1 00:00:05,960 --> 00:00:08,979 Speaker 1: Welcome to Kobe Time, a podcast series on Markets and 2 00:00:08,989 --> 00:00:13,020 Speaker 1: Economies from D BS Group Research. I'm Turbe, chief economist, 3 00:00:13,029 --> 00:00:19,628 Speaker 1: welcoming you to our 115th episode. Happy 2024. Today's guest 4 00:00:19,639 --> 00:00:22,549 Speaker 1: is a returnee Vanda Da Hari is the founder of 5 00:00:22,559 --> 00:00:25,819 Speaker 1: Banda Insights, a Singapore based provider of intelligence on the 6 00:00:25,829 --> 00:00:29,159 Speaker 1: global energy markets. She was with us in the early 7 00:00:29,170 --> 00:00:33,459 Speaker 1: days of Copy Time back in April 2020 on episode 10. 8 00:00:33,759 --> 00:00:36,659 Speaker 1: Those were the days when wt I futures were in 9 00:00:36,668 --> 00:00:37,778 Speaker 1: negative territory. 10 00:00:38,500 --> 00:00:41,598 Speaker 1: Man, I came back to Kobe time in March 2022 11 00:00:41,610 --> 00:00:45,360 Speaker 1: on episode 72. When Russia's invasion of Ukraine was attending 12 00:00:45,369 --> 00:00:49,209 Speaker 1: energy markets. Today, the energy markets also have no shortage 13 00:00:49,220 --> 00:00:52,659 Speaker 1: of drama, London Hari. Welcome back to Kobe time. Thank 14 00:00:52,668 --> 00:00:55,119 Speaker 2: you so much for having me back, Timor. It's absolutely 15 00:00:55,130 --> 00:00:57,200 Speaker 2: my pleasure. And thank you also for that very quick 16 00:00:57,209 --> 00:01:01,560 Speaker 2: recap um of our journey um over the past two 17 00:01:01,569 --> 00:01:04,389 Speaker 2: or three years. It's, it's really interesting. We have yet 18 00:01:04,400 --> 00:01:06,279 Speaker 2: another interesting episode. Now. 19 00:01:07,000 --> 00:01:11,260 Speaker 1: Absolutely, you and I talked to have conversation both in 20 00:01:11,269 --> 00:01:15,500 Speaker 1: terms of market exuberant as well as when the markets 21 00:01:15,510 --> 00:01:19,019 Speaker 1: were in utter despair. Uh and all that, as you said, 22 00:01:19,029 --> 00:01:21,639 Speaker 1: in the span of just three or four years. So pan, 23 00:01:21,720 --> 00:01:25,220 Speaker 1: then we are reconnecting. It's mid January 2024 and the 24 00:01:25,230 --> 00:01:28,268 Speaker 1: potential risk of energy supply have popped up again. So 25 00:01:28,279 --> 00:01:29,389 Speaker 1: let's start with the very near tr 26 00:01:30,120 --> 00:01:35,110 Speaker 1: walk us through various scenarios or the red Sea tensions 27 00:01:35,199 --> 00:01:36,940 Speaker 1: that could affect the energy market. 28 00:01:37,620 --> 00:01:40,690 Speaker 2: Yeah, that's a good place to start, Timor. It's absolutely 29 00:01:40,699 --> 00:01:44,760 Speaker 2: the focal point of attention. Well, not just for the 30 00:01:44,769 --> 00:01:48,129 Speaker 2: oil markets but uh in, in terms of news headlines, 31 00:01:48,139 --> 00:01:51,199 Speaker 2: right for the past several weeks. So um let's take 32 00:01:51,209 --> 00:01:54,559 Speaker 2: a look at the Red Sea and that region from 33 00:01:54,569 --> 00:01:57,370 Speaker 2: an oil market perspective. So if you look at the 34 00:01:57,379 --> 00:02:04,410 Speaker 2: Red Sea, it is the shortest route for connecting Eastern 35 00:02:04,419 --> 00:02:04,760 Speaker 2: