Speaker 1: Hello, and welcome to What Goes Up Weekly Markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm Baldonna Higher across asset reporter with Bloomberg. And
Speaker 1: this week on the show, well, as the name of
Speaker 1: the podcast implies, we like to talk about what's going
Speaker 1: up in price, and lately that's been energy prices and
Speaker 1: obviously that has potentially huge implications for the economic rebound
Speaker 1: and the values of stocks and other assets. We'll get
Speaker 1: into it with an expert on the global energy industry
Speaker 1: and uh, you know, Vildonna. As journalists are instinct, is
Speaker 1: always to find some of the smartest people we can
Speaker 1: to explain the world to us. Luckily we didn't have
Speaker 1: to go too far this time. Yeah, we're very fortunate.
Speaker 1: We're joined this week by Javier Blass. He's a Bloomer
Speaker 1: columnist and he's the author of the World for Sale. Javier,
Speaker 1: I want to comming to the show. Hello on great
Speaker 1: week with you. Yeah, thanks for doing the Xavier. We
Speaker 1: know you must be busy this week, Javier. Obviously, this
Speaker 1: story has so many different facets to it. I actually
Speaker 1: wanted to just take a brief step back and have
Speaker 1: you maybe layout what exactly all is going on and
Speaker 1: what you're watching. Obviously, earlier this week we had news
Speaker 1: of the US and the UK imposing certain bands on
Speaker 1: on Russian oil imports. So maybe just layout for our audience,
Speaker 1: what are you watching, what all is happening, and potentially
Speaker 1: maybe even you know, what's the one next thing that
Speaker 1: you're looking for. So we can just basically go about
Speaker 1: two weeks ago, and the oil market was already quite tight.
Speaker 1: The recovery from COVID nineteen had been stronger than expected.
Speaker 1: Demand here in Europe was really booming. The same thing
Speaker 1: was happening in the United States, where demanding January probably
Speaker 1: was the best January ever for oil consumption. Everyone kind
Speaker 1: of came back round Christmas, COVID was improving and and
Speaker 1: and things started to look quite good in terms of consumption.
Speaker 1: So that was the kind of the demand side of
Speaker 1: the market. The supply side was quite tight. We have
Speaker 1: a couple of years of very low prices. I mean
Speaker 1: remember two years ago we were talking about negative prices
Speaker 1: at some point. And for West Texas, intermediated is the
Speaker 1: American crude oil benchmark. So companies have not been investing
Speaker 1: a lot and and supply was struggling, and then the
Speaker 1: oil cartel with Saudi Arabia, Russia and other countries were
Speaker 1: really keeping the market under control. So things were looking
Speaker 1: quite high and prices were rising, and then Russia launched
Speaker 1: the invasion of Ukraine. And Russia is the world's third
Speaker 1: largest oil producer, the second largest oil supporter only behind
Speaker 1: Saudi Arabia. And what happened immediately was the market prepared
Speaker 1: for the worst cases scenario, a complete cutoff of supplies
Speaker 1: from Drassia. These are millions of barrels of oil used.
Speaker 1: To put a few numbers, Russia sports about eight million
Speaker 1: barrels a day between crude oil and refined products. That is,
Speaker 1: that's quite a lot. That will be enough to supply
Speaker 1: the whole of Germany, France, the UK, Spain and Italy together,
Speaker 1: and you will still have a bit of extra barrels
Speaker 1: to supply another smaller European country. What happened was the
Speaker 1: fear of sancience. We didn't have at that point any
Speaker 1: official sancios on Russia, but companies were fearing that that
Speaker 1: was coming and they started to take actions themselves. They
Speaker 1: boycott Russian oil, They imposed what we call in the
Speaker 1: oil market self sancions that started to reduce the flow
Speaker 1: of Russian oil. Some companies started to announce that they
Speaker 1: were not gonna buy any Russian oil, and then more
Speaker 1: recently it was the United States President by then here
Speaker 1: in the UK Prime Minister Johnson who announced official bands
Speaker 1: you cannot buy any Russian oils and that really has
Speaker 1: tightened the supply picture significantly and the market will use well,
Speaker 1: it went up quite a lot. We touched a hundred
Speaker 1: and thirty nine dollars apparrel, which is choose under the
Speaker 1: peak that the record all time high that we said
Speaker 1: um in two thousand and eight, that was hundred and
Speaker 1: forty seven dollars. And then the market really started to think, okay,
Speaker 1: what if it's a complete shutdown of Russian oil exports,
Speaker 1: can we can we manage? And many people were while
Speaker 1: that happened that really it's very difficult to manage, and
Speaker 1: we're gonna see two hundred dollars, two hundred and fifty dollars.
