1 00:00:10,720 --> 00:00:14,640 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,680 --> 00:00:18,159 Speaker 1: I'm Joe Wisntal and I'm Tracy Halloway. Tracy, you know 3 00:00:18,200 --> 00:00:24,600 Speaker 1: it was really crazy again. You're gonna have to narrow 4 00:00:24,680 --> 00:00:27,040 Speaker 1: that down a little bit. But what what is really crazy? 5 00:00:27,400 --> 00:00:30,000 Speaker 1: Do you remember that day when oil went to negative 6 00:00:30,000 --> 00:00:34,800 Speaker 1: forty barrel? Oh? Yeah, it feels like absolute ages ago, 7 00:00:35,040 --> 00:00:37,519 Speaker 1: because I guess it was. Um, I guess it was 8 00:00:37,560 --> 00:00:41,040 Speaker 1: in April twenty and I do remember, partly because a 9 00:00:41,040 --> 00:00:43,159 Speaker 1: bunch of people started tweeting at me about whether or 10 00:00:43,159 --> 00:00:46,040 Speaker 1: not they should buy oil and like store it under 11 00:00:46,040 --> 00:00:48,919 Speaker 1: their bed or in their basements or something. All Right, 12 00:00:48,960 --> 00:00:51,640 Speaker 1: I guess because you're the only person anyone knows who 13 00:00:51,640 --> 00:00:56,440 Speaker 1: has ever actually acquired physical oil. And for listeners who 14 00:00:56,440 --> 00:00:58,520 Speaker 1: don't know, Tracy had it next to me on her desk, 15 00:00:58,560 --> 00:01:01,040 Speaker 1: a bottle of oil, and apparently it wasn't good to 16 00:01:01,040 --> 00:01:05,920 Speaker 1: get into the bottle of extremely toxic oil. Um. So 17 00:01:06,000 --> 00:01:08,839 Speaker 1: the short answer is, had you bought oil in April, 18 00:01:10,240 --> 00:01:13,240 Speaker 1: you probably would be doing reasonably well right now because 19 00:01:13,240 --> 00:01:17,880 Speaker 1: oil prices have gone absolutely bonkers. But that said, storing 20 00:01:17,959 --> 00:01:20,760 Speaker 1: oil is a big hassle, and I wouldn't recommend it 21 00:01:20,840 --> 00:01:24,199 Speaker 1: to anyone. But yeah, it is kind of crazy how 22 00:01:24,240 --> 00:01:30,760 Speaker 1: we've swung from people wanting so little oil that you know, 23 00:01:30,800 --> 00:01:34,040 Speaker 1: they're actually almost paying people to take it off their hands, 24 00:01:34,080 --> 00:01:37,840 Speaker 1: to now people seemingly cannot getting enough of it. That 25 00:01:38,000 --> 00:01:40,880 Speaker 1: was so insane. It's actually the more I think about it, 26 00:01:41,160 --> 00:01:44,560 Speaker 1: the more crazy that time was. But exactly right, you know, 27 00:01:44,600 --> 00:01:48,360 Speaker 1: there's always so much oil storage capacity, and if demand 28 00:01:48,480 --> 00:01:51,840 Speaker 1: just essentially goes to zero in a matter of weeks, 29 00:01:52,200 --> 00:01:54,640 Speaker 1: then suddenly you might have a situation where people paying it. 30 00:01:54,880 --> 00:01:57,480 Speaker 1: I don't think anyone like really, I don't think very 31 00:01:57,600 --> 00:02:01,520 Speaker 1: very many players actually were able to acquire oil that cheap. 32 00:02:01,600 --> 00:02:05,280 Speaker 1: Maybe a few trades did happen, you know, never really, 33 00:02:05,400 --> 00:02:07,200 Speaker 1: I think for most people got to the point where 34 00:02:07,200 --> 00:02:08,880 Speaker 1: they were paid to take a little but maybe some 35 00:02:08,919 --> 00:02:12,440 Speaker 1: people did. Anyway, it is very different today. Oil just 36 00:02:12,520 --> 00:02:16,600 Speaker 1: keeps going higher and higher. We've talked to UH Goldman's 37 00:02:16,639 --> 00:02:18,600 Speaker 1: Jeff Curia a couple of times about this idea of 38 00:02:18,600 --> 00:02:21,040 Speaker 1: a commodity supercycle, and I don't know if we're like 39 00:02:21,160 --> 00:02:23,440 Speaker 1: how much longer it's going to go, but we're definitely 40 00:02:23,520 --> 00:02:27,120 Speaker 1: in an oil price boom right now. Yeah, it definitely 41 00:02:27,200 --> 00:02:30,480 Speaker 1: feels like it. But the weird thing is so on 42 00:02:30,520 --> 00:02:34,200 Speaker 1: the one hand, there is all this very um, I guess, 43 00:02:34,280 --> 00:02:39,040 Speaker 1: bullish action in terms of actual crude prices. A lot 44 00:02:39,120 --> 00:02:42,360 Speaker 1: of people are talking about the possibility of another broader 45 00:02:42,480 --> 00:02:47,359 Speaker 1: commodities supercycle. But at the same time, if you start 46 00:02:47,440 --> 00:02:54,080 Speaker 1: digging into the actual term structure of crude, it seems 47 00:02:54,120 --> 00:02:56,960 Speaker 1: like people are expecting these high oil prices to go 48 00:02:57,040 --> 00:03:01,480 Speaker 1: away relatively quickly. So much like the transit Tory inflation debate, 49 00:03:02,320 --> 00:03:06,200 Speaker 1: that expectation that these prices, these high prices aren't going 50 00:03:06,240 --> 00:03:09,239 Speaker 1: to be with us forever, is kind of baked into 51 00:03:10,000 --> 00:03:14,160 Speaker 1: the future's curve of crude. But again, like just because 52 00:03:14,160 --> 00:03:17,160 Speaker 1: we've had that conversation about inflation um and whether or 53 00:03:17,200 --> 00:03:19,720 Speaker 1: not it's transitory, and it's certainly been more persistent than 54 00:03:19,720 --> 00:03:22,320 Speaker 1: a lot of people have expected, it feels like there's 55 00:03:22,360 --> 00:03:25,799 Speaker 1: just a question mark over the entire market at the moment, 56 00:03:25,840 --> 00:03:27,600 Speaker 1: and it feels like it could go either way. Right, 57 00:03:27,600 --> 00:03:30,560 Speaker 1: we could get oil above a hundred dollars of barrel, 58 00:03:30,680 --> 00:03:33,679 Speaker 1: or we could see it start to go down as 59 00:03:33,840 --> 00:03:38,080 Speaker 1: higher prices incentivize more production. Right, the whole the capitalist 60 00:03:38,160 --> 00:03:41,440 Speaker 1: dictum of the cure of a higher prices is higher prices. 61 00:03:41,480 --> 00:03:44,520 Speaker 1: But so far higher prices have not cured higher prices. 62 00:03:44,920 --> 00:03:48,360 Speaker 1: Even with surging prices, we haven't seen that big of 63 00:03:48,360 --> 00:03:52,160 Speaker 1: a pickup in say US domestic production. It has gone up, 64 00:03:52,240 --> 00:03:56,200 Speaker 1: but not like crazy. And oil companies are making a 65 00:03:56,240 --> 00:03:59,400 Speaker 1: ton of money right now, Summit record highs in this 66 00:03:59,520 --> 00:04:02,280 Speaker 1: sort of spot where prices are really high, but they're 67 00:04:02,280 --> 00:04:05,480 Speaker 1: not competing with each other to spend. Part of the story, 68 00:04:05,720 --> 00:04:08,680 Speaker 1: as everyone knows, is that the sort of decade post 69 00:04:08,720 --> 00:04:12,840 Speaker 1: GFC was a huge time for US shale companies, expanding 70 00:04:12,880 --> 00:04:14,920 Speaker 1: like crazy, and then they turned out they lit it 71 00:04:14,960 --> 00:04:18,320 Speaker 1: all on fire and it didn't actually turn into profits 72 00:04:18,320 --> 00:04:23,040 Speaker 1: for investors. So there is a lot of residual fear 73 00:04:23,600 --> 00:04:27,000 Speaker 1: from that time, probably holding back production. But this is 74 00:04:27,240 --> 00:04:29,680 Speaker 1: I think one of the key macro questions of our time. 75 00:04:30,040 --> 00:04:32,200 Speaker 1: What's gonna happen to the price of oil? So we're 76 00:04:32,200 --> 00:04:35,240 Speaker 1: gonna be talking about that today. Perfect, let's do it 77 00:04:35,600 --> 00:04:38,039 Speaker 1: all right. I'm super excited to bring in our guest. 78 00:04:38,279 --> 00:04:40,800 Speaker 1: We're gonna be speaking with Rory Johnston. He is the 79 00:04:40,839 --> 00:04:44,599 Speaker 1: founder of the Commodity Context newsletter, which is really great, 80 00:04:44,880 --> 00:04:48,080 Speaker 1: and he's a managing director and market economist at Price 81 00:04:48,120 --> 00:04:52,480 Speaker 1: Street in Toronto. Rory, thank you so much for coming on. 82 00:04:53,279 --> 00:04:55,599 Speaker 1: Thanks so much for having me. Joe and Tracy a 83 00:04:55,680 --> 00:04:59,560 Speaker 1: huge fan of show these last two years. They I mean, 84 00:04:59,600 --> 00:05:02,080 Speaker 1: you've been following energy markets for a while, Like what 85 00:05:02,120 --> 00:05:04,440 Speaker 1: have they been like for you? Yeah, just to give 86 00:05:04,480 --> 00:05:07,000 Speaker 1: a bit of background, so I, you know, have been 87 00:05:07,040 --> 00:05:09,279 Speaker 1: following the markets now for the better part of a decade. 88 00:05:09,440 --> 00:05:13,760 Speaker 1: Prior to my current role. I I covered commodity economics 89 00:05:13,760 --> 00:05:16,680 Speaker 1: in the economics department at Scotia Bank for six is 90 00:05:16,920 --> 00:05:20,360 Speaker 1: years and there I was essentially in charge of overseeing 91 00:05:21,000 --> 00:05:23,400 Speaker 1: the price attack or the price forecast for a whole 92 00:05:23,480 --> 00:05:26,760 Speaker 1: variety of commodities, everything through the commodities kind of complex 93 00:05:26,760 --> 00:05:30,760 Speaker 1: I like to say, everything from crude copper through canola. 94 00:05:30,960 --> 00:05:33,680 Speaker 1: And that was a role that I I kind of 95 00:05:33,720 --> 00:05:38,719 Speaker 1: held very much through the initial bust of oil markets. 96 00:05:38,760 --> 00:05:40,839 Speaker 1: Like you know, for most of my you know, grad 97 00:05:40,880 --> 00:05:44,200 Speaker 1: school years, the assumption was that oil prices were more 98 00:05:44,279 --> 00:05:47,400 Speaker 1: or less stuck above this hundred dollar barrel mark. They 99 00:05:47,400 --> 00:05:50,880 Speaker 1: would have periodic spurts down, but it was generally this 100 00:05:51,040 --> 00:05:55,880 Speaker 1: view peak oil supply. We were running out and that 101 00:05:55,960 --> 00:05:57,919 Speaker 1: was basically the oil market that I was born in, 102 00:05:58,320 --> 00:06:00,560 Speaker 1: and then when I started working in this base, everything 103 00:06:00,600 --> 00:06:03,480 Speaker 1: just completely fell apart. And as you guys very accurately 104 00:06:03,480 --> 00:06:06,480 Speaker 1: described in the intro, that was very much because that 105 00:06:06,520 --> 00:06:10,040 Speaker 1: decade was very much the decade of shale, and you 106 00:06:10,080 --> 00:06:13,080 Speaker 1: mentioned these producers more or less setting this money on fire, 107 00:06:13,160 --> 00:06:16,160 Speaker 1: and and just to put that amount of money in perspective, 108 00:06:16,400 --> 00:06:18,600 Speaker 1: you know, depending on the stamp you're using, as something 109 00:06:18,640 --> 00:06:23,120 Speaker 1: between three d and five hundred billion dollars of upstream 110 00:06:23,160 --> 00:06:25,800 Speaker 1: investment that just never made any money. Now we're in 111 00:06:25,839 --> 00:06:29,280 Speaker 1: a position where a lot of these investors are are 112 00:06:29,320 --> 00:06:32,800 Speaker 1: both scarred from that experience and want that return. So 113 00:06:32,839 --> 00:06:35,760 Speaker 1: after I left Scotia, and I was honestly very much 114 00:06:35,800 --> 00:06:39,080 Speaker 1: planning on kind of transitioning out of the out of 115 00:06:39,080 --> 00:06:41,880 Speaker 1: the energy spaces my main specialty. And I think for 116 00:06:42,080 --> 00:06:44,040 Speaker 1: the reason that the energy sector has lost a lot 117 00:06:44,080 --> 00:06:46,880 Speaker 1: of talent is that it was just kind of really 118 00:06:46,920 --> 00:06:49,640 Speaker 1: going bad for so long. But after a couple of 119 00:06:49,640 --> 00:06:52,200 Speaker 1: months in my new position, and my phone started bringing 120 00:06:52,200 --> 00:06:54,120 Speaker 1: off the hook, right around the time when oil prices 121 00:06:54,120 --> 00:06:55,760 Speaker 1: went negative and everyone was trying to figure out what 122 00:06:55,800 --> 00:06:57,520 Speaker 1: was going on, and all of a sudden I got 123 00:06:57,520 --> 00:06:59,880 Speaker 1: really really interesting again, so I kind of got you 124 00:07:00,120 --> 00:07:04,280 Speaker 1: yanked back into the space, and now I've basically been 125 00:07:04,320 --> 00:07:07,279 Speaker 1: on this two year roller coaster of probably the most 126 00:07:07,279 --> 00:07:10,880 Speaker 1: exciting oil markets, if not as entire history, at least 127 00:07:10,880 --> 00:07:13,840 Speaker 1: recent history. I'm trying to think where to start, because 128 00:07:13,840 --> 00:07:16,600 Speaker 1: we can take this in so many different directions. But 129 00:07:16,880 --> 00:07:18,720 Speaker 1: I think one thing that's going to be important for 130 00:07:18,760 --> 00:07:24,000 Speaker 1: this conversation is understanding the relationship between investors and shale. 