US 36 00:02:05,403 --> 00:02:09,634 Speaker 2: and Europe on the one hand with the Middle East 37 00:02:09,643 --> 00:02:13,343 Speaker 2: and Asia on the other. Now, the moment you take 38 00:02:13,354 --> 00:02:16,483 Speaker 2: that into account, you know, I think the picture becomes 39 00:02:16,494 --> 00:02:19,173 Speaker 2: pretty clear, not just oil and gas, but even in 40 00:02:19,184 --> 00:02:24,194 Speaker 2: terms of goods trade that it's a vital shipping route. Now, 41 00:02:24,203 --> 00:02:26,583 Speaker 2: as I mentioned, it's the shortest route. It's not the 42 00:02:26,593 --> 00:02:32,013 Speaker 2: only option, but um obviously taking the shortest route 43 00:02:32,248 --> 00:02:36,488 Speaker 2: for any cargo, any whether it's oil and gas or any, 44 00:02:36,498 --> 00:02:40,548 Speaker 2: any goods um is obviously key, especially in, in the 45 00:02:40,556 --> 00:02:44,718 Speaker 2: current climate of uh you know, high inflation, supply chains 46 00:02:44,727 --> 00:02:49,048 Speaker 2: are easing but you know, still not as uh let's 47 00:02:49,056 --> 00:02:52,927 Speaker 2: say normal as they were pre COVID. So when you, 48 00:02:52,938 --> 00:02:55,617 Speaker 2: when you ask me about scenarios, I think that there 49 00:02:55,627 --> 00:02:59,197 Speaker 2: lies a major challenge for the oil market. So what 50 00:02:59,292 --> 00:03:01,861 Speaker 2: we do know? So we know this is a vital artery. 51 00:03:01,931 --> 00:03:07,120 Speaker 2: Um We know that the Red Sea saw about roughly 52 00:03:07,132 --> 00:03:10,231 Speaker 2: a little over 8 million barrels per day of oil, 53 00:03:10,242 --> 00:03:14,802 Speaker 2: both crude and refined products, transiting it in, in both directions. 54 00:03:15,082 --> 00:03:17,981 Speaker 2: So from the the areas, as I mentioned, from the 55 00:03:17,992 --> 00:03:20,022 Speaker 2: west to the east and from the east to the west, 56 00:03:20,261 --> 00:03:26,431 Speaker 2: this was until the Houthis began their attacks on merchant ships, 57 00:03:26,516 --> 00:03:31,656 Speaker 2: the Red Sea around mid November. So since then, obviously 58 00:03:31,666 --> 00:03:36,865 Speaker 2: a lot of um ships have started to get diverted. Now, 59 00:03:36,876 --> 00:03:42,095 Speaker 2: there's been an interesting divergence in that more much bigger 60 00:03:42,106 --> 00:03:46,296 Speaker 2: ratio of container ships. So, you know, those that carry 61 00:03:46,305 --> 00:03:50,095 Speaker 2: containers and dry bulk and so on have been diverted, 62 00:03:50,106 --> 00:03:53,615 Speaker 2: you know, close to 90% perhaps at this point. 63 00:03:54,110 --> 00:03:57,630 Speaker 2: But um for a long time after the attacks began 64 00:03:57,639 --> 00:04:02,220 Speaker 2: oil and gas tankers continued to transit, um important to 65 00:04:02,229 --> 00:04:05,539 Speaker 2: keep in mind that there were no incidents. So incidents 66 00:04:05,550 --> 00:04:09,509 Speaker 2: of major damage, you know, certainly not any, any fire 67 00:04:09,520 --> 00:04:13,940 Speaker 2: or certainly no no casualties. So I think that was 68 00:04:13,949 --> 00:04:16,899 Speaker 2: perhaps a factor. Um now, so the market is 69 00:04:16,980 --> 00:04:19,738 Speaker 2: what the market is contemplating