Speaker 1: So analys and traders were starting to really put very
Speaker 1: high numbers. But at the same time, these very high
Speaker 1: oil prices are beginning to have an impact on this
Speaker 1: pectations of economic growth. We may have our recession kid
Speaker 1: in Europe, and that's what at the same time, that's
Speaker 1: copying the price. So you have the two pressures, and
Speaker 1: the market is trying to to find out how he's
Speaker 1: gonna play out in the next few months. But at
Speaker 1: the end of the day, what everyone is looking, every
Speaker 1: oil trade that is looking is the war in Ukraine. Yeah,
Speaker 1: but I have here. I was sticking back to when
Speaker 1: I was a kid, and um, you know, don't let
Speaker 1: my boyish looks for you, but I was actually a
Speaker 1: kid in the nineteen seventies. And I remember nineteen seventy nine,
Speaker 1: after the Iranian Revolution, I picked up I was a
Speaker 1: paper boy, and I picked up our local newspaper and
Speaker 1: they're on the front page was a picture of my
Speaker 1: best friend's mom. You know, it's the seventies. So she
Speaker 1: had her bell bottoms on and smoking a cigarette and
Speaker 1: she was sitting on a patch of grass outside of
Speaker 1: a gas station. And and obviously the story was about
Speaker 1: the gas shortages that the US experience back then. And
Speaker 1: I'm thinking, now, you know, a rising prices is one
Speaker 1: thing for the economy. It's it's obviously going to be
Speaker 1: a headwind for the economy, But I'm starting to worry
Speaker 1: about actual shortages. So I'm curious how you're thinking about
Speaker 1: the potential for for shortages, whether it be in the
Speaker 1: US and Europe, sort of where we might look for
Speaker 1: those first? What what kind of products might be in
Speaker 1: short supply? First, I'm reading about potentially um European factories
Speaker 1: that won't be able to keep operating if if energy
Speaker 1: prices get too high. How are you thinking about the
Speaker 1: potential for shortages and where would you look for for
Speaker 1: it first? Well, what we are seeing at the moment,
Speaker 1: for for now is it's a huge price increase. I
Speaker 1: mean a few days ago we went about a hundred
Speaker 1: dollars a barrel for oil, and we went almost up
Speaker 1: to a hundred and forty in a matter of just
Speaker 1: a few days. It has come down juice a bit.
Speaker 1: So whatever goes up also sometimes comes down. But if
Speaker 1: we think about physical shortages, we have not yet seen them,
Speaker 1: but they are certain corners of the energy market that
Speaker 1: they start to look extremely tight, and as time goes
Speaker 1: that's where we can see some of the shortages. I'm
Speaker 1: thinking in particular about diesel in Europe, which is very
Speaker 1: very tight, and we really qual lot on diesel important
Speaker 1: from Russia, from Russian refineries. That market is quite tight
Speaker 1: at the moment, and I would not be surprised if
Speaker 1: the conflict in Ukraine continues that we may see at
Speaker 1: some point that there are actual shortages. We have seen
Speaker 1: already sound refineries in UH in Central Europe Northwestern Europe
Speaker 1: is starting to impost caps on the amount of diesel
Speaker 1: that they're selling to their distributors. So it's beginning to
Speaker 1: be quite real. But um it has not yet happened
Speaker 1: at the retail level, and I think it will take
Speaker 1: a bit more time to that to emerge. Who be
Speaker 1: the customers most affected there? I'm guessing trucking firms that
Speaker 1: sort of thing. Yeah, I mean diesel is mostly about trucking.
Speaker 1: I mean diesel is also very much consume in certain
Speaker 1: European countries as as because the car fleet is very
Speaker 1: much on on diesel countries like like France, and you know,
Speaker 1: it used to be also the case here where I
Speaker 1: am in the United Kingdom. But it's it's the trucking
Speaker 1: industry which is going to suffer the most. And the
Speaker 1: problem with that is that it means that everyone suffers
Speaker 1: because we transport everything trucking is is the backbone of
Speaker 1: our economy. So if if truckers have to pay and
Speaker 1: the trucking companies have to pay a lot more for
Speaker 1: the diesel, that means everything that we buy on the
Speaker 1: supermarket is going to be more expensive because they're gonna
Speaker 1: pass the cost increase. So we can see quite a
Speaker 1: lot of inflation in you know, supermarkets, grocery shopping here
Speaker 1: in Europe for sure. So happier um And for listeners
Speaker 1: whenever you're listening to the we're actually speaking today. It's Wednesday,
Speaker 1: March nine, and there was a big drop in oil
Speaker 1: prices today. Part of the reason people are pointing to
Speaker 1: is that there are some signals that some producers United
Speaker 1: Arab Emirates and Iraq might uh you know, start producing
Speaker 1: more to try to make up for some of the
Speaker 1: lost Russian supply. How do you think about sort of
Speaker 1: the whole geo politics of oil right now, the relationships
Speaker 1: between Russia and the rest of the big expert in countries.
Speaker 1: I mean, I get the impression that um, Russia has
Speaker 1: a pretty significant influence on OPEC in general these days.
Speaker 1: How do all the geo politics fit together as far
Speaker 1: as whether we can expect some other countries to to
Speaker 1: pick up the lost supply. Mike, You're absolutely right. And
Speaker 1: this is what really gets very interesting from the mix
Speaker 1: of politics and oil because for many years Rosa was
Speaker 1: almost an enemy of OPEC. They didn't talk U Ussia
Speaker 1: was completely independent um and they were at times fighting
Speaker 1: the OPEC group and Russia will see the oil market
Speaker 1: completely different. That changes about three years ago where Russia
Speaker 1: and Saudi Arabia the site to work together in the
Speaker 1: oil market, and that led to the creation of a
Speaker 1: new group that we call OPEC Plass, and the Plass
Speaker 1: is mostly Russia. There are other few countries, but the
Speaker 1: Plass is Russia all the sudden, after fighting for so
Speaker 1: many years, Read and Moscow were really working together in
Speaker 1: the oil market. And now we have this tension because
Speaker 1: in another situation, typically what the White House will have
Speaker 1: done was go to Saudi Arabia and as the southeast
Speaker 1: place can you increase production is a hundred and twenty
Speaker 1: a hundred and thirty dollars a barrel, and the South
Speaker 1: is most likely will have delivered because they are not
Speaker 1: really interested. They are always the South is one high prices,
Speaker 1: but they don't really want super high prices that get
Speaker 1: a lot of inflation and potentially an economic recession. You're
Speaker 1: selling oil. You really want a healthy economy, and these
Speaker 1: prices are not good for a healthy economy. But now
Speaker 1: it's different. The Saudist and the Russians are working together,
Speaker 1: and the last thing I believe that Saudi Arabia once
Speaker 1: is upset Bladimir Putin has been very interesting that through
Speaker 1: this conflict, Bladimir Puttin has been talking to Muhammad bin Salman,
Speaker 1: who is the Crown Prince of Saudi Arabia, and they
Speaker 1: have been talking about energy and energy corporation. So I
Speaker 1: think that OPEC may not come to the rescue this
Speaker 1: time just because they're just working with the Russians. The
Speaker 1: geopolitics of this, to me are incredibly interesting, and I
Speaker 1: want to ask you to actually bring in two other players,
Speaker 1: which is Venezuela and Iran, because there's talks potentially of
Speaker 1: some of their oilso twice also coming online and potentially
Speaker 1: helping to offset some of the squeeze that we're seeing.
