WEBVTT - Chevron CEO Mike Wirth Talks Middle East Footprint

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>I get this question a lot. You're the expert. Help

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<v Speaker 2>me answer it. Why is crewe at one hundred at

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<v Speaker 2>ninety and not close to the two hundred given this

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<v Speaker 2>strike's been shot for three months?

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<v Speaker 3>You know, it's a little hard to explain.

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<v Speaker 4>We really are seeing markets Titan inventories draw demand for

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<v Speaker 4>products around the world still very strong.

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<v Speaker 3>I think there's this belief and.

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<v Speaker 4>You know, we're experiencing it again the last few days

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<v Speaker 4>that the end is near, the conflict is nearly resolved,

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<v Speaker 4>and flow through the strait we'll resume very quickly, and

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<v Speaker 4>that has kept the back end of the curve lower

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<v Speaker 4>than it might otherwise have been. And I think the

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<v Speaker 4>psychology the market has been this is closer to the

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<v Speaker 4>ends rather than the beginning.

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<v Speaker 5>But what about the physical world? When will inventories be

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<v Speaker 5>at the very bottom?

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<v Speaker 3>Before long?

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<v Speaker 4>We are steadily drawing inventories down onducts on crude in

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<v Speaker 4>locations around the world.

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<v Speaker 3>I think June and July.

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<v Speaker 4>Are going to be critical months, and you can see

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<v Speaker 4>the trajectory of these inventories in the data.

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<v Speaker 5>And it's concerning do you see any physical shortages right

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<v Speaker 5>now around the world.

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<v Speaker 4>We do see some in some Asian markets, and we've

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<v Speaker 4>seen some rationing. We've seen work weeks adjusted other demand

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<v Speaker 4>measures imposed in some of the countries in Asia.

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<v Speaker 3>Markets are very efficient at moving.

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<v Speaker 4>Products and barrels to where they're needed, and we haven't

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<v Speaker 4>reached a crisis.

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<v Speaker 3>Point yet, but the.

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<v Speaker 4>Inertia in the system is very very strong, and turning

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<v Speaker 4>that is not easy.

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<v Speaker 5>One of the main sticking points the US has when

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<v Speaker 5>it comes to negotiating with Ron is this idea of

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<v Speaker 5>the tolling. Would cheveryone consider paying a toll? No, we

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<v Speaker 5>wouldn't do you know how people are paying a toll.

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<v Speaker 4>I've heard reports of people using cryptocurrency in various countries.

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<v Speaker 4>I think the Treasury has come out this week and

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<v Speaker 4>sanctioned the new authority that has been put in place

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<v Speaker 4>to oversee transit through the Strait. It went from a

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<v Speaker 4>toll to a navigation fee to something a navigation feep.

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<v Speaker 4>I don't know enough about any of these things to

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<v Speaker 4>say definitively, but look, freedom of navigation through international waterways

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<v Speaker 4>is a very well established principle, and anything like this

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<v Speaker 4>would begin to say that countries adjacent to an international

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<v Speaker 4>waterway can charge some sort of a transit fee. There

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<v Speaker 4>are many other places in the world where that principle

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<v Speaker 4>could be applied, and not just to energy products, but

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<v Speaker 4>to all freight moving through the Straits of Malacca, the Bosphorus.

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<v Speaker 4>Pick your choke point, and so that's not a principle

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<v Speaker 4>I think that most countries in the world would find acceptable.

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<v Speaker 1>How far are we away from having pipelines that connects

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<v Speaker 1>some of these countries to the mainland and their production

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<v Speaker 1>without having to traverse the straight at all.

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<v Speaker 4>Well, there's a couple that exists now that you've talked

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<v Speaker 4>about in Saudi and the UAE.

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<v Speaker 3>The UA sanctioned a.

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<v Speaker 4>Project last year which is about fifty percent complete to

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<v Speaker 4>get more of their production over to Fujira and outside

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<v Speaker 4>of the Strait.

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<v Speaker 3>So I think you will see more of that, Lisa.