131 00:07:24,080 --> 00:07:27,160 Speaker 1: And you just described how much was it fifty billion 132 00:07:27,360 --> 00:07:30,400 Speaker 1: something like that, between three hundred and five hundred billion, 133 00:07:30,960 --> 00:07:33,760 Speaker 1: depending on the sample. So you just described five hundred 134 00:07:33,800 --> 00:07:37,640 Speaker 1: billion dollars of capital basically being destroyed when the shale 135 00:07:37,640 --> 00:07:41,960 Speaker 1: boom went bust. Maybe, just to start, could you talk 136 00:07:41,960 --> 00:07:46,520 Speaker 1: a little bit about why that happened. Why wasn't shale 137 00:07:46,600 --> 00:07:51,240 Speaker 1: able to compete effectively, or why weren't investors willing to 138 00:07:51,360 --> 00:07:54,480 Speaker 1: lose more money on it? You know, in in two 139 00:07:54,520 --> 00:07:57,000 Speaker 1: thousand and fifteen, I guess is when it started crumbling 140 00:07:57,080 --> 00:08:00,600 Speaker 1: or when it finally crumbled. Yeah, I mean, so the price, 141 00:08:00,720 --> 00:08:03,360 Speaker 1: the break even price, or the kind of what makes 142 00:08:03,360 --> 00:08:05,560 Speaker 1: sense for this type of production up and up through 143 00:08:06,520 --> 00:08:11,640 Speaker 1: was generally or was generally assumed in that kind of 144 00:08:11,640 --> 00:08:16,360 Speaker 1: you know, seventy eight barrel range. But after the collapse 145 00:08:16,360 --> 00:08:18,680 Speaker 1: and O prices, the experience at the end of that 146 00:08:18,760 --> 00:08:20,560 Speaker 1: kind of came to an end. And at the beginning 147 00:08:20,600 --> 00:08:25,200 Speaker 1: of UM that was really kind of a stress test 148 00:08:25,280 --> 00:08:27,600 Speaker 1: for shale, And what you saw across the board was 149 00:08:27,640 --> 00:08:30,800 Speaker 1: that those break even dropped precipitously, in some cases as 150 00:08:30,840 --> 00:08:33,079 Speaker 1: much as half UM, and that was just them getting 151 00:08:33,240 --> 00:08:37,400 Speaker 1: much better under pressure. They had kind of learned and 152 00:08:37,480 --> 00:08:40,719 Speaker 1: grown their initial their initial stages through a period of 153 00:08:40,720 --> 00:08:44,040 Speaker 1: extremely high oup prices that didn't require a ton of discipline, 154 00:08:44,440 --> 00:08:46,720 Speaker 1: but then they figured out how to do it for 155 00:08:46,880 --> 00:08:50,000 Speaker 1: much cheaper, and then the challenge moved from kind of 156 00:08:50,080 --> 00:08:53,480 Speaker 1: cost discipline to investment discipline and what all of these 157 00:08:53,520 --> 00:08:57,680 Speaker 1: producers were incentivized to keep producing more and more because 158 00:08:58,280 --> 00:09:00,920 Speaker 1: in oil markets, like an all com already markets, ever, 159 00:09:01,040 --> 00:09:04,080 Speaker 1: every actor is kind of an atomistic price taker, right, 160 00:09:04,120 --> 00:09:06,640 Speaker 1: they have no incentive to cooperate. In many cases, they 161 00:09:06,640 --> 00:09:09,200 Speaker 1: are actually legally barred from cooperating with each other in 162 00:09:09,320 --> 00:09:13,080 Speaker 1: order to make the system more stable. So these producers 163 00:09:13,080 --> 00:09:14,719 Speaker 1: have this challenge where that they kept taking on all 164 00:09:14,760 --> 00:09:17,120 Speaker 1: of this debt and all of this, you know, equity financing, 165 00:09:17,120 --> 00:09:18,960 Speaker 1: and they just poured it into more and more and 166 00:09:18,960 --> 00:09:22,280 Speaker 1: more and more wells, and then you just consistently repeatedly 167 00:09:22,360 --> 00:09:25,200 Speaker 1: crashing the price of oil and what had generally come 168 00:09:25,200 --> 00:09:27,640 Speaker 1: and to be thought of as you know, the quote 169 00:09:27,640 --> 00:09:31,360 Speaker 1: the shale band, which was this price range between forty 170 00:09:31,400 --> 00:09:34,800 Speaker 1: and sixty or maybe a bit sixty five, whereby if 171 00:09:34,840 --> 00:09:37,920 Speaker 1: you went above that price, shale would turn on and 172 00:09:38,000 --> 00:09:40,240 Speaker 1: you know, you get this fast ramp up of production 173 00:09:40,760 --> 00:09:42,440 Speaker 1: and it would you know, quash oil prices, and if 174 00:09:42,480 --> 00:09:45,160 Speaker 1: it dropped below that price, well, shale would turn off 175 00:09:45,200 --> 00:09:47,080 Speaker 1: and you would kind of get the balance and for 176 00:09:47,160 --> 00:09:51,880 Speaker 1: most of that period after right up until you got 177 00:09:51,920 --> 00:09:54,280 Speaker 1: that upside acceleration, but you didn't get much of the 178 00:09:54,360 --> 00:09:58,040 Speaker 1: downside turn off. So you know, what made shale different 179 00:09:58,200 --> 00:10:00,200 Speaker 1: was that shale is is what we ca all a 180 00:10:00,280 --> 00:10:02,760 Speaker 1: short cycle type of supply, which is it's really really 181 00:10:02,840 --> 00:10:05,520 Speaker 1: quick to ramp up and most of its production happens 182 00:10:05,520 --> 00:10:07,160 Speaker 1: in the first year, year and a half, so it's 183 00:10:07,160 --> 00:10:10,680 Speaker 1: a very quick decline rate versus historical types of production 184 00:10:10,679 --> 00:10:12,640 Speaker 1: where it took you know, the better part of a 185 00:10:12,679 --> 00:10:15,120 Speaker 1: decade to get some of these assets like ultra deep 186 00:10:15,160 --> 00:10:17,559 Speaker 1: sea or an oil sands minor hing like that up 187 00:10:17,559 --> 00:10:19,959 Speaker 1: and running, but then they produced pretty steadily for decades. 188 00:10:20,320 --> 00:10:22,040 Speaker 1: So shale was supposed to be this quick on and 189 00:10:22,080 --> 00:10:25,120 Speaker 1: all function the economic swing producers people like to say, 190 00:10:25,200 --> 00:10:27,280 Speaker 1: and it just really didn't work out that way because 191 00:10:27,520 --> 00:10:30,240 Speaker 1: every no one was cooperating and everyone just producing way 192 00:10:30,280 --> 00:10:33,600 Speaker 1: too much oil. When did shale stop? Wasn't in terms 193 00:10:33,640 --> 00:10:38,199 Speaker 1: of being that swing producer, because even if I think 194 00:10:38,240 --> 00:10:41,400 Speaker 1: people still talked about shale quite a bit as being 195 00:10:41,600 --> 00:10:45,600 Speaker 1: as effectively putting some kind of cap on the price 196 00:10:45,640 --> 00:10:48,000 Speaker 1: because of the ease with which it could be turned on. 197 00:10:48,200 --> 00:10:51,560 Speaker 1: So at what point did investors say, you know what, 198 00:10:52,280 --> 00:10:56,080 Speaker 1: we really just don't feel like layney on fire anymore. Yeah, 199 00:10:56,160 --> 00:10:57,800 Speaker 1: I think I think a lot of people have been 200 00:10:57,800 --> 00:11:00,360 Speaker 1: sounding this alarm for most of that kind of half 201 00:11:00,400 --> 00:11:03,240 Speaker 1: decade period. They're like, they're they're letting money on fire. 202 00:11:03,320 --> 00:11:05,880 Speaker 1: This isn't sustainable. Prices need to be higher, we need 203 00:11:05,920 --> 00:11:08,959 Speaker 1: more discipline, etcetera, etcetera. But it really like that was 204 00:11:09,000 --> 00:11:10,800 Speaker 1: going to be something that probably played out a bit 205 00:11:10,840 --> 00:11:13,559 Speaker 1: slower and more gradual. And the big thing that changed 206 00:11:13,600 --> 00:11:16,400 Speaker 1: was COVID. Uh, you know, the COVID shock hit and 207 00:11:16,440 --> 00:11:18,880 Speaker 1: everything just ground to a halt. And again to put 208 00:11:18,880 --> 00:11:22,440 Speaker 1: in perspective just how much of a crisis COVID was 209 00:11:22,559 --> 00:11:26,480 Speaker 1: for the oil market in particular this market typically when 210 00:11:26,480 --> 00:11:29,480 Speaker 1: you're talking about you know, periods of over supplier undersupply, 211 00:11:29,720 --> 00:11:32,160 Speaker 1: you're talking about you know, a couple million barrels a 212 00:11:32,240 --> 00:11:34,920 Speaker 1: day at the high end, like maybe two three of 213 00:11:34,960 --> 00:11:39,080 Speaker 1: global supply. In terms of deficit or a surplus in COVID, 214 00:11:39,240 --> 00:11:41,440 Speaker 1: you know, in that initial COVID shock, you lost upwards 215 00:11:41,440 --> 00:11:45,000 Speaker 1: of fiftent of demand and supply didn't turn off very quickly, 216 00:11:45,000 --> 00:11:48,600 Speaker 1: so you had absolutely wild builds and inventories all across 217 00:11:48,640 --> 00:11:50,640 Speaker 1: the world. And I agree with your assessment at the 218 00:11:50,640 --> 00:11:52,920 Speaker 1: beginning that I don't know how many barrels really traded 219 00:11:52,960 --> 00:11:55,640 Speaker 1: for those you know, negative fort w t I prices 220 00:11:55,720 --> 00:11:58,520 Speaker 1: or what have you. But the fact that you got 221 00:11:58,600 --> 00:12:02,520 Speaker 1: to that level was just evidence of how acutely stressed 222 00:12:02,600 --> 00:12:05,120 Speaker 1: the entire oil market was and how you basically didn't 223 00:12:05,160 --> 00:12:09,480 Speaker 1: have you know, effective operational inventory capacity anywhere in the system. 224 00:12:09,520 --> 00:12:13,559 Speaker 1: Left did anyone get paid to to take on oil 225 00:12:13,720 --> 00:12:16,760 Speaker 1: at that point in time. I'm sure there was a 226 00:12:16,800 --> 00:12:19,760 Speaker 1: handful of cases Bloomberg actually did some really good work 227 00:12:19,800 --> 00:12:21,880 Speaker 1: awhile back about some traders that made a lot of 228 00:12:21,880 --> 00:12:24,839 Speaker 1: money on that on that trade. But I think as 229 00:12:24,840 --> 00:12:28,520 Speaker 1: a general view, it's not you know, thinking about that 230 00:12:28,600 --> 00:12:32,000 Speaker 1: day or you know, aw, you know, I actually excluded 231 00:12:32,080 --> 00:12:34,040 Speaker 1: for most of my price series because it just mostly 232 00:12:34,040 --> 00:12:36,880 Speaker 1: makes everything look really weird. But it's kind of an anomaly, 233 00:12:36,920 --> 00:12:39,240 Speaker 1: and I think it's it's more evidence of how broken 234 00:12:39,280 --> 00:12:42,240 Speaker 1: things were relative to it being a useful price signal. 235 00:12:42,600 --> 00:12:44,600 Speaker 1: I think this is like the second episode in a 236 00:12:44,679 --> 00:12:47,440 Speaker 1: row where it's come up that we all have to 237 00:12:47,480 --> 00:12:50,520 Speaker 1: modify our church because they're going to look so ridiculous. 238 00:12:50,760 --> 00:12:53,079 Speaker 1: The various five year tenure charge that you're just sort 239 00:12:53,080 --> 00:12:56,160 Speaker 1: of like automatically bring up, they're just going to destroy 240 00:12:56,320 --> 00:12:58,360 Speaker 1: the why actually on so many church we're just gonna 241 00:12:58,360 --> 00:13:00,400 Speaker 1: have to like exclude them or like put your put 242 00:13:00,400 --> 00:13:03,240 Speaker 1: your fingers over the chart. Absolutely. I mean that was 243 00:13:03,280 --> 00:13:06,200 Speaker 1: my I tweeted something like that at the very beginning 244 00:13:06,200 --> 00:13:08,600 Speaker 1: of COVID. It was my really selfish initial take about 245 00:13:08,640 --> 00:13:10,720 Speaker 1: what was happening through every market was I have to 246 00:13:10,800 --> 00:13:29,280 Speaker 1: break all of my charts, so right now, okay, with 247 00:13:29,520 --> 00:13:31,800 Speaker 1: w T I it's a little bit over ninety. We're 248 00:13:31,800 --> 00:13:34,840 Speaker 1: recording this on February sevent it's actually I think it's 249 00:13:34,880 --> 00:13:41,160 Speaker 1: around of barrel. We're at prices in which theoretically shill 250 00:13:41,400 --> 00:13:43,760 Speaker 1: should be highly profitable, and I think there has been 251 00:13:43,840 --> 00:13:46,280 Speaker 1: some pick up in production. But why don't you tell 252 00:13:46,360 --> 00:13:48,480 Speaker 1: us more about what's going on in the here and 253 00:13:48,559 --> 00:13:51,480 Speaker 1: now and sort of like bring us up to speed 254 00:13:51,480 --> 00:13:53,920 Speaker 1: where the market is now. Yeah, so, as you were 255 00:13:53,960 --> 00:13:56,760 Speaker 1: saying w T I is trading in the nineties, we 256 00:13:56,800 --> 00:13:59,840 Speaker 1: had the first sales of dated Brent, which is the 257 00:14:00,320 --> 00:14:03,640 Speaker 1: kind of global spot benchmark above a hundred dollars a barrel. 