Speaker 1: And that is also the other hugely interesting side of
Speaker 1: the geopolitics. We have sanciens on already two other countries,
Speaker 1: as you mentioned, Iran and Venezuela. On Venezuela is mostly
Speaker 1: lane to the oppression of the regime of Maduro against
Speaker 1: the opposition. In the case of Iran is about the
Speaker 1: nuclear program. So now the United States is working to
Speaker 1: try to see if they can't reach some kind of
Speaker 1: agreement with both countries that can resolve the outstanding political issues,
Speaker 1: the national security issues, and then that will mean the
Speaker 1: return of oil from both countries, and that could be
Speaker 1: quite significant. Iran, there was a nuclear deal, probably can
Speaker 1: put on the market between half a million and six
Speaker 1: hundred thousand bars a day quite quickly, and then going
Speaker 1: perhaps too about a million parars a day within one year.
Speaker 1: Venezuela is less clear, but perhaps can put a few
Speaker 1: hundred thousand extra, a few hundred thousand powers of the
Speaker 1: extra into the market. But when you are in a
Speaker 1: very tight situation and I'm fearing that you may lose
Speaker 1: quite a lot of supply from from Russia, that will
Speaker 1: be extremely helpful. But it gets very complicated for the
Speaker 1: White House because now both Venezuela and Iran knows that
Speaker 1: the United States really want to reach a deal. So
Speaker 1: you don't have in a negotiation table the last thing
Speaker 1: that you want on the other side of the table
Speaker 1: is that the other that you know, they know that
Speaker 1: you are in a bit of a weak position. So
Speaker 1: it just getting extremely interesting to observe. And that's the
Speaker 1: other thing that the oil market is looking. So it's
Speaker 1: this massive kind of four dimensional geopolitical chess on oil
Speaker 1: with Vasia, the Southeast Iran, Venezuela, and the White House
Speaker 1: right and then here in the US Saviera. Obviously domestically,
Speaker 1: it's a huge political football, as we say, um, I
Speaker 1: remember a few years ago when oil prices were crashing,
Speaker 1: there was a lot of talk about, well, what is
Speaker 1: sort of the break even uh price for oil? To
Speaker 1: make a lot of the fracking projects in the US
Speaker 1: economically viable, I have to assume at over a hundred
Speaker 1: dollar barrel. Basically every project in the US is viable now.
Speaker 1: But there is a lot of debate about whether you know,
Speaker 1: U Republicans claiming Biden is holding back production and the
Speaker 1: White House pushing back saying, well, there's nine thousand approved
Speaker 1: licenses that aren't being used. How do you see that
Speaker 1: all playing out? I mean, has the US shale industry
Speaker 1: sort of been you know, bitten once by by oversupply
Speaker 1: and and and we'll be a little reluctant to to
Speaker 1: turn on the spickets too much this time. Where is
Speaker 1: this price is so high that it'll it'll be full
Speaker 1: steam ahead with all the US projects. Mike. The price
Speaker 1: is so high that I think that you could go
Speaker 1: and drilling your back job and you can find oil.
Speaker 1: It will be profitable. I mean, it's a d LD
Speaker 1: as a barrel. It is more than an offer almost
Speaker 1: every project to make money. But the problem is the
Speaker 1: sailing industry in the US have gone through a really
Speaker 1: tough time. The last couple of years have been difficult
Speaker 1: investors and unhappy. They are focusing on returns. They don't
Speaker 1: want companies to grow production because they think that they
Speaker 1: will float the market and trigger another price collapse. And
Speaker 1: they really want to focus on pay down there and
Speaker 1: deliver big dividends to US buy backs, dividends. That's the
Speaker 1: game in town. And that means that executives on the
Speaker 1: on the U s sail industry are very reluctant to
Speaker 1: increase production very fast. And then the whole industry fields
Speaker 1: under attack by the White House, the Energy Transition, the
Speaker 1: signaling from the Biden administration of the future that is
Speaker 1: going to be fossil fuel, more focused on solar renewables,
Speaker 1: electric vehicles, and they kind of feel that they are
Speaker 1: not to make any favors to the administration. So you
Speaker 1: have this tension going on right now, and I I
Speaker 1: think that both sides will find a compromise. Prices are
Speaker 1: high enough for anyone in the US industry to may money,
Speaker 1: and I think that the administration, the Biden administration, some
Speaker 1: point is going to realize that it has a big
Speaker 1: asset at home that a provide security can produce oil,
Speaker 1: and it will find a way used to kind of
Speaker 1: work together with with the industry. I'm really curious if
Speaker 1: maybe you can give us a time frame of how
Speaker 1: quickly US supplies could come online. I'm you know, we
Speaker 1: hear and read all of these different stories, but what
Speaker 1: I'm uncertain of is how quickly any of this can
Speaker 1: actually come online. Even with the case for Iran or Venezuela,
Speaker 1: I'm hearing months or even you know later, way down
Speaker 1: later this year. So what do the timeframes actually look like.