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<v Speaker 4>The one opportunity there is countries like Iraq and Kuwait

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<v Speaker 4>that are deeper up in the Gulf don't have access

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<v Speaker 4>to those pipelines, and for them the route could be

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<v Speaker 4>through the North and ultimately then into the Mediterranean, maybe

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<v Speaker 4>through Turkey, where we see a pipeline comes out of

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<v Speaker 4>Caspian c over into the Mediterranean in Turkey, and so

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<v Speaker 4>I do think one of the responses to this will

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<v Speaker 4>be infrastructure investments that will allow.

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<v Speaker 3>These energy flows to avoid the straight and.

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<v Speaker 4>Horror moves, and that's underway now and I think you'll

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<v Speaker 4>see that in the years that follow.

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<v Speaker 1>We started the conversation talking about why oil prices aren't higher,

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<v Speaker 1>and you're saying that we're getting close to breaking the

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<v Speaker 1>bottoms of some of the inventory bins. And we were

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<v Speaker 1>speaking just a moment ago with Alex Saltman at Barclays

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<v Speaker 1>who said we actually could see a glut of oil

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<v Speaker 1>in six to twelve months time. If there is a

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<v Speaker 1>resolution here based on the production levels of so many

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<v Speaker 1>different oil companies and countries. What's your take on that.

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<v Speaker 1>Do you think that that's a feasible interpretation.

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<v Speaker 4>Well, history says that shortages tend to be followed by gluts,

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<v Speaker 4>and high prices send a signal and markets work. Consumers

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<v Speaker 4>consume less, producers produce more in response to a price signal,

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<v Speaker 4>and there's a time lag in the way both of

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<v Speaker 4>those manifest themselves in the market. And what has happened

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<v Speaker 4>historically is about the time that the new supplies reach

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<v Speaker 4>the market, demand may have turned down through conservation measures,

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<v Speaker 4>economic slowdown, maybe a recession, and you can see those

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<v Speaker 4>lines crossover and the price cycles down. It's why commodity

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<v Speaker 4>markets are cyclical, is they tend to overshoot, and history

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<v Speaker 4>says when we get into one of these situations that

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<v Speaker 4>is somewhere out in the future.

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<v Speaker 2>Well, signal do you take from the futures curve. I'd

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<v Speaker 2>love your reaction to that, because so many people have

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<v Speaker 2>pointed to the back end of the futures curve as

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<v Speaker 2>a prediction of markets, of where they think creed will be.

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<v Speaker 2>How does an energy boss like your staff look at

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<v Speaker 2>a futures curve?

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<v Speaker 4>Not very frequently. It's not something we use for planning purposes.

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<v Speaker 4>We do a certain amount of hedging in our business

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<v Speaker 4>on commercial activity where you will use futures, but we

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<v Speaker 4>don't look at futures curve as a prediction of future price.

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<v Speaker 4>We do our own fundamental analysis on demand, supply, technology, policy,

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<v Speaker 4>economic growth and arrive at our own scenarios, and we

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<v Speaker 4>don't use a point forecast or a curve.

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<v Speaker 3>We use a range of scenarios.

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<v Speaker 4>Prices are hard to predict in these markets, and so

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<v Speaker 4>we don't anchor on a single price.

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<v Speaker 3>We use a range of prices.

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<v Speaker 1>What's fascinating is you were talking about how typically commodity

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<v Speaker 1>markets tend to overshoot and then you get the glut

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<v Speaker 1>just as demand falls off. Are we overshooting because what

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<v Speaker 1>I keep hearing is that we're not overshooting. The actually

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<v Speaker 1>oil prices and the future's curve is remarkably low, and

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<v Speaker 1>that people keep consuming. And frankly, people like yourself are

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<v Speaker 1>not investing in more production right now. You're not increasing

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<v Speaker 1>production traumatically to offset some of what's going on. So

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<v Speaker 1>is this time different in terms of the commodity cycle?

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<v Speaker 3>Well, first of all, we are increasing production.

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<v Speaker 4>Our production growth seven to ten percent this year, which

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<v Speaker 4>is a lot in a world where.

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<v Speaker 3>Demand is growing one percent.