258 00:14:03,720 --> 00:14:06,920 Speaker 1: I think it was yesterday. Obviously, the markets exceptionally tight. 259 00:14:07,280 --> 00:14:11,320 Speaker 1: Inventories are wildly low across all visible O e c 260 00:14:11,400 --> 00:14:14,120 Speaker 1: D tanks. We're back down well into the kind of 261 00:14:14,120 --> 00:14:18,040 Speaker 1: inventories we saw back in that kind of period when 262 00:14:18,040 --> 00:14:21,840 Speaker 1: prices were sustainably, like durably above a hundred dollars. I 263 00:14:21,840 --> 00:14:24,400 Speaker 1: think it's also important to remember, you know, when we're thinking, 264 00:14:24,520 --> 00:14:26,760 Speaker 1: everyone thinks about a hundred dollar oil as this kind 265 00:14:26,800 --> 00:14:29,800 Speaker 1: of you know, mythical benchmark, and I think this is 266 00:14:29,840 --> 00:14:31,960 Speaker 1: the same with you know, all assets across the space, 267 00:14:32,000 --> 00:14:36,920 Speaker 1: but particularly in non inflation. Just to ask you, a 268 00:14:37,000 --> 00:14:39,360 Speaker 1: hundred dollars is more like you know, a D twenty 269 00:14:39,400 --> 00:14:42,160 Speaker 1: five dollars now, So we're still down from where we 270 00:14:42,160 --> 00:14:45,200 Speaker 1: were then. But yeah, and I mean this just becomes 271 00:14:45,200 --> 00:14:47,360 Speaker 1: important because I think when people think about what is 272 00:14:47,360 --> 00:14:51,080 Speaker 1: even sustainable from a demand destruction perspective, I think this 273 00:14:51,160 --> 00:14:53,840 Speaker 1: is where that starts to play. But I mean, as 274 00:14:53,840 --> 00:14:56,200 Speaker 1: you were saying, you know, prices are wildly high, and 275 00:14:56,720 --> 00:15:00,280 Speaker 1: you know, back in when we saw what is then 276 00:15:00,320 --> 00:15:03,560 Speaker 1: probably the largest burst of shale production growth, which is 277 00:15:03,640 --> 00:15:05,840 Speaker 1: in between one and a half and two million barrels 278 00:15:05,880 --> 00:15:09,240 Speaker 1: a day a year, that was with prices well well 279 00:15:09,280 --> 00:15:10,960 Speaker 1: well below were they are today. So the question is, 280 00:15:11,000 --> 00:15:13,960 Speaker 1: you know, where is shale? And we we go to 281 00:15:14,000 --> 00:15:17,480 Speaker 1: this question of and I think, frankly it's the trillion 282 00:15:17,520 --> 00:15:19,600 Speaker 1: dollar question in the oil market. It is the single 283 00:15:19,680 --> 00:15:23,560 Speaker 1: most important forecast variable in anyone's outlooks is not just 284 00:15:23,720 --> 00:15:26,120 Speaker 1: what will shale do this year, but what will shale 285 00:15:26,240 --> 00:15:29,680 Speaker 1: be able to repeatedly kind of sustainably do over the 286 00:15:29,760 --> 00:15:34,200 Speaker 1: next five years. Because it's important to remember for you know, 287 00:15:34,200 --> 00:15:37,760 Speaker 1: people watching the industry that in that year and teaen 288 00:15:37,760 --> 00:15:39,760 Speaker 1: when shale grew by one and a half two million 289 00:15:39,800 --> 00:15:42,440 Speaker 1: barrels a day. That was more or less that over 290 00:15:42,560 --> 00:15:45,080 Speaker 1: that overwhelmed demand growth for that year. You know, it 291 00:15:45,360 --> 00:15:47,800 Speaker 1: wasn't just you know, shale was an important piece of demand, 292 00:15:47,840 --> 00:15:50,000 Speaker 1: It was our important piece of supply growth. It was 293 00:15:50,040 --> 00:15:52,760 Speaker 1: really the entire ball game in many years, and many 294 00:15:52,840 --> 00:15:56,840 Speaker 1: other producers OPEC namely Plus had to you know, ratchet 295 00:15:56,880 --> 00:15:59,880 Speaker 1: back to apply in order to continually balance the market. 296 00:16:00,080 --> 00:16:03,400 Speaker 1: Just felt like a losing game. So now now we 297 00:16:03,440 --> 00:16:06,560 Speaker 1: find ourselves in this position of why isn't shale growing? 298 00:16:06,600 --> 00:16:09,040 Speaker 1: And there's a whole bunch of reasons for it, but 299 00:16:09,560 --> 00:16:11,480 Speaker 1: the main one everyone's talking at is this idea of 300 00:16:11,600 --> 00:16:14,400 Speaker 1: calsh flow discipline or really you know, not going through 301 00:16:14,400 --> 00:16:18,560 Speaker 1: that capital destructive period again. So I want to get 302 00:16:18,600 --> 00:16:20,640 Speaker 1: into that a little bit more, because this is something 303 00:16:20,640 --> 00:16:22,640 Speaker 1: that came up when we were speaking with Jeff Curry 304 00:16:22,720 --> 00:16:24,720 Speaker 1: as well, and I've written a little bit about it 305 00:16:24,840 --> 00:16:28,040 Speaker 1: on the Odd Lots blog. But before we do, I mean, 306 00:16:28,080 --> 00:16:32,400 Speaker 1: you mentioned looking at prices over the future, So how 307 00:16:32,480 --> 00:16:35,600 Speaker 1: much does the backwardation that we're seeing in the curve. 308 00:16:35,720 --> 00:16:37,920 Speaker 1: You know, this idea that oil prices might be high 309 00:16:38,000 --> 00:16:40,840 Speaker 1: right now, but people expect them to go lower in 310 00:16:40,920 --> 00:16:45,120 Speaker 1: the future. How much is that an impediment to shale 311 00:16:45,200 --> 00:16:49,200 Speaker 1: producers turning the taps back on. It's an impediment to 312 00:16:49,240 --> 00:16:51,800 Speaker 1: a certain degree because of the way that they typically 313 00:16:52,440 --> 00:16:56,320 Speaker 1: had their production forward. But I think the important thing 314 00:16:56,360 --> 00:16:59,400 Speaker 1: to remember about backwardation, and this is something that you know, 315 00:16:59,480 --> 00:17:02,320 Speaker 1: it's a it's a frequent talking point in commodities Twitter 316 00:17:02,840 --> 00:17:07,119 Speaker 1: is a lot of macro folks view backwardation as a 317 00:17:07,160 --> 00:17:09,920 Speaker 1: sign that you know, quote, the market is forecasting that 318 00:17:10,000 --> 00:17:12,679 Speaker 1: prices will fall into the future, which in a sense 319 00:17:12,880 --> 00:17:16,800 Speaker 1: is true because the oil market is cyclical and high 320 00:17:16,840 --> 00:17:19,600 Speaker 1: prices cure high prices and typically that kind of falls 321 00:17:19,640 --> 00:17:22,480 Speaker 1: over the other side. But really what backgardation is showing 322 00:17:22,520 --> 00:17:24,960 Speaker 1: you is not so much what the expectations of the 323 00:17:25,000 --> 00:17:29,320 Speaker 1: future are. But really it's a snapshot of the current 324 00:17:29,440 --> 00:17:33,679 Speaker 1: state of the market and appetite for buying crewde you know, 325 00:17:33,800 --> 00:17:37,159 Speaker 1: into the future. Really, what it's showing is we're extremely 326 00:17:37,240 --> 00:17:40,640 Speaker 1: tighten spot markets and the signal is super high to say, 327 00:17:40,840 --> 00:17:43,879 Speaker 1: you know, drain everything you have out of inventory. In 328 00:17:43,920 --> 00:17:47,600 Speaker 1: the inverse system. Back when you know, oil hit negative 329 00:17:47,640 --> 00:17:53,040 Speaker 1: prices in in you had massive super backwards super contango, 330 00:17:53,400 --> 00:17:57,639 Speaker 1: which was essentially paying people fifteen plus dollars a barrel 331 00:17:57,720 --> 00:18:00,520 Speaker 1: to stort for a very brief period of time. The 332 00:18:00,960 --> 00:18:04,240 Speaker 1: forward curve is how the oil market kind of solves 333 00:18:04,280 --> 00:18:07,640 Speaker 1: that inventory basically pays inventory one way or the other 334 00:18:07,880 --> 00:18:09,720 Speaker 1: to balance the market at any given moments. So I 335 00:18:09,760 --> 00:18:11,960 Speaker 1: would say that's the most important thing to think is that. 336 00:18:12,080 --> 00:18:14,320 Speaker 1: You know, I always say, you know, backwardation is bullish, 337 00:18:14,720 --> 00:18:18,679 Speaker 1: and it's because it's mostly a reflection of current you know, 338 00:18:18,720 --> 00:18:22,439 Speaker 1: supply demand balances rather than future expectations. Can you just 339 00:18:22,480 --> 00:18:25,840 Speaker 1: give us some numbers when we say oil is extremely 340 00:18:25,920 --> 00:18:28,199 Speaker 1: tight right now or the markets and deficit, what are 341 00:18:28,200 --> 00:18:31,320 Speaker 1: we actually talking about? Yeah, so basically for most of 342 00:18:32,160 --> 00:18:36,359 Speaker 1: one actually all one you spent, the market was basically 343 00:18:36,440 --> 00:18:39,000 Speaker 1: undersupplied by something in the range of one and a 344 00:18:39,040 --> 00:18:41,399 Speaker 1: half to two million barrels a day. Um. So again 345 00:18:41,440 --> 00:18:44,439 Speaker 1: I think that's a that's a lot of undersupply in 346 00:18:44,480 --> 00:18:47,199 Speaker 1: the sense that that's really as as high as it 347 00:18:47,320 --> 00:18:49,360 Speaker 1: used to get. I think we all have to forget 348 00:18:49,560 --> 00:18:52,560 Speaker 1: how wildly out of out of wax supply demand got 349 00:18:52,680 --> 00:18:55,560 Speaker 1: during the initial COVID shop. But for a long period 350 00:18:55,600 --> 00:18:59,280 Speaker 1: of time, that's a lot of kind of insufficient supply, 351 00:18:59,400 --> 00:19:02,080 Speaker 1: and inventor rays went from you know, they fell from 352 00:19:02,080 --> 00:19:06,520 Speaker 1: their all time highs back down into that you know, 353 00:19:06,600 --> 00:19:10,000 Speaker 1: normal range, back when we thought oil was really scarce 354 00:19:10,040 --> 00:19:12,359 Speaker 1: and it should be above a hundred dollars a barrel event. 355 00:19:13,000 --> 00:19:16,480 Speaker 1: Just to get back to this question of capital discipline, 356 00:19:16,720 --> 00:19:22,880 Speaker 1: So we have seen various I guess energy CEOs at 357 00:19:22,920 --> 00:19:27,480 Speaker 1: times talk about this, this change in the relationship between 358 00:19:27,600 --> 00:19:32,159 Speaker 1: investors and oil companies. So it used to be you 359 00:19:32,200 --> 00:19:34,600 Speaker 1: threw a lot of money at the space and you've 360 00:19:34,680 --> 00:19:39,440 Speaker 1: lost it. And then once the shale boom collapsed, companies 361 00:19:39,480 --> 00:19:43,720 Speaker 1: started getting really focused on cutting costs, really disciplined on 362 00:19:43,760 --> 00:19:48,440 Speaker 1: actually returning money to investors. But I guess the question is, 363 00:19:48,720 --> 00:19:53,160 Speaker 1: has it swung too has that relationships swung too far? 364 00:19:53,320 --> 00:19:55,600 Speaker 1: Is it too conservative now? Is it to the point 365 00:19:55,640 --> 00:19:58,560 Speaker 1: where you know, ultimately the energy industry isn't going to 366 00:19:58,600 --> 00:20:02,600 Speaker 1: be able to satisfy both the demands of um I guess, 367 00:20:02,680 --> 00:20:07,040 Speaker 1: the broader market, and the demands of shareholders who are very, 368 00:20:07,240 --> 00:20:11,960 Speaker 1: very unwilling to invest more capital for expansion purposes into 369 00:20:12,000 --> 00:20:15,160 Speaker 1: these firms. I'm currently seeing a bit of what I'm 370 00:20:15,160 --> 00:20:18,040 Speaker 1: calling like a barbelling of the shale patch, which is, 371 00:20:18,359 --> 00:20:20,359 Speaker 1: you know, at the high end, you've got some of 372 00:20:20,400 --> 00:20:23,160 Speaker 1: the majors that you know, the X on the chevrons 373 00:20:23,200 --> 00:20:26,119 Speaker 1: that are looking to grow, um, not gangbusters growth, but 374 00:20:26,160 --> 00:20:28,960 Speaker 1: they're looking to grow materially, you know, hundred and fifty 375 00:20:29,000 --> 00:20:30,640 Speaker 1: thousand barrels a day in the Permian in between them 376 00:20:30,680 --> 00:20:33,200 Speaker 1: or something like that. On the other end, you have 377 00:20:33,520 --> 00:20:36,320 Speaker 1: the private players, um, that are that that ramped up. 378 00:20:36,320 --> 00:20:38,480 Speaker 1: They were the first ones to really start ramping up rigs. 379 00:20:38,600 --> 00:20:40,880 Speaker 1: They're the first ones to kind of lean into this, uh, 380 00:20:40,920 --> 00:20:45,199 Speaker 1: this rally. But the general