Speaker 1: So in the case of it Ran in Venezuela, very
Speaker 1: much depends. You need a political agreement with those countries
Speaker 1: and it just we don't know when when that was
Speaker 1: gonna be achieved. We we previously thought that there was
Speaker 1: a firm deadline, a red line of last week for
Speaker 1: our Iranian deal. That that that that ended, and we
Speaker 1: we still are observing the conversations and the negotiations continuing,
Speaker 1: so we don't really know when that's gonna happen. And
Speaker 1: if there is a deal, it's gonna take probably a
Speaker 1: couple of months before any extra oil could come from
Speaker 1: from Iran. Venezuela is even more complicated. The conversations have
Speaker 1: used started, and I don't think that we're about to
Speaker 1: see a production increase in Venezuela also a country that
Speaker 1: first of all will need to make investments on his
Speaker 1: industry to growth. And then in the US, the shale industry.
Speaker 1: We call shale in in oil short cycle because it
Speaker 1: can really go faster than the traditional big, big projects
Speaker 1: of big oil, which used to take five or six
Speaker 1: years from finding the oil to to kind of starting production.
Speaker 1: But short in oil means actually several months, it's not
Speaker 1: a few days, and it's a bit more complete. It
Speaker 1: that use, you know, the flick of a switch. It used.
Speaker 1: The company's needs to drill, they need to find them workers,
Speaker 1: and it's not very different to the rest of the
Speaker 1: American economy. Workers are in sort of supply. They move
Speaker 1: away from sail, they went somewhere else to work. Um,
Speaker 1: they're making more money that they were making back, you know,
Speaker 1: when they were working in Texas, so they don't really
Speaker 1: want to go back. And in general, the industry is
Speaker 1: finding that they have a lot of supply chains that
Speaker 1: is affecting other parts of the economy and they're also
Speaker 1: suffering them. So what executives are telling me is, look,
Speaker 1: it's a hundred dollars pluss. Oil will drill more. We'll
Speaker 1: try to increase production, but don't expect that tomorrow we're
Speaker 1: gonna be pumping more than expect even next month or
Speaker 1: on a couple of months from now. I think that
Speaker 1: most people think that the first that we can see
Speaker 1: a reaction from the U sil industry in terms of
Speaker 1: extra barrels is probably around late summer. Right. I want
Speaker 1: to ask you about the pipelines from Russia to Europe. Um. Obviously,
Speaker 1: the nord Stream to project was canceled as a result
Speaker 1: of the invasion, but if you look at a map
Speaker 1: of Ukraine, there are a bunch of pipelines going right
Speaker 1: through headed to Europe, and I can't help but worry,
Speaker 1: UM if somehow they're disrupted, either a bomb hits one,
Speaker 1: or the electricity is taken out, or the the people
Speaker 1: who maintain them, you know, I know it's typically not
Speaker 1: a huge staff needed to maintain one of them, but
Speaker 1: you do need people to to keep the gas flowing.
Speaker 1: How big of a risk are these pipelines to um
Speaker 1: some sort of disruption because of the war? UM? And
Speaker 1: I would I would tend to think that would be
Speaker 1: a major crisis situation if for Europe, if something like
Speaker 1: that were to disrupt that supply. What how are you
Speaker 1: thinking about that? Well, we're keeping a very close high
Speaker 1: on those four pipelines, is the main concern of the market.
Speaker 1: Are exactly four pipelines. One is for oil we call
Speaker 1: it Druzba, and three are for natural gas called Surd, Youth,
Speaker 1: Progress and Brotherhood, and everyone is looking at them. There
Speaker 1: are UM stations on the border between Ukraine and Western Europe,
Speaker 1: so we can monitor the flows almost on real time
Speaker 1: on the Bloomberg terminal, and I have monitors all the
Speaker 1: time to try to see the flows there, and surprisingly
Speaker 1: nothing has happened. I mean, we're talking about oil and
Speaker 1: natural guys, that's two things that don't go well with
Speaker 1: bombs and missiles and so on. And two weeks into
Speaker 1: the war nothing has happened to them. Incredibly more gases
Speaker 1: flowing through Ukraine today into Europe that there was flowing
Speaker 1: two weeks ago before before the war started. But if
Speaker 1: anything were to happen to those pipelines, it will be
Speaker 1: really really bad. DRUSBA on oil prices will go high
Speaker 1: and it would be complicated because sound refineries they don't
Speaker 1: have much option to that pipeline. If we stuffered a
Speaker 1: problem on any of the three natural gas pipelines, or
Speaker 1: god forbid on the three at the same time, it's
Speaker 1: almost game over for natural gas supply in Europe. That
Speaker 1: will be really difficult. I mean, we can do it,
Speaker 1: but it would be difficult and super expensive. Natural gas
Speaker 1: prices will just fly and it will they will go
Speaker 1: high and off that today's super high prices will look like,
Speaker 1: oh gosh, do you remember when prices were low like that?
Speaker 1: That's the kind of I mean, everyone is super nervous
Speaker 1: about it, and is that there even enough US energy
Speaker 1: to sort of get there in time? No, you, you
Speaker 1: will not be able to to to to supply with
Speaker 1: with allengy. You we will have to adjust that the
Speaker 1: hard way. Super high prices. Everyone in Europe trying to
Speaker 1: reduce consumption and the industry, the manufacturing industry, energy intensive companies.