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<v Speaker 4>On average, and so there is investment in growth. Is

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<v Speaker 4>this time different? People say that every time and often

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<v Speaker 4>find themselves regretting having said that this time is this

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<v Speaker 4>is the circumstances. Here are things we haven't seen before.

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<v Speaker 4>The twenty percent of the world's energy production cut off

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<v Speaker 4>for now nearly one hundred days. A billion barrels that

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<v Speaker 4>is not in the market that otherwise would have been

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<v Speaker 4>in the market is not something that we've seen before,

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<v Speaker 4>So that part of it is different. How commodity markets

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<v Speaker 4>respond have a pattern that has been proven through different

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<v Speaker 4>types of shocks to the system that is remarkably repeatable.

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<v Speaker 4>Maybe not perfectly predictable, but it is something that you

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<v Speaker 4>have to bear in mind when you're in this business,

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<v Speaker 4>as you allocate capital and as you plan for your business.

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<v Speaker 3>Is these patterns exist for a.

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<v Speaker 5>Reason when you allocate capital. I want to ask you

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<v Speaker 5>about Venezuela. When will you put fresh dollars into the country.

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<v Speaker 4>Yeah, we're currently operating under a system that's been approved

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<v Speaker 4>by the US Treasure and the Venezuelan government to recover

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<v Speaker 4>debt that we're owed. We made some loans, so they're

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<v Speaker 4>stayed owned company many years ago, and they weren't repaid,

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<v Speaker 4>and so we set up a mechanism to ensure repayment.

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<v Speaker 4>Oil flows to the US, which is important for US refiners.

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<v Speaker 4>We're working our way through that and we'll recover the

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<v Speaker 4>debt over the next year or so, the final portion

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<v Speaker 4>of it, and then we need a new set of

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<v Speaker 4>fiscal terms under which we would invest in the country.

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<v Speaker 4>Right now, the amount of tax and royalty that's paid

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<v Speaker 4>doesn't leave enough for an investor to get a return

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<v Speaker 4>on their investments. The country has changed. It's a hydrocarbon

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<v Speaker 4>law has indicated a new range of taxes and royalties

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<v Speaker 4>that would be applied to the energy sector, but they've

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<v Speaker 4>not been specific about wearing the range those would land.

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<v Speaker 4>So there are negotiations underway, discussions. Even this week, we

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<v Speaker 4>had a team in Venezuela that had some discussions on

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<v Speaker 4>this issue. I expect over the next short period of

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<v Speaker 4>time we may see some clarity from them on specific

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<v Speaker 4>values on corporate income tax, on a range of things

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<v Speaker 4>on royalties and how that might be applied. So there's

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<v Speaker 4>progress being made to clarify the things that would be

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<v Speaker 4>needed in order to make those investments.

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<v Speaker 3>But we don't have enough clarity right now.

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<v Speaker 4>We don't understand what the regime would look like, and

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<v Speaker 4>so it's unlikely we would put capital to work until

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<v Speaker 4>those things are clarified.

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<v Speaker 2>Inquiring minds want to know. I'm getting the feedback right now.

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<v Speaker 2>So December is trying to get eighty four. What is

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<v Speaker 2>the mic worth chef from price this year? What's the

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<v Speaker 2>range in your scenario?

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<v Speaker 4>Planet, Well, the range on the low end would probably

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<v Speaker 4>get to that number, and on the high end, if

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<v Speaker 4>we were to see an extended.

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<v Speaker 3>Constraint on transit out of the straight and horn moves.

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<v Speaker 3>The question is how high is high. You you get

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<v Speaker 3>to very high numbers.

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<v Speaker 2>So your low is actually where December is priced right now.

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<v Speaker 4>And the assumptions right we don't tip into a recession,

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<v Speaker 4>we don't have some other exogenous event. But yeah, it's

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<v Speaker 4>going to take months john two to clear ships out

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<v Speaker 4>of the strait, to make sure that the mines have

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<v Speaker 4>been cleared, to establish to get two thousand ships out,

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<v Speaker 4>they don't all go out at once. You need weeks

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<v Speaker 4>and weeks. Somebody's got to prioritize to bulk freighters go

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<v Speaker 4>out first, to container ships go out first, to US,

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<v Speaker 4>allied ships go out first or last arranged tips.