perception is that the you know, 381 00:20:45,240 --> 00:20:47,280 Speaker 1: they have a less of a long term kind of 382 00:20:47,400 --> 00:20:49,639 Speaker 1: quality inventory behind them, so it could be a bit 383 00:20:49,680 --> 00:20:52,520 Speaker 1: more flash in the pan. The part that really isn't 384 00:20:52,520 --> 00:20:54,680 Speaker 1: moving right now is that kind of middle of the barbell, 385 00:20:55,000 --> 00:20:58,119 Speaker 1: which are the US independents that were very much the 386 00:20:58,200 --> 00:21:02,240 Speaker 1: face and driver of that, you know, the past decade 387 00:21:02,359 --> 00:21:07,840 Speaker 1: of US shale production. You're talking you know, players like EO. G, Pioneer, Diamondback, Devon, 388 00:21:07,920 --> 00:21:11,199 Speaker 1: Continental Resources, et cetera. They're all more looking in a 389 00:21:11,320 --> 00:21:15,920 Speaker 1: range of kind of capping growth in that five percent range. Now, 390 00:21:16,480 --> 00:21:21,640 Speaker 1: you know, it's always hard to trust the sector with 391 00:21:21,920 --> 00:21:24,359 Speaker 1: when they say this, because they've said these types of 392 00:21:24,400 --> 00:21:27,120 Speaker 1: things before and then they ended up overwhelming the market again. Now, 393 00:21:27,119 --> 00:21:31,000 Speaker 1: obviously things are very different post COVID, because everything feels 394 00:21:31,040 --> 00:21:34,440 Speaker 1: at least slightly different, you know, post COVID. But there's 395 00:21:34,720 --> 00:21:37,640 Speaker 1: I see, there's essentially two scenarios I see going forward, 396 00:21:37,640 --> 00:21:41,880 Speaker 1: because you're right that with prices this high, virtually every 397 00:21:42,080 --> 00:21:45,520 Speaker 1: shale producing region, oil shale producing region in the United 398 00:21:45,560 --> 00:21:49,320 Speaker 1: States is profitable. So it's it's really a willingness to invest, 399 00:21:49,440 --> 00:21:53,120 Speaker 1: not you know, a project economics question at this stage. Now, 400 00:21:53,520 --> 00:21:56,080 Speaker 1: So the two scenarios I see are basically a scenario 401 00:21:56,119 --> 00:21:59,919 Speaker 1: of reasonably modest shale growth, maybe something in the range 402 00:22:00,000 --> 00:22:02,280 Speaker 1: of you know, three hundred to five hundred thousand barrels 403 00:22:02,280 --> 00:22:05,200 Speaker 1: a day growth, which just frankly the market will need 404 00:22:05,640 --> 00:22:08,240 Speaker 1: in order to balance itself. You know, there just aren't 405 00:22:08,280 --> 00:22:10,760 Speaker 1: that many additional sources of supply out there, so you 406 00:22:10,960 --> 00:22:12,440 Speaker 1: know you're gonna need some. So is it going to 407 00:22:12,480 --> 00:22:14,040 Speaker 1: be a little shale or is it going to be 408 00:22:14,280 --> 00:22:16,680 Speaker 1: you know, the other scenario of high shale growth, where 409 00:22:16,680 --> 00:22:18,800 Speaker 1: you could see you know, a million barrels a day 410 00:22:18,880 --> 00:22:21,919 Speaker 1: or more production, and I think those two scenarios are 411 00:22:21,920 --> 00:22:24,520 Speaker 1: going to very much shape how you think the next 412 00:22:24,560 --> 00:22:26,399 Speaker 1: five years in the oil market are going to go. 413 00:22:26,880 --> 00:22:30,159 Speaker 1: In the low shale environment, actually let's start with the 414 00:22:30,240 --> 00:22:32,320 Speaker 1: high high show, because I think it is probably the 415 00:22:32,359 --> 00:22:34,959 Speaker 1: most likely that you're going to get some growth with 416 00:22:35,040 --> 00:22:39,200 Speaker 1: prices this high, you know, reasonably strong growth. What's changed 417 00:22:39,280 --> 00:22:41,359 Speaker 1: there is that that shale band I talked about a 418 00:22:41,359 --> 00:22:44,800 Speaker 1: little earlier, that forty to sixty range probably feels more 419 00:22:44,880 --> 00:22:47,879 Speaker 1: like six now. I think the reason for that is 420 00:22:47,880 --> 00:22:50,840 Speaker 1: that the one thing that definitely has happened is even 421 00:22:50,880 --> 00:22:55,000 Speaker 1: if these producers do start investing again, I really do 422 00:22:55,119 --> 00:22:57,760 Speaker 1: think they've all been mostly scared out of the kind 423 00:22:57,800 --> 00:23:01,359 Speaker 1: of previous practice of dramatically out spending cash flow. So 424 00:23:01,400 --> 00:23:04,080 Speaker 1: I think that will always kind of remain as as 425 00:23:04,119 --> 00:23:07,960 Speaker 1: a a form of anchor on investment going forward. So 426 00:23:08,000 --> 00:23:10,400 Speaker 1: you're not going to get those explosive periods of growth, 427 00:23:10,440 --> 00:23:12,400 Speaker 1: or you're unlikely to get those explosive periods of growth 428 00:23:12,400 --> 00:23:15,879 Speaker 1: like you have before. But in that low growth, you know, 429 00:23:16,000 --> 00:23:18,560 Speaker 1: low US shale growth scenario, I think that's where things 430 00:23:18,600 --> 00:23:21,280 Speaker 1: get especially interesting, because then you're probably going to be 431 00:23:21,280 --> 00:23:24,560 Speaker 1: in a situation where you have prices on a kind 432 00:23:24,560 --> 00:23:27,720 Speaker 1: of a go forward basis, you know, you know, nineties 433 00:23:27,840 --> 00:23:31,320 Speaker 1: above a hundred dollars because you're gonna need to start 434 00:23:31,359 --> 00:23:35,320 Speaker 1: incentivizing other forms of production globally, you know things. You 435 00:23:35,400 --> 00:23:38,320 Speaker 1: know I was saying this, you know where else's supply 436 00:23:38,440 --> 00:23:41,600 Speaker 1: going to come from. You've got us shale, You've got OPEC, 437 00:23:41,720 --> 00:23:45,440 Speaker 1: which by the end of summer basically into into fall, 438 00:23:45,880 --> 00:23:49,080 Speaker 1: you're mostly going to have that production capacity tapped out. 439 00:23:49,080 --> 00:23:51,200 Speaker 1: You're gonna have a little bit more in Saudi Arabia 440 00:23:51,320 --> 00:23:54,760 Speaker 1: and the U a E. But beyond that, Opex more 441 00:23:54,840 --> 00:23:57,639 Speaker 1: or less done at that stage in a real incremental 442 00:23:57,680 --> 00:24:00,320 Speaker 1: growth sense um. And then outside of pack in the 443 00:24:00,400 --> 00:24:03,920 Speaker 1: United States, you're really looking at three main areas. You're 444 00:24:03,960 --> 00:24:07,720 Speaker 1: looking at Brazilian pre salt, which is deep sea, but 445 00:24:07,800 --> 00:24:09,640 Speaker 1: that's in an area that's been kind of a chronic 446 00:24:09,680 --> 00:24:12,840 Speaker 1: area of kind of disappointment before You've got the really 447 00:24:12,840 --> 00:24:16,200 Speaker 1: interesting new discoveries in Guiana, and I think that will 448 00:24:16,240 --> 00:24:18,639 Speaker 1: be an area of real growth, probably ramping up to 449 00:24:18,680 --> 00:24:20,560 Speaker 1: about one and a half to two million barrels today 450 00:24:20,600 --> 00:24:23,160 Speaker 1: over the next couple of years. And you've got Canada, 451 00:24:23,240 --> 00:24:25,920 Speaker 1: where we're in the oil sands, which is again that's 452 00:24:25,960 --> 00:24:29,120 Speaker 1: my specialty is is really Canadian liquids production. But that's 453 00:24:29,160 --> 00:24:31,720 Speaker 1: an area that had more or less been counted out 454 00:24:31,760 --> 00:24:34,760 Speaker 1: as a major contributor in the future and now starts 455 00:24:34,760 --> 00:24:39,160 Speaker 1: to look really good because you have a massive asset base, 456 00:24:39,800 --> 00:24:42,800 Speaker 1: resource base in a country with you know, you know, 457 00:24:43,000 --> 00:24:47,520 Speaker 1: friendly politics at a time when things like European energy 458 00:24:47,560 --> 00:24:50,639 Speaker 1: crises have us thinking about energy security again. And I 459 00:24:50,680 --> 00:24:52,400 Speaker 1: do think with prices is hiw, you're going to start 460 00:24:52,400 --> 00:24:54,840 Speaker 1: to see more incremental growth out of Canada. So I 461 00:24:54,880 --> 00:24:57,720 Speaker 1: think those are the types of areas where you're going 462 00:24:57,760 --> 00:25:02,320 Speaker 1: to see possible production, but it's gonna be the outlook 463 00:25:02,400 --> 00:25:04,320 Speaker 1: or it's going to be the trajectory of US shale 464 00:25:04,640 --> 00:25:06,360 Speaker 1: that is going to determine which one of those two 465 00:25:06,359 --> 00:25:09,520 Speaker 1: scenarios we end up falling in. And there's essentially it 466 00:25:09,560 --> 00:25:13,320 Speaker 1: doesn't sound like any prospect for the sort of twenty 467 00:25:13,400 --> 00:25:17,800 Speaker 1: eighteen or pre COVID style where it's just automatic swing 468 00:25:17,840 --> 00:25:21,480 Speaker 1: production production, price goes up, you suddenly get more because 469 00:25:21,480 --> 00:25:26,520 Speaker 1: I take it these other possibilities Brazil Guiana, which as 470 00:25:26,560 --> 00:25:29,000 Speaker 1: you described as a wanted to your project out at 471 00:25:29,040 --> 00:25:31,960 Speaker 1: least the Canadian oil stands just not as not going 472 00:25:31,960 --> 00:25:35,760 Speaker 1: to be as responsive. Yeah, exactly. All of those types 473 00:25:35,800 --> 00:25:38,600 Speaker 1: of production are more what we would call that classic 474 00:25:38,720 --> 00:25:41,040 Speaker 1: kind of traditional types of production where it's you know, 475 00:25:41,119 --> 00:25:45,360 Speaker 1: lots of lead time, lots of upfront capex, which those 476 00:25:45,359 --> 00:25:47,320 Speaker 1: are the types of projects that had really started to 477 00:25:47,359 --> 00:25:49,679 Speaker 1: fall out of favor in the oil industry because of 478 00:25:49,680 --> 00:25:53,719 Speaker 1: this heightened uncertainty, because of this price volatility, people like 479 00:25:53,880 --> 00:25:56,800 Speaker 1: the US shale because you could more or less hedge 480 00:25:56,840 --> 00:25:59,080 Speaker 1: down the curve, get your production up and going within 481 00:25:59,080 --> 00:26:01,760 Speaker 1: a year or with you know, honestly months, and then 482 00:26:01,840 --> 00:26:05,560 Speaker 1: have most of that asset produced out within a year 483 00:26:05,640 --> 00:26:07,560 Speaker 1: or year and a half. So that was very much 484 00:26:07,640 --> 00:26:10,760 Speaker 1: the way investment was starting to go. And I think 485 00:26:10,800 --> 00:26:13,399 Speaker 1: one of the things that in that low US shale 486 00:26:13,400 --> 00:26:15,640 Speaker 1: growth scenario we discussed, I think one of the things 487 00:26:15,680 --> 00:26:19,080 Speaker 1: that you're going to start to see is investment kind 488 00:26:19,080 --> 00:26:22,640 Speaker 1: of attitude and sentiment start to start to shift more 489 00:26:22,680 --> 00:26:25,840 Speaker 1: favorably back towards those longer cycle projects again, just because 490 00:26:25,840 --> 00:26:29,879 Speaker 1: that is frankly, what most of the productive resource capacity 491 00:26:29,960 --> 00:26:32,600 Speaker 1: or potential in the world is how much do E 492 00:26:32,800 --> 00:26:37,320 Speaker 1: s G concerns factor into investor unwillingness to come in 493 00:26:37,560 --> 00:26:39,960 Speaker 1: and fund this market because of course this is sort 494 00:26:39,960 --> 00:26:42,760 Speaker 1: of one of the ultimate ironies of everything that's been 495 00:26:42,800 --> 00:26:45,640 Speaker 1: going on. Uh and Jeff Curry touched on this as well. 496 00:26:45,680 --> 00:26:49,920 Speaker 1: But we really were supposed to be moving away from oil, 497 00:26:50,240 --> 00:26:53,399 Speaker 1: and presumably that was one of the reasons that, you know, 498 00:26:53,640 --> 00:26:56,879 Speaker 1: shale kind of fell out of fashion. We're all supposed 499 00:26:56,920 --> 00:27:00,359 Speaker 1: to switch to renewable energy sources, and certainly, if you 500 00:27:00,400 --> 00:27:02,440 Speaker 1: look at some of what the shale companies have said 501 00:27:02,480 --> 00:27:06,600 Speaker 1: in recent years, they are very much um complaining about this. 502 00:27:06,960 --> 00:27:09,440 Speaker 1: But on the other hand, it has just become very 503 00:27:09,520 --> 00:27:11,959 Speaker 1: very clear over the past year or so that we 504 00:27:12,040 --> 00:27:18,560 Speaker 1: are nowhere near actually weaning ourselves off of crude dependency. Okay, 505 00:27:18,560 --> 00:27:20,600 Speaker 1: how big a factor is E s G in this? 506 00:27:20,720 --> 00:27:24,040 Speaker 1: And then secondly, is there a way to sort of 507 00:27:24,080 --> 00:27:29,280 Speaker 1: thread the needle between renewable energy and oil? Yeah, I think, 508 00:27:29,359 --> 00:27:31,440 Speaker 1: you know, just to dwell on the E s G 509 00:27:31,640 --> 00:27:34,919 Speaker 1: question a second, it's it's obviously complicated and hard to 510 00:27:34,920 --> 00:27:37,400 Speaker 1: pull apart with everything else that's going on. But broadly, 511 00:27:37,400 --> 00:27:39,800 Speaker 1: I think one thing that's happened is access to capital 512 00:27:39,800 --> 00:27:42,760 Speaker 1: has definitely gotten more scarce, both from equity markets and 513 00:27:42,920 --> 00:27:45,479 Speaker 1: bank lending, which they've started kind of pulling back from 514 00:27:45,600 --> 00:27:48,600 Speaker 1: lending to the space as well, so that's definitely happened. 