Speaker 1: Would you simply shut down? That's a scary prospect. I
Speaker 1: wanted to ask you if you can maybe talk about
Speaker 1: the con sumer aspect here, because we've heard some service
Speaker 1: in the US and also in Europe of consumers saying
Speaker 1: that they're willing to tolerate higher gas prices. But then
Speaker 1: I'm wondering what you think happens when when we do
Speaker 1: actually start to see higher and higher gas prices at
Speaker 1: the pump, and how that plays into all of this.
Speaker 1: I think that consumers generally understand that facing Bladimir Putin
Speaker 1: is going to have an economic cause, and they understand
Speaker 1: that is a big supplier of natural resources, particularly oil
Speaker 1: and gas, so they are expecting that this is going
Speaker 1: to have a cause. But we are in the early
Speaker 1: days of the conflict, and the key question needs if
Speaker 1: this continues and we are three months from now, six
Speaker 1: months from now, and you know, let's hope that doesn't
Speaker 1: happen because the human cause in Ukraine would be massive.
Speaker 1: But if that continues for a long time, I don't
Speaker 1: know if the public is going to be as accepting
Speaker 1: as it is now At the moment, I think that
Speaker 1: there is acute sense of acceptance that this is a
Speaker 1: price that they're willing to pay. It depends also how
Speaker 1: high prices go. One thing is that the oil price
Speaker 1: goes to a hundred and twenty dollars a barrel. Another
Speaker 1: thing is that goes to a hundred and seventy five
Speaker 1: or two hundred dollars a barrel um. So that is
Speaker 1: and then political leaders are going to have to do
Speaker 1: a bit of education. They're going to have to address
Speaker 1: the nation and and tell them what is going to
Speaker 1: happen and why we are paying higher prices for gas
Speaker 1: and and and and utilities. That has started and we
Speaker 1: saw President by Them doing a bit of that this
Speaker 1: week when he announced the export the import band on
Speaker 1: Russian oil. Has not really happened as much here in Europe.
Speaker 1: Has perhaps happened in France, but not elsewhere. And the
Speaker 1: other thing that is associated with that is that at
Speaker 1: some point, particularly in Europe, political leaders may need to
Speaker 1: ask people to conserve energy, lower your thermal state a
Speaker 1: couple of the Greek celsius, so you're consuming a bit
Speaker 1: less natural guys. Perhaps making public transportation free on the
Speaker 1: weekends so people leave their car at home and take
Speaker 1: the bus or the underground. There are things that we did, Mike,
Speaker 1: you you may remember this. We did this in the seventies.
Speaker 1: Uh in some European countries you could not drive on
Speaker 1: a Sunday because there was not enough gasoline. So they
Speaker 1: are measures that we may need to take. But I
Speaker 1: think that if it gets to that situation is when
Speaker 1: it's just gonna be complicated for many politicians. And when
Speaker 1: I have been speaking to some leaders over the last
Speaker 1: few days, I can't tell you one thing that it
Speaker 1: comes on every conversation. No one wants to deliver the
Speaker 1: famous speech of Jimmy Carter with his cardigan, just basically
Speaker 1: talking about energy sortages. They think that they have to
Speaker 1: do that they lose the next election, so they're very
Speaker 1: aware that it's not gonna be easy, right right. I
Speaker 1: think the I feel like the notion of car pulling
Speaker 1: was invented in the of these year and all that
Speaker 1: and Vildanna. We had those giant station wagons. Back then
Speaker 1: you can fit about the whole baseball team into the
Speaker 1: back of one of those to get to UH, to
Speaker 1: get to practice. So, UM, you know that there's always
Speaker 1: something to some adjustments to be made. Have you you know?
Speaker 1: I was looking at the oil futures curve, and for
Speaker 1: listeners who are are not familiar with its typical shape,
Speaker 1: it's typically what's known as backwardation, which means that UH
Speaker 1: oil for immediate delivery or the next couple of months
Speaker 1: is typically priced higher than for deliveries say a year
Speaker 1: or two from now. Have your What really caught my eye, though,
Speaker 1: is I I looked at the curve and then compared
Speaker 1: it to where it was a month ago, and the
Speaker 1: backwardation is obviously extreme now that the very near term
Speaker 1: prices are way higher than say, later in the year,
Speaker 1: next year. Well, what fascinated to me is looking all
Speaker 1: the way out to UM, they're about I think it
Speaker 1: was eighteen or nineteen dollars a barrel higher than they
Speaker 1: were a month ago for for that far out in
Speaker 1: the curve. Now, markets don't always get it right, but
Speaker 1: it feels to me like, you know, traders are pressing
Speaker 1: in sort of a permanent shift higher um at least
Speaker 1: out six seven years. I mean, is that reasonable or
Speaker 1: do you think the markets have it right about that
Speaker 1: to that extent? Where is this sort of just such
Speaker 1: an uncertain market that um, you know, you can't necessarily
Speaker 1: take the market signals for um, you know, being the
Speaker 1: best protector of the future. I think that we need
Speaker 1: to wait a bit and see how things start to stabilize.
