well,
Speaker 2: if we see a resolution, and what's the best possible resolution,
Speaker 2: a positive regime change in Iran, then we'll see a
Speaker 2: six significant downdraft in prices IE prices back into the
Speaker 2: fifty dollars range. If we see some sort of settlement
Speaker 2: where oil starts to flow freely through the Strait of Hoboos,
Speaker 2: but the regime in Iran is still in place, we'll
Speaker 2: still see a pullback in our first target. Once we
Speaker 2: break that eighty five dollars support, Nathan would bring us down.
Speaker 2: Another twenty dollars would bring us down in that sixty
Speaker 2: five dollars range. So essentially, what I'm saying is, if
Speaker 2: we do see a resolution oil flowing again, we will
Speaker 2: see a pullback, and where does that pullback go naturally
Speaker 2: to where we were before this all started, and again
Speaker 2: that would be back into that mid sixty dollars range.
Speaker 1: In the meantime, of course, we've heard from the International
Speaker 1: Energy Agency talking about this four hundred million dollar emergency
Speaker 1: reserve release from its members, and we heard from a
Speaker 1: Energy Secretary Chris Right that the first US flows have
Speaker 1: started to come into the market as well. How much
Speaker 1: of an impact could that have on price in the
Speaker 1: short term.
Speaker 2: Well, it's an excellent point. And the impact we'll have
Speaker 2: is what is to store that spread I talked about
Speaker 2: between Brent Wti and Dubai Oman. Yes, the United States
Speaker 2: is releasing barrels where those barrels coming out of Houston,
Speaker 2: Gulf Coast. Golf Coast has plenty of crudal right now.
Speaker 2: The same goes with IEA members in Europe. Where's that
Speaker 2: oil coming out of from Rotterdam, Northern Europe again into
Speaker 2: a basin that is well supplied with oil. Now we
Speaker 2: have to get that oil from where it's not needed
Speaker 2: the Atlantic basin to where it is needed to the
Speaker 2: Asian markets. And that comes out of premium, that comes
Speaker 2: out of cost. So with that oil coming out into
Speaker 2: the market. One, it will continue to distort that spread
Speaker 2: and kind of give a false signal of weakness in
Speaker 2: Brent WTI and really kind of ignoring where the shortage
Speaker 2: is as I said, in Asia. Therefore, it is having
Speaker 2: that impact. And let's keep in mind that's a lot
Speaker 2: of oil, but realistically you could only get maybe five
Speaker 2: million barrels a day logistically onto the market from those reserves.
Speaker 2: Well that's only about quarter of what we were losing
Speaker 2: through the strait of her moves. So it is going
Speaker 2: to have an impact, but a deminimous impact because it's
Speaker 2: really impact in the markets that are well supplied with oil.
Speaker 2: We still have to get it to where they're not supplied,
Speaker 2: and again transportation logistics so forth, that's going to come
Speaker 2: at an added cost.
Speaker 1: Hugely informative Steve, and again great to have you back
Speaker 1: on with us on daybreak. That is Stephen Shark, president
Speaker 1: of the Short Group,