515 00:27:48,840 --> 00:27:50,320 Speaker 1: One of the other things I think it's important to 516 00:27:50,359 --> 00:27:53,399 Speaker 1: remember about, you know, the trend towards E s G 517 00:27:53,800 --> 00:27:55,800 Speaker 1: kind of indexes and stuff. It was very easy when 518 00:27:55,840 --> 00:28:00,320 Speaker 1: those indexes were outperforming because most traditional resources, you most 519 00:28:00,359 --> 00:28:02,800 Speaker 1: of all, the oil industry, because of all that capital 520 00:28:02,840 --> 00:28:06,040 Speaker 1: instruction and because of low prices, it performed really really 521 00:28:06,040 --> 00:28:08,600 Speaker 1: poorly over most of the half most of the last decade. 522 00:28:08,840 --> 00:28:10,359 Speaker 1: So one of the things I'll be also interested to 523 00:28:10,400 --> 00:28:12,680 Speaker 1: see is, you know, this year has been a big 524 00:28:12,720 --> 00:28:16,520 Speaker 1: outperformance in last year as well of traditional energy over 525 00:28:16,680 --> 00:28:20,080 Speaker 1: some of the kind of key names in the E 526 00:28:20,240 --> 00:28:23,119 Speaker 1: s G portfolios or at least out performing, you know, 527 00:28:23,240 --> 00:28:26,159 Speaker 1: versus the indexes that exclude those type of producers. So 528 00:28:26,200 --> 00:28:29,560 Speaker 1: I'll be interested to see if if that trend continues 529 00:28:29,720 --> 00:28:32,600 Speaker 1: at the same pace or plateaus or reverses to a degree. 530 00:28:32,960 --> 00:28:35,920 Speaker 1: But I would say that generally this is in terms 531 00:28:35,920 --> 00:28:39,840 Speaker 1: of an immediate cause one of the smaller ones, and 532 00:28:40,200 --> 00:28:42,360 Speaker 1: lots of people in industry will disagree with me on that, 533 00:28:42,400 --> 00:28:45,680 Speaker 1: but I think that you know that investor discipline question 534 00:28:45,800 --> 00:28:47,920 Speaker 1: is is really more important. It's not so much about 535 00:28:47,920 --> 00:28:49,880 Speaker 1: you know, do it cleanly, it's just do it profitably. 536 00:28:50,320 --> 00:28:52,120 Speaker 1: And then the other thing that I think is happening 537 00:28:52,240 --> 00:28:56,000 Speaker 1: is that you've got all of these non equity investor 538 00:28:56,040 --> 00:28:58,520 Speaker 1: capital discipline related issues that are going on, particularly in 539 00:28:58,520 --> 00:29:00,880 Speaker 1: the U S. Shail Padge you've got on the Odd 540 00:29:01,120 --> 00:29:03,959 Speaker 1: podcast have done such a great job following all of 541 00:29:04,000 --> 00:29:08,720 Speaker 1: the microeconomic kind of supply chain stories through COVID, and 542 00:29:09,160 --> 00:29:11,920 Speaker 1: you know, the US shell patches is no, it's it's 543 00:29:11,920 --> 00:29:15,200 Speaker 1: not immune from that same kind of disruption. So you know, 544 00:29:15,400 --> 00:29:18,360 Speaker 1: right now we're running into issues around labor. We had 545 00:29:18,400 --> 00:29:21,040 Speaker 1: issues around pipe. You know last year when steel was 546 00:29:21,080 --> 00:29:23,720 Speaker 1: in it was it was scarce. We're now running out 547 00:29:23,720 --> 00:29:26,840 Speaker 1: of sand again, which is something that had been an 548 00:29:26,840 --> 00:29:29,000 Speaker 1: issue a couple of years ago and we mostly forgot about. 549 00:29:29,600 --> 00:29:32,280 Speaker 1: So you have these other supply chain issues at the 550 00:29:32,320 --> 00:29:36,800 Speaker 1: same time going forward, you're also having these environmental environmental questions, 551 00:29:36,840 --> 00:29:38,560 Speaker 1: not on the E s G side, but more on 552 00:29:38,600 --> 00:29:42,240 Speaker 1: the government regulation side around increased seismicity and kind of 553 00:29:42,320 --> 00:29:45,520 Speaker 1: earthquakes and some of these producing regions mostly related to 554 00:29:45,520 --> 00:29:49,040 Speaker 1: how they were disposing of wastewater from from fracking operations, 555 00:29:49,400 --> 00:29:53,240 Speaker 1: as well as fugitive methane or or leaks of natural 556 00:29:53,320 --> 00:29:55,720 Speaker 1: gas from these sites. All that together, I think is 557 00:29:55,760 --> 00:29:59,160 Speaker 1: going to make it harder for shale to grow in 558 00:29:59,160 --> 00:30:01,640 Speaker 1: this environment. And I think it's just one extra thing 559 00:30:01,680 --> 00:30:05,520 Speaker 1: that adds on to that investor or cash flow discipline 560 00:30:05,560 --> 00:30:07,880 Speaker 1: narrative and why it's so hard to pull them apart, 561 00:30:07,920 --> 00:30:10,560 Speaker 1: because they're really happening at the same time, and they 562 00:30:10,640 --> 00:30:13,400 Speaker 1: both kind of accelerated at the same time. I saw 563 00:30:13,480 --> 00:30:16,200 Speaker 1: that this week about the shortage of a fracks and 564 00:30:16,400 --> 00:30:18,200 Speaker 1: or the surging prey. Can you reminder, how do they 565 00:30:18,280 --> 00:30:20,320 Speaker 1: use sand again, what's the key? What's the role for 566 00:30:20,400 --> 00:30:25,000 Speaker 1: sand and show? So basically how a shale well is 567 00:30:25,000 --> 00:30:28,520 Speaker 1: is how it gets to producing. So shale shale is 568 00:30:28,600 --> 00:30:31,360 Speaker 1: different than a lot of traditional resources. When people typically 569 00:30:31,400 --> 00:30:33,800 Speaker 1: think of oil production, they think of, you know, drilling 570 00:30:34,080 --> 00:30:36,440 Speaker 1: a hole straight down to the earth and then you 571 00:30:36,480 --> 00:30:38,960 Speaker 1: know oil pops out like and there will be blood 572 00:30:39,200 --> 00:30:43,080 Speaker 1: or you know, Beverly Hill drinking your neighbors Milkshi exactly right, 573 00:30:43,720 --> 00:30:46,920 Speaker 1: And that's mostly the traditional form of oil where that 574 00:30:47,160 --> 00:30:49,240 Speaker 1: oil had seeped up from elsewhere and kind of got 575 00:30:49,280 --> 00:30:52,160 Speaker 1: trapped under a big you know, cap rock or something 576 00:30:52,160 --> 00:30:54,200 Speaker 1: that you basically poked through and then all of that 577 00:30:54,240 --> 00:30:58,080 Speaker 1: pressure pushes it to the surface. In shale, you're actually 578 00:30:58,160 --> 00:31:01,280 Speaker 1: going one step backwards in the geology. You're going into 579 00:31:01,280 --> 00:31:03,280 Speaker 1: the source rock, whereas a lot of this oil is 580 00:31:03,800 --> 00:31:07,720 Speaker 1: formed in these kind of sedimentary layers of geology, but 581 00:31:07,760 --> 00:31:10,720 Speaker 1: then typically leaks out and goes elsewhere. What you're doing 582 00:31:10,760 --> 00:31:12,680 Speaker 1: in shale is you're basically going right to that source, 583 00:31:12,720 --> 00:31:15,160 Speaker 1: So you're kind of going down and sit into a pool. 584 00:31:15,200 --> 00:31:19,560 Speaker 1: You're kind of going sideways or drilling horizontally through these 585 00:31:19,640 --> 00:31:23,680 Speaker 1: geological shale or sedimentary formations and what you're so you 586 00:31:23,800 --> 00:31:26,479 Speaker 1: drill down and then you finish them by you basically 587 00:31:26,480 --> 00:31:30,120 Speaker 1: pump a bunch of proprietary fluids and propint and that's 588 00:31:30,120 --> 00:31:32,360 Speaker 1: where the sand comes in. And basically that that sand 589 00:31:32,440 --> 00:31:35,360 Speaker 1: acts as uh, you know, you basically pump it down, 590 00:31:35,360 --> 00:31:38,080 Speaker 1: It fractures and shatters all of these formations, and the 591 00:31:38,160 --> 00:31:41,200 Speaker 1: sand gets caught in those in those cracks and holds 592 00:31:41,240 --> 00:31:43,400 Speaker 1: them open so it can allow that hydrocarbon to come 593 00:31:43,400 --> 00:32:02,080 Speaker 1: out and get pumped to the surface. So I know 594 00:32:02,160 --> 00:32:06,800 Speaker 1: you were mentioning some alternate sources of supply like Canadian 595 00:32:06,840 --> 00:32:10,320 Speaker 1: oil sands, UM, but there there is at least one 596 00:32:10,880 --> 00:32:13,600 Speaker 1: big one that we haven't spoken about yet, and that's 597 00:32:13,880 --> 00:32:17,240 Speaker 1: I Ran. And it's kind of funny how high prices, uh, 598 00:32:17,320 --> 00:32:19,280 Speaker 1: you know, we said the cure for high prices is 599 00:32:19,320 --> 00:32:22,320 Speaker 1: often high prices, but often high prices also seemed to 600 00:32:22,320 --> 00:32:26,200 Speaker 1: be the cure for UM. I guess, like political restrictions 601 00:32:26,200 --> 00:32:30,400 Speaker 1: and tariffs and things like that, what are the chances 602 00:32:30,440 --> 00:32:34,960 Speaker 1: that some of that oil gets freed from the Iranian 603 00:32:35,000 --> 00:32:38,880 Speaker 1: market as higher oil prices become more of a h 604 00:32:39,320 --> 00:32:43,480 Speaker 1: I guess, let's say political pressure point for the Biden administration. 605 00:32:44,480 --> 00:32:47,520 Speaker 1: It's interesting the way that's evolved this year, because I 606 00:32:47,520 --> 00:32:50,200 Speaker 1: remember last year kind of thinking something similar in someone 607 00:32:50,240 --> 00:32:53,040 Speaker 1: that had a lot of knowledge about the sanctions negotiation 608 00:32:53,040 --> 00:32:55,000 Speaker 1: process kind of told me the thing you need to 609 00:32:55,000 --> 00:32:58,200 Speaker 1: remember is that the people that deal with sanctions policy 610 00:32:58,240 --> 00:33:01,040 Speaker 1: aren't typically the ones that are worried about ask prices. 611 00:33:01,120 --> 00:33:05,320 Speaker 1: So what's interesting is how is just how dramatic price 612 00:33:05,360 --> 00:33:09,080 Speaker 1: gains have been that that consideration has worked itself in 613 00:33:09,120 --> 00:33:11,280 Speaker 1: to the negotiations. And I think it's you can never 614 00:33:11,320 --> 00:33:13,720 Speaker 1: know exactly what's going on, you know, behind the closed doors, 615 00:33:13,760 --> 00:33:17,760 Speaker 1: but it seems pretty clear that the high pump prices 616 00:33:17,800 --> 00:33:20,959 Speaker 1: have had some accelerating effect on the negotiations, and not 617 00:33:21,000 --> 00:33:24,479 Speaker 1: just in Iran. You've also seen additional kind of you know, 618 00:33:24,640 --> 00:33:28,160 Speaker 1: at least steps towards loosening or or allowing more venezuel 619 00:33:28,240 --> 00:33:31,320 Speaker 1: and oil production as well. So I think the way 620 00:33:31,320 --> 00:33:34,360 Speaker 1: to think about Iranian production at least right now. I 621 00:33:34,360 --> 00:33:36,520 Speaker 1: think in the longer term you could definitely have more 622 00:33:36,560 --> 00:33:39,320 Speaker 1: investment and everything else. But I think the immediate question of, 623 00:33:39,880 --> 00:33:43,120 Speaker 1: you know, if sanctions dropped today, how much more oil 624 00:33:43,160 --> 00:33:45,640 Speaker 1: could we get? And this is brings us to another 625 00:33:45,840 --> 00:33:48,400 Speaker 1: interesting debate within the industry right now is that's a 626 00:33:48,480 --> 00:33:51,320 Speaker 1: big debate as to how much can come back. And 627 00:33:51,360 --> 00:33:55,120 Speaker 1: the big question there is how much is Iran currently 628 00:33:55,200 --> 00:33:59,760 Speaker 1: smuggling around sanctions that are currently in the books. And 629 00:33:59,800 --> 00:34:03,640 Speaker 1: the rationale there is essentially the more they're smuggling around, 630 00:34:03,840 --> 00:34:05,960 Speaker 1: the more that oil is already getting to the market. 