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<v Speaker 3>That decision unclear at this point.

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<v Speaker 5>Wouldn't it be the fifth fleet.

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<v Speaker 4>It's unclear at this point. So there needs to be

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<v Speaker 4>as system to prioritize traffic. Shipowners have to be convinced

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<v Speaker 4>that it's safe to transit through the strait. There need

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<v Speaker 4>to be some sort of security measures. And then that's

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<v Speaker 4>just to get ships out. You have to get ships

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<v Speaker 4>in as well, and the tanks inside the gulf are full.

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<v Speaker 4>That's why production is being slowed or stopped is because

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<v Speaker 4>there's no place to put it. The ships are full,

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<v Speaker 4>of the tanks are full, so you need new ships

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<v Speaker 4>to come back in. Ship owners have to be comfortable

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<v Speaker 4>sending ships back in after having ships trapped for months

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<v Speaker 4>and crews trapped for months. They may or may not

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<v Speaker 4>be willing to move all of their vessels back in.

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<v Speaker 4>There's other routes now that are trading us to Asia

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<v Speaker 4>is a very heavily traded route. There's a lot of

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<v Speaker 4>ships in that service, so it will take months, and

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<v Speaker 4>then you start to clear out the inventories that are

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<v Speaker 4>in tanks, which allows fields to restart, damage to be repaired.

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<v Speaker 4>This doesn't happen overnight, so this is going to be

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<v Speaker 4>with us for some time.

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<v Speaker 2>I got to Wilsch, you do you just sit here

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<v Speaker 2>and say you first, how do you think about it?

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<v Speaker 3>Well, we'd like to get our ships out. It's not

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<v Speaker 3>a decision that ship.

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<v Speaker 4>We have six ships inside the strait right now with

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<v Speaker 4>our cargoes. All of them are chartered, so they're owned

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<v Speaker 4>by a third party, and we don't ultimately make the call.

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<v Speaker 4>The ship moner decides whether or not he wants to

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<v Speaker 4>put his vessel and his crew through the Strait and

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<v Speaker 4>and so that's a decision. We provide advice on input too,

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<v Speaker 4>but we can't make that decision. So it's a very

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<v Speaker 4>complex set of decisions that need to be made to

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<v Speaker 4>begin to get things moving again. And it will happen slowly.

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<v Speaker 4>I would expect there will be some stop and start

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<v Speaker 4>to it. There still has been kinetic activity this week,

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<v Speaker 4>some of which has been reported in the media, someone

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<v Speaker 4>which has not, and so we see risks very real.

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<v Speaker 2>Still in that generalist you can't say things hasn't been reported.

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<v Speaker 2>What's not been reported? What are you hearing?

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<v Speaker 4>Well, there have been There have been vessels that have

0:11:40.760 --> 0:11:43.520
<v Speaker 4>been in transit that have have suffered attacks.

0:11:44.080 --> 0:11:46.200
<v Speaker 2>That's more than what we've heard of in the press.

0:11:46.960 --> 0:11:49.360
<v Speaker 3>Yes, our reports would indicate that.

0:11:49.480 --> 0:11:52.280
<v Speaker 2>What do they suggest how frequent of those attacks being there?

0:11:53.080 --> 0:11:57.840
<v Speaker 4>Maybe not every day, but there have been multiple incidents

0:11:57.880 --> 0:11:58.920
<v Speaker 4>that have occurred.

0:11:59.200 --> 0:12:02.520
<v Speaker 2>Okay, people of California, people waking up early this morning,

0:12:02.520 --> 0:12:04.720
<v Speaker 2>perhaps on the West coast and tuning into this program,

0:12:05.080 --> 0:12:07.360
<v Speaker 2>what's your message to them about why gas prices are

0:12:07.400 --> 0:12:10.040
<v Speaker 2>so much higher in their state compared to everybody else.