Speaker 1: I mean, the market has moved a lot in in
Speaker 1: really a matter of four or five days, and the
Speaker 1: back end of the curve, as you you're told it
Speaker 1: has also moved a lot, and it's not very yet
Speaker 1: clear why he is moving that. I mean, one of
Speaker 1: the reasons is that some consumers of oil, and I'm
Speaker 1: talking about big companies have started to panic and they
Speaker 1: have not covert, they have not hedged, they have not
Speaker 1: both insurance for future delivery, and they're beginning to try
Speaker 1: to say, hold on one second, we really need to
Speaker 1: to have a bit of more insurance. And I'm talking
Speaker 1: about airlines, tracking companies and and unsimilar and that has
Speaker 1: really triggered this increase on the back end of the
Speaker 1: cure because that's where this company is usually by their
Speaker 1: their insurance, So that's one of the elements that it
Speaker 1: triggered that movement. But I think it's a bit too
Speaker 1: early to say we have seen an structural shape in
Speaker 1: oil prices to the outside. But certainly, as I said,
Speaker 1: at the beginning, even before the war started, the market
Speaker 1: was feeling really tied and it was really a sense
Speaker 1: that prices needed to move higher just from the demand side, didn't. Yeah,
Speaker 1: mostly for the demand side. I mean, the demand recovery
Speaker 1: has been remarkable. I mean only a few months ago
Speaker 1: we were talking about peak oil demand and we all
Speaker 1: were gonna be working from home that was going to
Speaker 1: reduce permanently the consumption of gasoline and diesel. And where
Speaker 1: we have found is that actually some of the chain
Speaker 1: just on the economic structure that they came from, COVID
Speaker 1: maybe more energy intensive. We are using a lot more
Speaker 1: deliveries at home rather than going ourselves shopping, and actually
Speaker 1: that it really increased the amount of castl in that
Speaker 1: that you need to do. I mean, you are getting
Speaker 1: the band of the track to your door with whatever
Speaker 1: you're buying. I'm kind of embarrassed myself of the amount
Speaker 1: of deliveries that I get every day at home. I mean,
Speaker 1: you know, we really need to stop going online and
Speaker 1: shopping and and and that really may have really lifted
Speaker 1: oil demand higher on a partmanent basis, right, And and
Speaker 1: then the efficiencies aren't there. You know, you can get
Speaker 1: three different trucks from Amazon on any given day rather
Speaker 1: than one one delivery exactly. And there are other things like,
Speaker 1: for example, at the moment, I give you my personal anecdote.
Speaker 1: At the moment, I'm working three days a week into
Speaker 1: the newsroom and usually works a couple of days at home.
Speaker 1: So what happened. The news room is permanently open, so
Speaker 1: it means that it's heated, but I'm also hitting at
Speaker 1: home for a couple of days, So we are consuming
Speaker 1: more natural gas for hitting that previously. That's in the
Speaker 1: gas market. They call it double hitting. We had not
Speaker 1: really thought about the impact, but when you multiply that
Speaker 1: impact for twenty five million households in the United Kingdom,
Speaker 1: that really matters. So what we thought that probably was
Speaker 1: a permanent drop in oil demand actually is resulting on
Speaker 1: much higher, very strong oil demand. And also a lot
Speaker 1: of people don't feel yet completely safe using public transportation,
Speaker 1: so rather than pick up a plane to fly somewhere
Speaker 1: a couple of hours. They will rather do this very
Speaker 1: long or a long at least loan laundree for my
Speaker 1: European standards, and then just drive and all the sudden
Speaker 1: you have more gasoline consumption. Another big story this week
Speaker 1: was that the you said it was going to look
Speaker 1: to cut about I think it was of its gas
Speaker 1: and words from Russia. I want to ask you how
Speaker 1: realistic that is and how it would actually look in reality. Well,
Speaker 1: as all of these targets, I think that there is
Speaker 1: a lot of ambition that you set a very high target,
Speaker 1: so you hope for the best, and then you you
Speaker 1: kind of settled for something a bit lower. And I
Speaker 1: think that the European Commission put a very embasical target
Speaker 1: and I don't think that they're expecting to have to
Speaker 1: hit it. But in a way, it very much depends
Speaker 1: on what happened. I mean, perhaps Europe that doesn't have
Speaker 1: the option. If Russia shuts down the natural gas flow,
Speaker 1: well we will have to learn to live with no
Speaker 1: gas from Russia whatsoever. If those pipelines that we were
Speaker 1: discussing earlier just get blown up, it is more or
Speaker 1: less the same thing. So it's possible to achieve, but
Speaker 1: it's gonna be extremely difficult and it will mean much
Speaker 1: higher prices for a longer period of time. I mean,
Speaker 1: Europe at the moment, bias is still between thirty five
Speaker 1: and forty of the gas. There is not enough llergy
Speaker 1: facilities around the world to kind of fill that gap
Speaker 1: without living current consumers of energy short of supply, so
Speaker 1: very and busiess target probably unrealistic, but it kind of
Speaker 1: signals the commitment of Europe to try to resolve the problem.
Speaker 1: And I think that this is one of the biggest
Speaker 1: changes that we may see long term on GUS. I
Speaker 1: don't think that whatever happens with Ukraine, even if you
Speaker 1: know a settlement was achieved next week, I don't think
Speaker 1: that Europe will free ever comfortable relying of natural gas
Speaker 1: from Brazia as you did in the past. That is
Speaker 1: just that has changed forever. Well along that line of things.
Speaker 1: King about the longer term, um, I'm curious what you
Speaker 1: think about the prospects for nuclear power because, uh, you know,
Speaker 1: on one hand, you have this situation that sort of
Speaker 1: argues in favor of you know, building more plants at home,
Speaker 1: being more self sufficient for electricity generation. With with nuclear
Speaker 1: On the other hand, you've got fighting around Chernobyl and
Speaker 1: the power plant in the south, kind of reminding us
Speaker 1: all of the dangers of it um and the risks
Speaker 1: to it. How do you think that balances out and
Speaker 1: shakes out in the future. Is is this whole situation, um,
Speaker 1: good or bad for the prospects of nuclear power? So
Speaker 1: this is the first time that actually there has been
Speaker 1: at war on a country with nuclear power, with nuclear
Speaker 1: power stations, which is you know, um, it's quite shocking.