631 00:34:06,120 --> 00:34:10,399 Speaker 1: So an easing of sanctions wouldn't give more oil. So 632 00:34:10,480 --> 00:34:14,360 Speaker 1: the higher you're smuggling estimate, the lower your potential supply 633 00:34:14,440 --> 00:34:18,680 Speaker 1: addition estimate from sanctions easing. Now, and I'll just pick 634 00:34:18,719 --> 00:34:21,239 Speaker 1: a nice kind of center number here, we're probably looking 635 00:34:21,280 --> 00:34:23,520 Speaker 1: at somewhere in the ballpark of a million barrels a 636 00:34:23,600 --> 00:34:26,799 Speaker 1: day of additional supply from iron. They could come on 637 00:34:27,200 --> 00:34:30,560 Speaker 1: within three to six months of an easing deal. Now, 638 00:34:30,920 --> 00:34:36,040 Speaker 1: based on the current trajectory of those negotiations, it seems 639 00:34:36,440 --> 00:34:39,560 Speaker 1: like the White House really wants to get this done, uh, 640 00:34:39,600 --> 00:34:42,360 Speaker 1: and potentially wants to get this done ahead of you know, 641 00:34:42,400 --> 00:34:44,880 Speaker 1: mid terms later in the year. So if we saw 642 00:34:44,920 --> 00:34:48,600 Speaker 1: something in some kind of deal reached in the summer, 643 00:34:48,840 --> 00:34:52,640 Speaker 1: you could potentially see additional oil by year end, but 644 00:34:52,840 --> 00:34:55,160 Speaker 1: probably the market would front run that anyways, and you'd 645 00:34:55,160 --> 00:34:58,480 Speaker 1: get the price response quicker. So I think it's it's 646 00:34:58,480 --> 00:35:02,080 Speaker 1: an interesting question. It's it's is hard to kind of 647 00:35:02,120 --> 00:35:05,440 Speaker 1: handicap the probability because it really is it's, if not 648 00:35:05,560 --> 00:35:08,520 Speaker 1: a binary, it's at least a step wise function, whereas 649 00:35:08,520 --> 00:35:10,719 Speaker 1: all the rest of these are you know, it's between 650 00:35:11,239 --> 00:35:13,880 Speaker 1: five thousand and a million somewhere on there, based on 651 00:35:13,880 --> 00:35:16,520 Speaker 1: a sensitivity function. Whereas it run it's really you know, 652 00:35:16,920 --> 00:35:19,600 Speaker 1: doesn't get done or doesn't it get done, that's really 653 00:35:19,600 --> 00:35:22,560 Speaker 1: well put. You know, is there anything else? Are there 654 00:35:22,600 --> 00:35:26,000 Speaker 1: any other levers that the White House could posibly pull here. 655 00:35:26,040 --> 00:35:29,320 Speaker 1: I mean, when you know, she'll like, obviously people rage 656 00:35:29,400 --> 00:35:32,200 Speaker 1: at the administration both of the US and in Canada 657 00:35:32,719 --> 00:35:36,520 Speaker 1: over prices of gasoline. But obviously there's just market forces 658 00:35:36,840 --> 00:35:39,520 Speaker 1: or at least in large part that's preventing, uh, you know, 659 00:35:40,080 --> 00:35:43,399 Speaker 1: the capital is not being invested other levers that you 660 00:35:43,440 --> 00:35:47,960 Speaker 1: see that, uh, the White House could pull, beyond anything international, 661 00:35:48,200 --> 00:35:52,320 Speaker 1: other domestic policy moves that could loosen the market. I mean, honestly, 662 00:35:52,360 --> 00:35:55,319 Speaker 1: the the only kind of suggestion that I've seen that 663 00:35:55,360 --> 00:35:58,520 Speaker 1: I think would have a really you know, noticeable and 664 00:35:58,840 --> 00:36:02,239 Speaker 1: at least short termed orrible effect on prices would be 665 00:36:02,320 --> 00:36:05,560 Speaker 1: an elimination of the gas tax. But I think this 666 00:36:05,680 --> 00:36:09,279 Speaker 1: gets us back to another conversation along the kind of E. S. 667 00:36:09,320 --> 00:36:11,560 Speaker 1: G line, which is, you know, you're you're kind of 668 00:36:11,719 --> 00:36:14,440 Speaker 1: fighting against yourself if you do that, right, Because one 669 00:36:14,480 --> 00:36:17,120 Speaker 1: of the things that people that have wanted energy transition 670 00:36:17,280 --> 00:36:19,400 Speaker 1: have been arguing for for a long time is that 671 00:36:19,600 --> 00:36:22,800 Speaker 1: fossil fuel should be more expensive. Right. That part of 672 00:36:22,840 --> 00:36:25,120 Speaker 1: the reason we do things like you know, we argue 673 00:36:25,160 --> 00:36:27,360 Speaker 1: for carbon taxes is that we want to you know, 674 00:36:27,800 --> 00:36:31,920 Speaker 1: internalize and externalized costs so that you kind of the 675 00:36:31,960 --> 00:36:34,680 Speaker 1: market can kind of better decide what you should be 676 00:36:34,719 --> 00:36:36,719 Speaker 1: doing or what kind of fuel you should be consuming. 677 00:36:37,000 --> 00:36:40,600 Speaker 1: Part of the challenge is that a lot of activists 678 00:36:40,600 --> 00:36:43,400 Speaker 1: have focused on the supply side of the ledger because 679 00:36:43,400 --> 00:36:46,439 Speaker 1: the demand side is really politically difficult. So it's really 680 00:36:46,440 --> 00:36:49,120 Speaker 1: hard to argue for carbon taxes. They've kind of been 681 00:36:49,160 --> 00:36:52,520 Speaker 1: tried and you know, succeeded or failed to varying degrees, 682 00:36:52,560 --> 00:36:55,200 Speaker 1: but there are very much of politically you know, toxic 683 00:36:55,280 --> 00:36:58,040 Speaker 1: topic um, so a lot of people will just oppose 684 00:36:58,120 --> 00:37:00,560 Speaker 1: pipelines instead. And I think what we're seeing in this 685 00:37:00,600 --> 00:37:02,879 Speaker 1: moment right now is an example of because what we're 686 00:37:02,880 --> 00:37:06,560 Speaker 1: experiencing is functionally as supply side shortage, which is what 687 00:37:06,640 --> 00:37:09,840 Speaker 1: you'd get if you opposed all of the new production 688 00:37:09,880 --> 00:37:12,480 Speaker 1: coming down the line. And what that does is you 689 00:37:12,600 --> 00:37:16,720 Speaker 1: do inevitably probably get some kind of reduction in demand 690 00:37:16,800 --> 00:37:19,200 Speaker 1: just because you know, some man curve slowed down. But 691 00:37:19,680 --> 00:37:22,040 Speaker 1: the downside is that you're kind of getting that impact 692 00:37:22,280 --> 00:37:25,640 Speaker 1: in the economically least efficient way. And I think the 693 00:37:25,640 --> 00:37:28,600 Speaker 1: other risk here is that you know, even if E 694 00:37:28,760 --> 00:37:31,960 Speaker 1: s G or some of these environmental policies aren't directly 695 00:37:32,040 --> 00:37:35,759 Speaker 1: to blame for the current energy crisis we're seeing, Um, 696 00:37:35,800 --> 00:37:37,600 Speaker 1: a lot of people will argue they are, and a 697 00:37:37,640 --> 00:37:39,279 Speaker 1: lot of people will believe they are. So I think 698 00:37:39,280 --> 00:37:41,080 Speaker 1: one of the challenges here as well is it is 699 00:37:41,120 --> 00:37:45,160 Speaker 1: it increases the risk of political backsliding on really useful 700 00:37:45,200 --> 00:37:48,560 Speaker 1: and needed demand side policies when we have moments like this. 701 00:37:48,640 --> 00:37:52,360 Speaker 1: And a great example is, you know, Canadian gasoline prices 702 00:37:52,400 --> 00:37:55,040 Speaker 1: are at all time highs right now, despite oil being 703 00:37:55,040 --> 00:37:57,279 Speaker 1: nowhere near that level. And the reason for that is 704 00:37:57,320 --> 00:38:00,440 Speaker 1: twofold one, the Canadian dollars weaker than used to be, 705 00:38:01,040 --> 00:38:02,560 Speaker 1: you know, when oil was this high, so we're getting 706 00:38:02,600 --> 00:38:06,200 Speaker 1: that currency impact. And additionally, all of these additional both 707 00:38:06,280 --> 00:38:09,040 Speaker 1: kind of provincial and federal taxes and carbon taxes have 708 00:38:09,040 --> 00:38:12,160 Speaker 1: been layered into the prices that most people didn't notice 709 00:38:12,440 --> 00:38:14,759 Speaker 1: for the last couple of years because prices were going 710 00:38:14,760 --> 00:38:18,440 Speaker 1: ever and ever lower. Now we're kind of noticing, oh wow, 711 00:38:18,520 --> 00:38:20,799 Speaker 1: everything is really expensive now. And I think that kind 712 00:38:20,800 --> 00:38:24,160 Speaker 1: of you know, feeds very directly into the inflation debate. 713 00:38:24,200 --> 00:38:26,000 Speaker 1: And I think you know, obviously, you know, Joe, you've 714 00:38:26,000 --> 00:38:28,280 Speaker 1: tweeted a lot about how you know, is it inflation 715 00:38:28,360 --> 00:38:30,440 Speaker 1: or is it just gas price? And obviously that's you know, 716 00:38:30,719 --> 00:38:33,840 Speaker 1: of all commodities, that's the number one thing that everyone 717 00:38:33,920 --> 00:38:36,040 Speaker 1: is very much aware of is what are you paying 718 00:38:36,040 --> 00:38:38,279 Speaker 1: to fill your tank? So just on that note, I mean, 719 00:38:38,400 --> 00:38:41,160 Speaker 1: you emphasize this at the beginning of our conversation. This 720 00:38:41,280 --> 00:38:44,560 Speaker 1: is the biggest variable that goes into a lot of 721 00:38:44,560 --> 00:38:47,520 Speaker 1: people's models. Um, and certainly there are models of inflation. 722 00:38:47,920 --> 00:38:51,440 Speaker 1: So what's your what's your sort of gut take on 723 00:38:51,640 --> 00:38:55,279 Speaker 1: where oil prices are going to go? Let's say let's 724 00:38:55,280 --> 00:38:58,520 Speaker 1: say this this was coming right the trillion the multi 725 00:38:58,560 --> 00:39:02,120 Speaker 1: trillion dollar question. Yeah, I would say that. I said 726 00:39:02,120 --> 00:39:03,720 Speaker 1: most of my career as a kind of a wishy 727 00:39:03,719 --> 00:39:06,839 Speaker 1: washy two handed bank economists, so my answer will reflect that. 728 00:39:07,200 --> 00:39:11,680 Speaker 1: But I really returned to that scenario outlook, which is 729 00:39:12,120 --> 00:39:14,759 Speaker 1: I think that the prices we're seeing right now are 730 00:39:14,880 --> 00:39:17,800 Speaker 1: likely over bid because of some of the geopolitical issues 731 00:39:17,840 --> 00:39:21,000 Speaker 1: on the stage. Obviously, you know they're even today there 732 00:39:20,640 --> 00:39:24,239 Speaker 1: are up and down headlines about Russia and Ukraine, the 733 00:39:24,280 --> 00:39:26,400 Speaker 1: Iran stuff, etcetera. So I think we do have a 734 00:39:26,600 --> 00:39:28,200 Speaker 1: you know, a little bit of an overbid here. I 735 00:39:28,280 --> 00:39:30,520 Speaker 1: think that maybe we'll come down from here. But I 736 00:39:30,520 --> 00:39:34,600 Speaker 1: think that if we don't have a really noticeable and 737 00:39:34,840 --> 00:39:39,000 Speaker 1: durable increase in US production activity by the summer. I 738 00:39:39,040 --> 00:39:42,120 Speaker 1: think that we're very clearly in a hundred dollar plus 739 00:39:42,280 --> 00:39:46,160 Speaker 1: environment for a while. Well, I still think that I've 740 00:39:46,160 --> 00:39:48,960 Speaker 1: called time of death repeatedly on shale before, um so 741 00:39:49,000 --> 00:39:52,480 Speaker 1: I'm very wary of of calling it again because you know, 742 00:39:52,560 --> 00:39:55,600 Speaker 1: it always seems to come back and produce more. So 743 00:39:55,880 --> 00:39:58,400 Speaker 1: I think that it's likely they will produce more and 744 00:39:58,440 --> 00:40:00,600 Speaker 1: we'll kind of end up back down into at you know, 745 00:40:01,040 --> 00:40:04,279 Speaker 1: sixty seventy eight range. But I think again, we just 746 00:40:04,440 --> 00:40:09,279 Speaker 1: haven't seen that investment come through. The first sign and 747 00:40:09,320 --> 00:40:11,840 Speaker 1: I thought that was really interesting. Uh, the prices traded 748 00:40:12,320 --> 00:40:14,360 Speaker 1: higher a couple of days ago. I'm trying to it 749 00:40:14,400 --> 00:40:17,120 Speaker 1: was last week because it's not the geopolitical stuff, but 750 00:40:17,160 --> 00:40:19,360 Speaker 1: it was actually the first day that we saw a 751 00:40:19,480 --> 00:40:23,200 Speaker 1: really really big jump in the US rig count. It 752 00:40:23,360 --> 00:40:26,279 Speaker 1: was I think you saw nineteen oil rigs and twenty 753 00:40:26,480 --> 00:40:28,719 Speaker 1: overall riggs added week on week for the Baker Hughes 754 00:40:28,800 --> 00:40:31,879 Speaker 1: rig count, and that was the largest week on week 755 00:40:31,960 --> 00:40:34,600 Speaker 1: increase that we've seen in four years. That's the kind 756 00:40:34,600 --> 00:40:37,560 Speaker 1: of thing that if repeated a couple more times before, 757 00:40:37,719 --> 00:40:40,080 Speaker 1: you know, before June or July. Then we're in that 758 00:40:40,280 --> 00:40:43,120 Speaker 1: that higher growth possibility environment, and I think prices are 759 00:40:43,120 --> 00:40:46,279 Speaker 1: going to start ease back, at least temporarily into that 760 00:40:46,440 --> 00:40:51,000 Speaker 1: kind of you know, you know, eighties seventies range until 761 00:40:51,120 --> 00:40:53,160 Speaker 1: that's confirmed, and then we'll kind of see where we 762 00:40:53,200 --> 00:40:58,120 Speaker 1: go from there. I'm getting flashbacks to en and you know, 763 00:40:58,239 --> 00:41:00,520 Speaker 1: waking up every day and having to look at Baker 764 00:41:00,600 --> 00:41:03,319 Speaker 1: Hughes and the oil rig count. Although back then it 765 00:41:03,360 --> 00:41:07,640 Speaker 1: was because it was going in the opposite hashtaggat that 766 00:41:07,800 --> 00:41:13,440 Speaker 1: was like iconic finance Twitter Twitter canon. It totally was right, 767 00:41:13,440 --> 00:41:15,960 Speaker 1: and I think that's it's definitely fun to focus on 768 00:41:16,000 --> 00:41:17,560 Speaker 1: them again. And I think part of the reason they 769 00:41:17,600 --> 00:41:19,479 Speaker 1: fell out of fashion is it is it became really 770 00:41:19,520 --> 00:41:23,120 Speaker 1: hard to compare across time. Interesting because all the rigs 771 00:41:23,120 --> 00:41:25,600 Speaker 1: that they're using now are very different. They're much more productive. 