right now. Yes. Uh maybe 70 00:04:19,750 --> 00:04:23,750 Speaker 2: perhaps up to 10 to 20% of oil, um that 71 00:04:23,760 --> 00:04:26,910 Speaker 2: would have passed through that artery is being diverted. Uh 72 00:04:26,928 --> 00:04:29,940 Speaker 2: it's having to take a much longer route via the 73 00:04:29,950 --> 00:04:33,480 Speaker 2: cape of good hope in in southern Africa. Um Now 74 00:04:33,488 --> 00:04:37,640 Speaker 2: ballpark that adds maybe like 14 to, to uh 10 75 00:04:37,649 --> 00:04:39,880 Speaker 2: days to 14 days to to the journey. 76 00:04:40,149 --> 00:04:43,940 Speaker 2: Um And obviously that has had a ripple effect, right? 77 00:04:43,950 --> 00:04:45,969 Speaker 2: And we can talk a little more about that, but, 78 00:04:45,980 --> 00:04:50,690 Speaker 2: but that is what the oil market is, can see today. 79 00:04:50,859 --> 00:04:54,529 Speaker 2: That is what has been factored into prices today. 80 00:04:54,769 --> 00:04:58,429 Speaker 2: The going back to the challenges if we talk about scenarios. Now, 81 00:04:58,440 --> 00:05:02,649 Speaker 2: obviously anything does any disturbance and this is much more 82 00:05:02,660 --> 00:05:05,829 Speaker 2: than that right happens in the Middle East. The oil 83 00:05:05,839 --> 00:05:09,988 Speaker 2: market participants have to start pricing in to a certain 84 00:05:10,000 --> 00:05:13,790 Speaker 2: degree at least um some of the worst case scenario. 85 00:05:14,480 --> 00:05:16,959 Speaker 2: And in this case, of course, it is that what 86 00:05:16,970 --> 00:05:21,609 Speaker 2: if the Red Sea gets entirely shut uh to oil, 87 00:05:21,619 --> 00:05:24,420 Speaker 2: oil and gas traffic then yes, everything could still come 88 00:05:24,428 --> 00:05:26,989 Speaker 2: by a cape of good hope. Uh But you know, 89 00:05:27,000 --> 00:05:29,660 Speaker 2: you're then talking of a much tighter market in terms 90 00:05:29,670 --> 00:05:32,890 Speaker 2: of tanker availability, much higher freight rates and so on. 91 00:05:33,170 --> 00:05:37,809 Speaker 2: Um Some of the w much worse scenarios, of course, are, 92 00:05:37,820 --> 00:05:41,029 Speaker 2: you know, a wider a contagion effect if you will 93 00:05:41,040 --> 00:05:43,410 Speaker 2: in the Middle East because of, you know, we're assuming 94 00:05:43,420 --> 00:05:47,000 Speaker 2: that this Israel Hamas conflict is, is going to fester 95 00:05:47,010 --> 00:05:50,659 Speaker 2: for some time. Unfortunately. So what so far we have 96 00:05:50,670 --> 00:05:54,510 Speaker 2: seen great restraint from the Middle Eastern powers 97 00:05:54,584 --> 00:05:57,344 Speaker 2: uh, you know, what if the other countries in the 98 00:05:57,355 --> 00:05:59,714 Speaker 2: region get dragged into it and you know, what if? 99 00:05:59,725 --> 00:06:02,165 Speaker 2: So it's, it's a lot of like, what if questions, 100 00:06:02,174 --> 00:06:06,154 Speaker 2: nothing that any of us in our lifetimes, um, or 101 00:06:06,165 --> 00:06:11,104 Speaker 2: even read in history books having unfolded like a wider conflagration. 