Speaker 1: And and again if I was saying that, you know,
Speaker 1: pipeline is full of gas and oil, don't react well
Speaker 1: with you know, bombs and missiles, nuclear plants, even words
Speaker 1: uh and and and certainly is worrying a lot of
Speaker 1: faults in the in the nuclear industry. What could happen
Speaker 1: so far? I think the both sides are trying to
Speaker 1: are aware of the dangers and no one wants to
Speaker 1: have another chernovil Um. But you know, here in Western Europe,
Speaker 1: I think that has just prompted a huge rethinking about
Speaker 1: nuclear power. I don't think that countries that were more
Speaker 1: or less against nuclear power are just about to start
Speaker 1: building nuclear stations. But the nuclear power stations on those
Speaker 1: countries that they were a target for decommissioning. I think
Speaker 1: that those are gonna run for longer as long as
Speaker 1: it's safe, and that as long as all the upgrades
Speaker 1: can be I think that countries like Germany, Belgiun, Spain
Speaker 1: are gonna run the nuclear power plants for longer. France
Speaker 1: they said, for sure, it's gonna be building more nuclear
Speaker 1: power plants, the same thing for the United Kingdom. All
Speaker 1: the sudden, even the green parties in continental Europe, which
Speaker 1: traditionally against nuclear power, as saying, well, this is not great,
Speaker 1: but let's be realistic. We really need to reduce our
Speaker 1: dependence on Russia, and we really need baseload electricity supply
Speaker 1: and nuclear dost so for now we're going to need that.
Speaker 1: And then just to hit on one more big topic
Speaker 1: which we haven't brought up yet, which is cyber attacks.
Speaker 1: And I'm wondering how the prospect of cyber attacks on
Speaker 1: you know, any of these facilities, how are you thinking
Speaker 1: about How should we all be thinking about it? This
Speaker 1: has been a huge concern of the whole energy industry,
Speaker 1: not uice, oil and gas, but utilities. Um in general,
Speaker 1: utilities were very worried degreed electricity greed and for now
Speaker 1: nothing has happened that we know, but nothing has happened
Speaker 1: linked to Ukraine or Russia. Obviously, last year we have
Speaker 1: an attack on Colonial which is this big pipe and
Speaker 1: transporting gasoline, diesel and jet fuel all the way from
Speaker 1: the US Gulf of Mexico area all the way up
Speaker 1: to the New York area, and that was tracked to
Speaker 1: hackers in Russia. So there was a lot of concern
Speaker 1: that as Russia was invading Ukraine was going to see
Speaker 1: a wave of cyber attacks across the European Union. We
Speaker 1: have not seen that. The question is are we not
Speaker 1: seeing that because Russian hackers are not launching the attacks
Speaker 1: or because the companies have spent a really significant amount
Speaker 1: of money really building defenses against cyber attacks, And probably
Speaker 1: is a combination on both. But it remains a big
Speaker 1: source of concern on everyone on the industry. And I
Speaker 1: think that in particular areas like utilities and degree the
Speaker 1: electricity degree almost is the main concern that they have heavier.
Speaker 1: Plus we are so grateful to get your insights heavier.
Speaker 1: The author of the world for sale any power and
Speaker 1: the traders who barter the Earth's resources with Jack Farchie,
Speaker 1: Have you are really insightful? Before we let you go, though,
Speaker 1: we do have a trudition on this show where before
Speaker 1: I let you go, we have to hear about the
Speaker 1: craziest thing you saw in markets this week. I have
Speaker 1: a suspicion what it is, but but tell us what's
Speaker 1: the craziest thing you saw in markets this week? Well,
Speaker 1: my I'm bringing you a treat because it's not the
Speaker 1: craziest thing that I have seen in markets this week.
Speaker 1: Is the craziest thing that I have seen in markets
Speaker 1: on my whole journalistic life, which sadly already stands for
Speaker 1: twenty four years. That was the price of nicol, and
Speaker 1: nicole is this metal that you know. It used to
Speaker 1: be a boring market and no one really pay a
Speaker 1: lot of attention other than you know, journalist like me
Speaker 1: and then the people on the nicol market. It used
Speaker 1: to stainless steel. But now nicole has another big use
Speaker 1: that these high efficiency batteries for the electric vehicles. I mean,
Speaker 1: Tesla has a lot of nicol on free battery and
Speaker 1: Elan Mans recently twitted that one of his main concerns
Speaker 1: was the supply or of nickel. So what happened was
Speaker 1: we have a sort of sort of squeeze in the
Speaker 1: nickel market and the price went just ballistic. H A
Speaker 1: couple of weeks ago, a ton or a metric ton
Speaker 1: of nickel cost about twenty dollars at one point. This
Speaker 1: week it costs more than a hundred thousand. The market
Speaker 1: went up two hundred and fifty percent in two days,
Speaker 1: and the London metal has changed. Here in London where
Speaker 1: nickel trades have to take the extraordinary measure of shutting
Speaker 1: down the market used to stop the madness, and we
Speaker 1: don't know when trading is gonna restart. It's just gonna
Speaker 1: be shut down for several days. It truly is one
Speaker 1: of the wildest stories. I agree with you, one of
Speaker 1: the wildest I think I've ever seen. Too. Oh do
Speaker 1: you have you been holding nicol and your bunker there? No,
Speaker 1: I haven't been. What the bank of reference for our
Speaker 1: listeners is the recording room moment? But no, I wish
Speaker 1: I had been. What a week? Well, how about you volda,
Speaker 1: what's the craziest thing you saw this week? I don't
Speaker 1: know if I want to call it the craziest or
Speaker 1: the wildest or anything like that. But it's something that
Speaker 1: just really struck me. And actually Javier already brought it up.