772 00:41:25,600 --> 00:41:28,520 Speaker 1: They're being used in more productive ways, So you have 773 00:41:28,640 --> 00:41:30,799 Speaker 1: to adjust that rig count because if you look at 774 00:41:30,800 --> 00:41:33,440 Speaker 1: the rig count, we're still way way way below what 775 00:41:33,480 --> 00:41:35,680 Speaker 1: we what we would have seen because you had a 776 00:41:35,680 --> 00:41:38,399 Speaker 1: lot of these legacy old rigs there. And what we've 777 00:41:38,440 --> 00:41:40,799 Speaker 1: also saw through COVID and something I've been following is 778 00:41:41,239 --> 00:41:44,440 Speaker 1: similar and in that kind of you know, rig count 779 00:41:44,440 --> 00:41:47,040 Speaker 1: watch in the in the following years, everyone started talking 780 00:41:47,040 --> 00:41:50,919 Speaker 1: about these drilled but uncompleted wells or death and that's 781 00:41:50,960 --> 00:41:54,640 Speaker 1: also played a lot into our outlook for the sector. 782 00:41:54,680 --> 00:41:58,400 Speaker 1: Are following the sector this year because through most of 783 00:41:58,440 --> 00:42:01,360 Speaker 1: that path half deck eight or so, you saw a 784 00:42:01,440 --> 00:42:05,240 Speaker 1: really massive mountain of these ducks get built up because 785 00:42:05,360 --> 00:42:08,680 Speaker 1: drilling continue to outpace the capacity to finish them. And 786 00:42:08,719 --> 00:42:11,479 Speaker 1: again we go back to that where the sand is used. 787 00:42:11,680 --> 00:42:13,880 Speaker 1: You drill a well and then you complete it separately, 788 00:42:14,040 --> 00:42:16,239 Speaker 1: and the reason you have ducks is that you know, 789 00:42:16,320 --> 00:42:19,160 Speaker 1: sometimes you don't complete the wells you finish. What we've 790 00:42:19,160 --> 00:42:22,480 Speaker 1: seen this year is that they've gone rapidly in the 791 00:42:22,560 --> 00:42:25,240 Speaker 1: other direction and they're basically near their lowest point on record. 792 00:42:25,680 --> 00:42:29,879 Speaker 1: As you know, oil producers and shail producers used that 793 00:42:30,000 --> 00:42:33,240 Speaker 1: inventory is a way to subsidize their current production without 794 00:42:33,400 --> 00:42:35,520 Speaker 1: needing to go through the effort of drilling the wells. 795 00:42:35,800 --> 00:42:38,400 Speaker 1: So they just finished them all. And now we're running 796 00:42:38,400 --> 00:42:40,800 Speaker 1: into action into a situation where we really are actually 797 00:42:40,800 --> 00:42:43,000 Speaker 1: going to need to drill more wells again, which is 798 00:42:43,040 --> 00:42:45,719 Speaker 1: why I think that the rig count is going to 799 00:42:45,760 --> 00:42:48,239 Speaker 1: be your first indication of whether or not the US 800 00:42:48,239 --> 00:42:50,560 Speaker 1: shell patch is really kind of turning back up again. 801 00:42:51,040 --> 00:42:53,640 Speaker 1: You know, I just have a little bit of time left. 802 00:42:53,640 --> 00:42:55,520 Speaker 1: But you know something I'm curious about. We haven't talked 803 00:42:55,560 --> 00:42:57,640 Speaker 1: at all about the demands that I really have been 804 00:42:57,640 --> 00:43:00,960 Speaker 1: talking about supply almost completely because that's where the action is. 805 00:43:01,280 --> 00:43:03,880 Speaker 1: But I wrote, I don't have any great sense like, okay, 806 00:43:03,920 --> 00:43:07,920 Speaker 1: here in two like how does where is demand? And 807 00:43:07,960 --> 00:43:11,800 Speaker 1: how does it compared to say, you know, February or 808 00:43:11,840 --> 00:43:15,640 Speaker 1: even February I guess without much COVID impact. Yet, like 809 00:43:15,840 --> 00:43:18,400 Speaker 1: where are we with his demand boomed? And at what 810 00:43:18,560 --> 00:43:22,200 Speaker 1: point does demand start, you know, demand destruction as they say, 811 00:43:22,200 --> 00:43:24,719 Speaker 1: where the price of oil starts impeding how much people 812 00:43:24,719 --> 00:43:28,759 Speaker 1: actually use? Yeah, I think so roughly before COVID, we 813 00:43:28,800 --> 00:43:31,799 Speaker 1: had reached that, you know, hundred million barrel a day 814 00:43:32,480 --> 00:43:35,479 Speaker 1: benchmark of of global oil demand, and then it fell 815 00:43:35,600 --> 00:43:39,160 Speaker 1: very dramatically through COVID, obviously, and we're more or less 816 00:43:39,239 --> 00:43:42,000 Speaker 1: back around that level, are pretty close to it now, 817 00:43:42,400 --> 00:43:44,200 Speaker 1: at least through this year. It's expected that we're gonna 818 00:43:44,200 --> 00:43:46,759 Speaker 1: get back there on a on a resustainable level or 819 00:43:46,880 --> 00:43:50,200 Speaker 1: durable level again. And but the important thing is there 820 00:43:50,360 --> 00:43:53,399 Speaker 1: that we haven't returned to the pre COVID trend, We're 821 00:43:53,400 --> 00:43:55,120 Speaker 1: just back up to that level. So now it's this 822 00:43:55,200 --> 00:43:58,720 Speaker 1: question of, you know, how how fast is the steady 823 00:43:58,760 --> 00:44:03,360 Speaker 1: state growth of of oil demand going forward. Before COVID, 824 00:44:03,400 --> 00:44:05,719 Speaker 1: we would have expected, on a good year kind of 825 00:44:05,760 --> 00:44:07,880 Speaker 1: something in the ballpark of one and a half million 826 00:44:07,920 --> 00:44:10,279 Speaker 1: barrels a day of growth annually on the demand side, 827 00:44:10,600 --> 00:44:12,239 Speaker 1: which is why again that one and a half to 828 00:44:12,239 --> 00:44:14,680 Speaker 1: two million barrels of US shale growth was so you know, 829 00:44:15,120 --> 00:44:18,480 Speaker 1: you know, you unsurmountable. But now it's going forward, you know, 830 00:44:18,560 --> 00:44:20,000 Speaker 1: do we return to that? And it looks like we're 831 00:44:20,000 --> 00:44:22,279 Speaker 1: probably going to return to something close to that. I 832 00:44:22,280 --> 00:44:25,319 Speaker 1: think one thing we've talked about a lot through COVID is, 833 00:44:25,840 --> 00:44:29,880 Speaker 1: you know, this prioritization of durables demand and people a 834 00:44:29,960 --> 00:44:32,439 Speaker 1: kind of consuming a lot of stuff. Obviously they'll all 835 00:44:32,440 --> 00:44:35,160 Speaker 1: has a all has a bearing on oil demand and 836 00:44:35,239 --> 00:44:37,919 Speaker 1: plastics demand and everything else. And the final thing that's 837 00:44:37,960 --> 00:44:41,360 Speaker 1: really going to recover here is going to be air travel. 838 00:44:41,400 --> 00:44:44,520 Speaker 1: It's like the last final piece of the puzzle for oil. 839 00:44:44,880 --> 00:44:47,839 Speaker 1: And I think that you know, eventually, you know, eventually, 840 00:44:47,880 --> 00:44:49,960 Speaker 1: this is going to end. No One knows when or 841 00:44:50,200 --> 00:44:52,759 Speaker 1: or or exactly how, but I think that we're going 842 00:44:52,800 --> 00:44:54,919 Speaker 1: to get back to that stage. It's you know, of 843 00:44:54,920 --> 00:44:56,880 Speaker 1: of that million a half barrel a day kind of 844 00:44:57,000 --> 00:44:59,799 Speaker 1: normal annual growth. But then it's this question of like 845 00:45:00,040 --> 00:45:02,319 Speaker 1: how long does that last? When do we get to 846 00:45:02,360 --> 00:45:04,319 Speaker 1: this idea of you know, peak global demand. And I 847 00:45:04,320 --> 00:45:08,520 Speaker 1: think that's probably somewhere in the MIDI where we hit 848 00:45:08,560 --> 00:45:10,799 Speaker 1: peak global demand of oil, and then we have this 849 00:45:11,400 --> 00:45:15,960 Speaker 1: plateau of varying steepnesses on the other side based on 850 00:45:16,120 --> 00:45:21,400 Speaker 1: how quickly we can electrify and and decarbonize the rest 851 00:45:21,400 --> 00:45:23,960 Speaker 1: of the oil demand picture. But you know that that 852 00:45:24,239 --> 00:45:25,960 Speaker 1: initial peak, I think in many ways is going to 853 00:45:25,960 --> 00:45:28,200 Speaker 1: be the easy part. Well, I guess it's a good thing. 854 00:45:28,280 --> 00:45:33,000 Speaker 1: We have a an air travel episode. Oh yeah, yeah, perfect. 855 00:45:33,560 --> 00:45:36,000 Speaker 1: How profitable is the industry? We sort of alluded to 856 00:45:36,000 --> 00:45:38,640 Speaker 1: it in the beginning. Some oil companies like Chevron, I 857 00:45:38,640 --> 00:45:40,920 Speaker 1: think it's like an all time high. They're in the 858 00:45:41,160 --> 00:45:44,160 Speaker 1: sweet spot. Like how much is the industry loving this 859 00:45:44,280 --> 00:45:48,680 Speaker 1: right now? And I'm thinking also just pre Great Financial Crisis, 860 00:45:49,000 --> 00:45:51,359 Speaker 1: when oil was a hundred and fifty, I think, like 861 00:45:51,640 --> 00:45:53,600 Speaker 1: to an Exxon it had like one of the most 862 00:45:53,640 --> 00:45:55,759 Speaker 1: insane quarters of all time, Like I want to say 863 00:45:55,719 --> 00:45:57,880 Speaker 1: it made like a hundred billion. I might be misremembering that, 864 00:45:57,920 --> 00:46:01,600 Speaker 1: but I had something insane quarter. Now, Like oil companies, 865 00:46:01,800 --> 00:46:04,439 Speaker 1: they're almost nothing to the stock market, like at least 866 00:46:04,480 --> 00:46:06,840 Speaker 1: the SNP five hundred for even with the big bounce 867 00:46:06,880 --> 00:46:09,160 Speaker 1: back that they've seen over the last year and a half, 868 00:46:09,320 --> 00:46:11,560 Speaker 1: there's still no just like this feels like the industry 869 00:46:11,600 --> 00:46:14,120 Speaker 1: is this fraction of its former self, Like how much 870 00:46:14,520 --> 00:46:17,759 Speaker 1: is this industry making? Like and could it I don't know, 871 00:46:18,000 --> 00:46:20,279 Speaker 1: returned to its former glory days from a sort of 872 00:46:20,280 --> 00:46:23,520 Speaker 1: profitability perspective. I think from a profitability perspective, it's not 873 00:46:23,560 --> 00:46:25,400 Speaker 1: even returned to its former glory is I think I 874 00:46:25,440 --> 00:46:27,720 Speaker 1: think we're already at a stage where we're exceeding those 875 00:46:27,719 --> 00:46:31,240 Speaker 1: glory days. Because the thing that it's important to remember 876 00:46:31,280 --> 00:46:34,600 Speaker 1: back in that kind of previous heady hundred dollar plus 877 00:46:34,680 --> 00:46:41,120 Speaker 1: period of kind was inflation in the sector through costs 878 00:46:41,360 --> 00:46:45,360 Speaker 1: was immense. People were spending so much money trying to 879 00:46:45,520 --> 00:46:49,880 Speaker 1: tap into areas of new production that really all the 880 00:46:49,880 --> 00:46:51,960 Speaker 1: money they're they were getting in was going right back 881 00:46:51,960 --> 00:46:54,799 Speaker 1: out the door. What we're seeing right now is, you know, 882 00:46:54,920 --> 00:46:57,600 Speaker 1: as a sector you're seeing, you know, really like some 883 00:46:57,680 --> 00:47:03,520 Speaker 1: of the highest overall profitability across everything, um, you know, 884 00:47:03,600 --> 00:47:05,480 Speaker 1: back to the high points of two thousand and eight. 