0:12:10.280 --> 0:12:17.240
<v Speaker 4>Well, this is politicians gas lighting about gas prices. The

0:12:17.320 --> 0:12:21.520
<v Speaker 4>fact is California's policies for two decades have been driving

0:12:21.720 --> 0:12:27.680
<v Speaker 4>prices higher. California has six refineries operating today, a little

0:12:27.679 --> 0:12:32.319
<v Speaker 4>bit morening a year ago. We had nine refining capacities,

0:12:32.360 --> 0:12:35.840
<v Speaker 4>down seventeen percent in just the last year. California has

0:12:35.880 --> 0:12:39.679
<v Speaker 4>the highest taxes and fees in the nation. California imports

0:12:39.920 --> 0:12:42.599
<v Speaker 4>sixty percent of its crude oil, twenty five percent of

0:12:42.679 --> 0:12:46.720
<v Speaker 4>its diesel, twenty percent of its gasoline, similar amounts of

0:12:46.840 --> 0:12:47.400
<v Speaker 4>jet fuel.

0:12:47.880 --> 0:12:50.000
<v Speaker 3>And we're in a situation.

0:12:49.600 --> 0:12:53.199
<v Speaker 4>Where world energy markets are tight and so prices are

0:12:53.200 --> 0:12:56.560
<v Speaker 4>going up everywhere. California has long been the highest price

0:12:56.600 --> 0:13:00.360
<v Speaker 4>state in the country because the policies have constrained apply

0:13:00.600 --> 0:13:03.920
<v Speaker 4>and demand is continuing to be very robust in an

0:13:04.040 --> 0:13:08.199
<v Speaker 4>estate where supply has been consciously constrained by policy.

0:13:08.400 --> 0:13:13.040
<v Speaker 5>But how do some gasoline companies stations like Costco keep

0:13:13.160 --> 0:13:14.920
<v Speaker 5>actually lower prices?

0:13:14.960 --> 0:13:17.760
<v Speaker 3>Though, well, maybe he's got a different business model. I think.

0:13:19.480 --> 0:13:23.080
<v Speaker 4>A hypermarketer like a Costco has things they use as

0:13:23.160 --> 0:13:25.920
<v Speaker 4>almost a loss leader to bring traffic in and can

0:13:26.200 --> 0:13:28.320
<v Speaker 4>operate on a very small margin because you go to

0:13:28.360 --> 0:13:31.160
<v Speaker 4>the big box and that's where the revenue is and

0:13:31.200 --> 0:13:33.599
<v Speaker 4>the real p and l comes through the subscriptions and

0:13:33.640 --> 0:13:37.520
<v Speaker 4>the memberships. A small service station owner doesn't have the

0:13:37.520 --> 0:13:39.920
<v Speaker 4>benefit of that. They have to make a margin on

0:13:40.160 --> 0:13:44.360
<v Speaker 4>the fuel that they sell and maybe some ancillary goods.

0:13:44.360 --> 0:13:47.480
<v Speaker 4>So retailers all have different business models and you see

0:13:47.520 --> 0:13:50.560
<v Speaker 4>that in the marketplace, and they meet different customer needs

0:13:50.679 --> 0:13:51.679
<v Speaker 4>used to arrange of those prices.

0:13:51.720 --> 0:13:54.000
<v Speaker 5>I'm sure Chevron is going to be on the mind

0:13:54.040 --> 0:13:56.079
<v Speaker 5>of Gavin Newsom as he looks for twenty twenty eight

0:13:56.080 --> 0:13:59.440
<v Speaker 5>presidential run, but it's also been I mean, you've been

0:13:59.520 --> 0:14:02.200
<v Speaker 5>front and when it comes to this administration as well.

0:14:02.240 --> 0:14:04.680
<v Speaker 5>Do you spend more time in Washington or the Permian?

0:14:06.120 --> 0:14:10.439
<v Speaker 3>Lately? Probably in Washington. I like being in the Permian, but.