Speaker 1: It was a story I read in the Wall Street
Speaker 1: Journal which the title was Ukrainians risk their lives to
Speaker 1: keep Russian gas flowing to Europe. So Javier had mentioned
Speaker 1: that Europe right now is actually importing more Russian natural
Speaker 1: gas than before the invasion, and there's actually a crew
Speaker 1: of Ukrainians who are keeping it flowing. And the reason is,
Speaker 1: and this is why I chose this one. I was
Speaker 1: hoping to sort of explain it a little bit and
Speaker 1: maybe Hoavier can give us more insights. But the more
Speaker 1: gas flowing now because of a deal that was struck
Speaker 1: actually years ago with gas prom where customers pay according
Speaker 1: to the level at which gas traded a month ago,
Speaker 1: and a month ago prices were lower. It is it
Speaker 1: is one of their I know that's the right war,
Speaker 1: but it's it's one of the ironies of the war.
Speaker 1: We we we we were thinking that the guys was
Speaker 1: going to stop flowing through Ukraine, and actually European utilities
Speaker 1: are buying more gas from Russia through Ukraine and paying
Speaker 1: more money to gaspron which is ultimately controlled by bloody
Speaker 1: mill putin just because what a bit of corporate greed.
Speaker 1: I mean, it's cheaper for these utilities to buy through
Speaker 1: the long term contract with GASPRON and then they can't
Speaker 1: resell the gas at the spot price, which is much higher,
Speaker 1: So they are maximizing their contract with GASPRON in the
Speaker 1: middle of a war. I call it capitalism in times
Speaker 1: of war. I know that some people will be less
Speaker 1: sympathetic than than that. That that that comment absolutely absolutely
Speaker 1: all right, well I'll give you mine before we go.
Speaker 1: And this is UM. I think the one thing that
Speaker 1: has struck a lot of people about this words there
Speaker 1: have been moments of comic relief. You know, Voldimir's Lensky
Speaker 1: obviously started out as a comic actor, and I feel
Speaker 1: like his spirit sort of trickles down UH to the
Speaker 1: rest of the country. Um. For example, there are all
Speaker 1: sorts of videos of farmers UH stealing Russian tanks with
Speaker 1: their trackers hooking, hooking them up on a tow rope
Speaker 1: and stealing them, to the point where the tax authority
Speaker 1: in Ukraine issued a statement saying, UM, if you steal
Speaker 1: a Russian tank, you don't have to declare it has
Speaker 1: income on your on your tax return. But anyway, someone
Speaker 1: put up a listing on eBay for a used Russian
Speaker 1: T seventy two tank and uh. This was alerted to
Speaker 1: me by the Twitter user financial Gambler, who I know
Speaker 1: is an avid listener of the show. I had actually
Speaker 1: seen it, but I never thought of it for the
Speaker 1: craziest thing. Now, it turns out the listing was boguscutting
Speaker 1: the snopes. It wasn't a real listening. But I think
Speaker 1: the fact that many of us were wondering whether or
Speaker 1: not this was real and thinking it possibly could be real.
Speaker 1: Uh shows you how crazy things have gotten. But just
Speaker 1: for fun, even though it's a fake listening, we're still
Speaker 1: gonna play prices right because I think it's a reasonable
Speaker 1: price for a used Russian T seventy two tank. Data.
Speaker 1: What do you think the buy it now price on
Speaker 1: eBay was for this fake listing for a Russian tank?
Speaker 1: I can't give There's no way I would never who
Speaker 1: would ever consider buying it. There's no way I can
Speaker 1: even come up with it with a number. All right, havevier,
Speaker 1: what do you think that the buy it now price
Speaker 1: for a used Russian TEA seventy two tanks should be?
Speaker 1: I I don't know it was a T seventy two,
Speaker 1: but I have seen one in action Russian tank in
Speaker 1: in in um saddly in the Middle East, so I
Speaker 1: know how it's scary they look, and I don't really
Speaker 1: want to bid, but okay, if I have to guess
Speaker 1: the twit went wild, so everyone would be bid in
Speaker 1: UM half a million. That's pretty good. It's pretty good, fo,
Speaker 1: so you're you're you're pretty good, pretty close, and uh,
Speaker 1: who knows what it takes to fill that thing up
Speaker 1: at the pump, though you know I was gonna be expensive.
Speaker 1: I wonder what they must run on diesel? I guess huh,
Speaker 1: they run on decent but you can't funny enough some
Speaker 1: of those thanks, they really run on almost anything. But
Speaker 1: you could run then on jet fuel almost the same
Speaker 1: the same product cast as you would put on a plane.
Speaker 1: Can I imagine they're real guest coustlers though I can't
Speaker 1: imagine they're very They're not gonna be cheap, so factor
Speaker 1: that into your price. But again, have your such a
Speaker 1: privilege for us to get your insights at this time,
Speaker 1: and I know you've had a busy week, so we
Speaker 1: we really appreciate it. My pleasure. Thank you for having me,
Speaker 1: Thank you for joining us What Goes Up. We'll be
Speaker 1: back next week and soil. Then you can find us
Speaker 1: on the Bloomberg Terminal, website and app, or wherever you
Speaker 1: get your podcasts. We love it if you took the
Speaker 1: time to rate and review the show on Apple Podcasts
Speaker 1: so more listeners can find us. And you can find
Speaker 1: us on Twitter. Follow me at Reaganonymous. Bilbona Hierrich is
Speaker 1: at Bilbona Hierrich. You can also follow Bloomberg Podcasts at
Speaker 1: podcasts I. Thank you to Charlie Pelleta Bloomberg Radio. What
Speaker 1: Goes Up is produced by Magnus Hendrickson ahead of Bloomberg
Speaker 1: podcast is Francesco Levy. Thanks for listening, See you next time.