885 00:47:05,520 --> 00:47:09,359 Speaker 1: And I think it looks less choppy on the chart too. 886 00:47:09,520 --> 00:47:11,400 Speaker 1: And I think, if you know, it looks just like 887 00:47:11,440 --> 00:47:14,920 Speaker 1: it's more stable. If we don't get this period, if 888 00:47:14,960 --> 00:47:17,480 Speaker 1: we don't get another kind of bust and shipped in 889 00:47:17,560 --> 00:47:19,960 Speaker 1: US shell doesn't bury the market again, I think you 890 00:47:19,960 --> 00:47:23,080 Speaker 1: could have a very long period of really really strong earnings. 891 00:47:23,320 --> 00:47:25,960 Speaker 1: And I think it's this question of when will the 892 00:47:26,000 --> 00:47:29,719 Speaker 1: market start to reward growth again that's probably going to 893 00:47:29,800 --> 00:47:33,320 Speaker 1: come at different times between different areas of producers. Maybe 894 00:47:33,640 --> 00:47:36,360 Speaker 1: you know, you're going to start to see more prioritization 895 00:47:36,600 --> 00:47:38,640 Speaker 1: of growth with some of the majors you know, your 896 00:47:38,640 --> 00:47:40,360 Speaker 1: excellence and everyone's because they're the ones that used to 897 00:47:40,400 --> 00:47:42,400 Speaker 1: have or they're the ones that are best known for 898 00:47:42,440 --> 00:47:45,800 Speaker 1: the expertise and those big, mega kind of complicated projects 899 00:47:45,800 --> 00:47:48,200 Speaker 1: like ultra deeps. If we get back into an area 900 00:47:48,239 --> 00:47:50,480 Speaker 1: where that is in vogue, I think that's where you'd 901 00:47:50,520 --> 00:47:52,640 Speaker 1: start to see growth. But I think this question, this 902 00:47:52,760 --> 00:47:56,479 Speaker 1: interesting question of you know, when will equity markets begin 903 00:47:56,600 --> 00:48:00,680 Speaker 1: rewarding US independence again? To grow. I think that will 904 00:48:00,760 --> 00:48:03,640 Speaker 1: be your big sign one way or the other whether 905 00:48:03,760 --> 00:48:06,920 Speaker 1: or not we're in that high or low US shale 906 00:48:06,960 --> 00:48:09,640 Speaker 1: growth market. And the challenge here is we can talk 907 00:48:09,719 --> 00:48:14,680 Speaker 1: about OPEC production through the strategic lens. It's really hard 908 00:48:14,719 --> 00:48:17,200 Speaker 1: to do the same with US shale because it's you know, 909 00:48:17,239 --> 00:48:19,120 Speaker 1: there's a bunch of producers I was saying earlier that 910 00:48:19,120 --> 00:48:22,759 Speaker 1: are in many cases legally prevented from ever really coordinating 911 00:48:22,800 --> 00:48:25,960 Speaker 1: with each other. So it's gonna be you know, the 912 00:48:26,000 --> 00:48:31,080 Speaker 1: trigger is going to be one producer, you know, grows 913 00:48:31,160 --> 00:48:34,000 Speaker 1: a lot in a quarter and their stock price pops 914 00:48:34,040 --> 00:48:36,399 Speaker 1: because of it. Then everyone's going to chase the same 915 00:48:36,440 --> 00:48:40,840 Speaker 1: thing down. At this stage, it's mostly a prioritization of 916 00:48:40,880 --> 00:48:43,400 Speaker 1: that cash flow. And as long as that's happening, I 917 00:48:43,400 --> 00:48:47,080 Speaker 1: think those US intermediates or US independent story are going 918 00:48:47,239 --> 00:48:50,919 Speaker 1: to kind of keep in this level kind of five growth. 919 00:48:51,000 --> 00:48:53,840 Speaker 1: But I think again that is the single biggest question 920 00:48:53,840 --> 00:48:56,080 Speaker 1: in the oil market and will determine how the next 921 00:48:56,160 --> 00:48:58,319 Speaker 1: five years are going to look. Before you go, I 922 00:48:58,320 --> 00:49:01,120 Speaker 1: I exaggerate a little bit. I'm looking at February eight, 923 00:49:01,200 --> 00:49:04,719 Speaker 1: Exxon had a quarter twelve billion in a quarter at 924 00:49:04,760 --> 00:49:09,920 Speaker 1: a forty billion annual profit on billion seals, so pretty enormous. 925 00:49:10,200 --> 00:49:12,799 Speaker 1: Rory Johnson, that was fantastic. I learned so much. I 926 00:49:12,840 --> 00:49:15,000 Speaker 1: feel like I actually have some sort of understanding of 927 00:49:15,040 --> 00:49:17,520 Speaker 1: the oil market after talking to you, So thank you 928 00:49:17,600 --> 00:49:20,040 Speaker 1: so much for coming on. I'd love thank you so 929 00:49:20,120 --> 00:49:23,520 Speaker 1: much for having you guys. Yeah, that's fantastic, right, thank you. 930 00:49:24,440 --> 00:49:40,279 Speaker 1: That was fun. Thanks so much, Tracy. I learned a 931 00:49:40,360 --> 00:49:44,000 Speaker 1: lot from talking to Roy just now. He was great. Yeah, 932 00:49:44,080 --> 00:49:46,600 Speaker 1: he was really good. Well, I'm looking forward to to 933 00:49:46,719 --> 00:49:49,520 Speaker 1: going back to UH, to the days of rig count 934 00:49:49,719 --> 00:49:53,879 Speaker 1: guesses becoming important. But I did think, I did think. 935 00:49:54,320 --> 00:49:58,080 Speaker 1: I mean, this is something that is often underplayed, but 936 00:49:58,600 --> 00:50:03,879 Speaker 1: the role of technology in oil production. And there has 937 00:50:03,920 --> 00:50:06,920 Speaker 1: been this sort of technological revolution in the form of shale, 938 00:50:07,120 --> 00:50:10,279 Speaker 1: but there's also been even more boring things that have 939 00:50:10,440 --> 00:50:15,360 Speaker 1: happened with oil majors, just like standardizing the types of 940 00:50:15,440 --> 00:50:18,160 Speaker 1: nuts and bolts that they used to drill, and that 941 00:50:18,200 --> 00:50:20,640 Speaker 1: brings down costs quite a lot. And so the idea 942 00:50:20,680 --> 00:50:23,279 Speaker 1: that even if you look at the rig count and 943 00:50:23,360 --> 00:50:27,160 Speaker 1: you can see it basically looks like three mountains at 944 00:50:27,160 --> 00:50:29,960 Speaker 1: the moment, so there's a big mountain between two thousand 945 00:50:30,000 --> 00:50:33,880 Speaker 1: eight and like and then like another one shortly after that, 946 00:50:33,920 --> 00:50:36,560 Speaker 1: and now there's a very very small one that's building 947 00:50:36,680 --> 00:50:40,480 Speaker 1: as oil prices increase. But the idea that even if 948 00:50:40,480 --> 00:50:42,920 Speaker 1: the rig count itself doesn't get back to where it 949 00:50:43,040 --> 00:50:47,480 Speaker 1: was in you know, say that you could still have 950 00:50:47,560 --> 00:50:51,520 Speaker 1: a lot of oil flowing from those shale producers. That's 951 00:50:51,520 --> 00:50:54,640 Speaker 1: something I hadn't really considered. Yeah, I hadn't. I hadn't 952 00:50:54,640 --> 00:50:57,080 Speaker 1: thought about that either as part of the explanation for 953 00:50:57,120 --> 00:51:00,120 Speaker 1: why the pure rig count numbers aren't as folk is. 954 00:51:00,160 --> 00:51:02,799 Speaker 1: But we're gonna start focusing on them again now because 955 00:51:02,840 --> 00:51:06,000 Speaker 1: at least like the movement during a period of change 956 00:51:06,040 --> 00:51:09,120 Speaker 1: is of course still going to be significant. You know, 957 00:51:09,160 --> 00:51:11,720 Speaker 1: I'm just fascating, like, well, first of all, that last comment, 958 00:51:11,800 --> 00:51:13,560 Speaker 1: he's like, okay, what is going to get us to 959 00:51:13,680 --> 00:51:17,919 Speaker 1: that high shale equilibrium? And you know it's you put 960 00:51:17,960 --> 00:51:20,759 Speaker 1: it like someone's stock has to surge because they had 961 00:51:20,800 --> 00:51:22,640 Speaker 1: a big quarter, and then the other companies are going 962 00:51:22,680 --> 00:51:24,839 Speaker 1: to chase it. And I know we again we're talking 963 00:51:24,840 --> 00:51:26,919 Speaker 1: about this with Jeff Curry, and of course I think 964 00:51:26,920 --> 00:51:29,760 Speaker 1: the CEO Pioneer has made comments like the stock market 965 00:51:29,880 --> 00:51:32,360 Speaker 1: is really important. It turns out in terms of the 966 00:51:32,400 --> 00:51:34,319 Speaker 1: signal two managers, because you know, you get paid in 967 00:51:34,360 --> 00:51:37,879 Speaker 1: stock and so who the market is rewarding at any 968 00:51:37,920 --> 00:51:42,239 Speaker 1: given time from a stock perspective, that's the strategy that 969 00:51:42,280 --> 00:51:43,960 Speaker 1: companies are going to chase, and so we're not going 970 00:51:44,000 --> 00:51:47,680 Speaker 1: to kick into this higher production equilibrium until it's clear 971 00:51:47,719 --> 00:51:51,400 Speaker 1: that that's what stock investors want to see. Well totally. 972 00:51:51,400 --> 00:51:54,239 Speaker 1: And the other thing that that it reminded me of 973 00:51:54,360 --> 00:51:57,919 Speaker 1: was the conversations that we've had with um Stinson Dean 974 00:51:58,560 --> 00:52:02,759 Speaker 1: talking about the sawmills, right, and the difficulty that the 975 00:52:02,800 --> 00:52:08,360 Speaker 1: sawmills have in actually adjusting capacity and responding to changes 976 00:52:08,520 --> 00:52:10,800 Speaker 1: in demand. And it kind of feels like we're getting 977 00:52:10,920 --> 00:52:13,879 Speaker 1: a semblance of this in US shale. So shale kept 978 00:52:13,960 --> 00:52:17,319 Speaker 1: drilling for far too long, um, you know, in the 979 00:52:17,360 --> 00:52:22,480 Speaker 1: sort of mid two thousands or teens. Investors got massively 980 00:52:22,560 --> 00:52:24,800 Speaker 1: punished because of that and lost a lot of money. 981 00:52:25,120 --> 00:52:28,239 Speaker 1: And now as oil prices increase, you see people sort 982 00:52:28,280 --> 00:52:32,400 Speaker 1: of dragging their feet, unwilling to risk, you know, basically 983 00:52:32,480 --> 00:52:35,759 Speaker 1: jeopardizing their relationship with investors once again, in order to 984 00:52:35,840 --> 00:52:38,920 Speaker 1: increase production. Yeah, it's a great point. So much of 985 00:52:38,960 --> 00:52:42,440 Speaker 1: what we're seeing now from a price and inflation commodity 986 00:52:42,520 --> 00:52:46,120 Speaker 1: search standpoint is in some level like the payback for 987 00:52:46,160 --> 00:52:49,520 Speaker 1: the post the post GFC period, like all these decisions 988 00:52:49,560 --> 00:52:52,880 Speaker 1: made then scarring things right now. I know there are 989 00:52:52,920 --> 00:52:55,600 Speaker 1: so many interesting aspects of that. Maybe we should you know, 990 00:52:55,800 --> 00:52:58,560 Speaker 1: also the fact that we have a stand shortage and 991 00:52:58,600 --> 00:53:02,279 Speaker 1: that's contributing to the difficulty of ramping up production in 992 00:53:02,400 --> 00:53:05,960 Speaker 1: the shale padge super interesting. I thought that was I 993 00:53:05,960 --> 00:53:08,600 Speaker 1: thought that was great. It does amaze me that we 994 00:53:08,680 --> 00:53:13,120 Speaker 1: can't go like every episode basically uncovers another supply chain 995 00:53:13,160 --> 00:53:16,360 Speaker 1: shortage or pressure of one type or another. Maybe we 996 00:53:16,400 --> 00:53:19,279 Speaker 1: should talk about the sand shortage. It's some point infit person, 997 00:53:19,640 --> 00:53:23,320 Speaker 1: because that's a good one. Okay, yeah, alright, shall we 998 00:53:23,400 --> 00:53:26,319 Speaker 1: leave it there. Let's leave it there. Okay. This has 999 00:53:26,360 --> 00:53:29,600 Speaker 1: been another episode of the All Thoughts Podcast. I'm Tracy Alloway. 1000 00:53:29,680 --> 00:53:32,440 Speaker 1: You can follow me on Twitter at Tracy Alloway and 1001 00:53:32,480 --> 00:53:34,600 Speaker 1: I'm Joe. Why isn't thought you could follow me on 1002 00:53:34,640 --> 00:53:38,600 Speaker 1: Twitter at the Stalwart. Follow our guest Rory Johnston. He's 1003 00:53:38,600 --> 00:53:42,520 Speaker 1: on Twitter at Rory Underscore Johnston. Follow our producer Laura 1004 00:53:42,560 --> 00:53:45,680 Speaker 1: Carlson at Laura M. Carlson. Follow the Bloomberg Head of 1005 00:53:45,719 --> 00:53:49,560 Speaker 1: podcast francesco Leavi at Francesca Today and check out all 1006 00:53:49,600 --> 00:53:53,359 Speaker 1: of our podcasts at Bloomberg under the handle at podcasts. 1007 00:53:53,719 --> 00:54:00,560 Speaker 1: Thanks for listening to