0:14:12.480 --> 0:14:17.160
<v Speaker 4>My job requires some interaction with elected officials in the

0:14:17.200 --> 0:14:21.360
<v Speaker 4>Senate and the House, the administration, and during a time

0:14:21.400 --> 0:14:26.440
<v Speaker 4>of extreme distress in energy markets, there's a lot of

0:14:26.480 --> 0:14:29.280
<v Speaker 4>dialogue that goes on in Washington, d C. So hopefully

0:14:29.280 --> 0:14:30.720
<v Speaker 4>I'll get to the Permian on the second half of

0:14:30.720 --> 0:14:31.000
<v Speaker 4>the year.

0:14:31.200 --> 0:14:34.520
<v Speaker 1>Yeah, which would require gasoline prices going down, and recently

0:14:34.560 --> 0:14:36.800
<v Speaker 1>they've been remaining at this relatively high level though they

0:14:36.800 --> 0:14:38.920
<v Speaker 1>have just a bit you talk about how we could

0:14:39.040 --> 0:14:40.920
<v Speaker 1>end up seeing shortages in the next few weeks, even

0:14:40.960 --> 0:14:44.520
<v Speaker 1>in the United States. Looking right now at distilant fuel inventories,

0:14:44.560 --> 0:14:47.120
<v Speaker 1>the lowest levels here since two thousand and three, a

0:14:47.120 --> 0:14:50.920
<v Speaker 1>pretty shocking number. How much could you foresee gasoline prices

0:14:50.960 --> 0:14:54.000
<v Speaker 1>in the United States rising outside of California because of

0:14:54.040 --> 0:14:57.040
<v Speaker 1>just simply shortages that you're seeing on the ground.

0:14:57.560 --> 0:14:59.760
<v Speaker 4>Yeah, well, right now, the US has come to the

0:14:59.760 --> 0:15:02.320
<v Speaker 4>rest of some of our allies around the world.

0:15:02.360 --> 0:15:04.400
<v Speaker 3>We're exporting crude at record levels.

0:15:04.480 --> 0:15:09.400
<v Speaker 4>We're exporting products to Europe in particular, and so what

0:15:09.440 --> 0:15:12.080
<v Speaker 4>that means is products that might otherwise be used in

0:15:12.080 --> 0:15:16.240
<v Speaker 4>the US are being highly valued elsewhere, and so we're

0:15:16.240 --> 0:15:20.080
<v Speaker 4>seeing flows in that direction. Inventories are low for diesel

0:15:20.120 --> 0:15:23.720
<v Speaker 4>for gasoline in the US, and we're moving into a

0:15:23.720 --> 0:15:26.680
<v Speaker 4>period of time which seasonally says demand is likely to rise.

0:15:27.160 --> 0:15:29.440
<v Speaker 4>The refineries in the country are running as hard as

0:15:29.480 --> 0:15:33.200
<v Speaker 4>they possibly can. They're all near maximum utilization, and so

0:15:33.240 --> 0:15:35.320
<v Speaker 4>the market is tight. And this is the reason why

0:15:35.840 --> 0:15:39.080
<v Speaker 4>I've talked about concerns about upward pressure on prices, because

0:15:39.760 --> 0:15:42.920
<v Speaker 4>you can get away from the crude forward curve and

0:15:43.000 --> 0:15:46.680
<v Speaker 4>get to diesel inventories, gasoline inventories, and the prices of

0:15:46.720 --> 0:15:48.960
<v Speaker 4>those priucts, which are really the products that are consumed.

0:15:49.440 --> 0:15:52.160
<v Speaker 4>And we're in a period where inventories are tight, demand

0:15:52.200 --> 0:15:55.600
<v Speaker 4>and remain strong, prices are elevated, and there's risks they

0:15:55.640 --> 0:15:59.440
<v Speaker 4>go higher and shortages that have now only really appeared

0:15:59.560 --> 0:16:03.040
<v Speaker 4>in Asia could begin to show up in other parts

0:16:03.040 --> 0:16:03.520
<v Speaker 4>of the world.

0:16:03.720 --> 0:16:05.800
<v Speaker 2>Mike, you one of the very best clinic has always

0:16:05.840 --> 0:16:07.200
<v Speaker 2>We appreciate your time. Thank you, sir,