102 00:06:11,234 --> 00:06:13,524 Speaker 2: But that's the worst case scenario. But certainly, you know, 103 00:06:13,535 --> 00:06:15,904 Speaker 2: seeing where prices are today as we're talking, 104 00:06:16,170 --> 00:06:19,970 Speaker 2: um, you know, Brent around $78. Uh what I can 105 00:06:19,980 --> 00:06:24,260 Speaker 2: tell you is that is probably anywhere from 2 to 106 00:06:24,269 --> 00:06:28,609 Speaker 2: $3 of risk premium. Certainly nowhere near pricing in that 107 00:06:28,619 --> 00:06:32,350 Speaker 2: worst case scenario of like, you know, a quarter of 108 00:06:32,359 --> 00:06:35,549 Speaker 2: the oil supply of the world comes from that region. 109 00:06:35,809 --> 00:06:39,130 Speaker 2: Um You know what if that is disrupted, that's almost, 110 00:06:39,140 --> 00:06:41,670 Speaker 2: uh you know, hard for anybody to imagine, 111 00:06:43,500 --> 00:06:44,519 Speaker 1: right. And so 112 00:06:45,238 --> 00:06:48,320 Speaker 1: super interesting to sort of think in terms of, you know, 113 00:06:48,329 --> 00:06:50,850 Speaker 1: the worst case scenario and sort of build from that. 114 00:06:51,049 --> 00:06:54,299 Speaker 1: Uh And to your point that it's not just about 115 00:06:54,350 --> 00:06:57,350 Speaker 1: the scenario of oil, not going through the Red Sea, 116 00:06:57,480 --> 00:07:00,140 Speaker 1: but if there is a wider conflict, there are lots 117 00:07:00,149 --> 00:07:01,510 Speaker 1: of oil refineries and oil fields 118 00:07:01,609 --> 00:07:05,500 Speaker 1: in the region and missiles can ignore boundaries and defense 119 00:07:05,510 --> 00:07:07,839 Speaker 1: systems and all you need is a couple of missiles 120 00:07:07,850 --> 00:07:10,829 Speaker 1: in one refinery and there could be a wholesale panic 121 00:07:10,920 --> 00:07:13,489 Speaker 1: uh in, in the oil market. And also, you know, 122 00:07:13,500 --> 00:07:16,410 Speaker 1: the reality is that while no more than a quarter 123 00:07:16,420 --> 00:07:19,070 Speaker 1: of the oil come from the region. The world has 124 00:07:19,079 --> 00:07:22,140 Speaker 1: fragmented a bit. Russian oil does not go everywhere or 125 00:07:22,149 --> 00:07:24,750 Speaker 1: maybe it gets refined and go somewhere and elsewhere. But, 126 00:07:24,760 --> 00:07:28,250 Speaker 1: but things are far more fragmented than they were just 127 00:07:28,260 --> 00:07:30,540 Speaker 1: a couple of years ago because of the Russia Ukraine conflict. 128 00:07:30,859 --> 00:07:34,059 Speaker 1: Um I have to ask you one technical question. So 129 00:07:34,070 --> 00:07:39,049 Speaker 1: the interaction between shipping costs and energy prices, um is 130 00:07:39,059 --> 00:07:40,839 Speaker 1: there like a full and immediate fast because you know, 131 00:07:40,850 --> 00:07:42,709 Speaker 1: we have seen uh 132 00:07:43,100 --> 00:07:46,920 Speaker 1: uh you know, Shanghai freight trade or world freight composite 133 00:07:46,929 --> 00:07:50,670 Speaker 1: and those sort of indicators they were at basically prepa 134 00:07:51,250 --> 00:07:54,799 Speaker 1: lows with extremely low levels in December. And since then, 135 00:07:54,809 --> 00:07:57,390 Speaker 1: they have doubled. But even that is not particularly high 136 00:07:57,399 --> 00:07:59,480 Speaker 1: by the sort of spikes we saw during the pandemic, 137 00:07:59,609 --> 00:08:02,399 Speaker 1: but even this doubling of freight rates, what does it 138 00:08:02,410 --> 00:08:05,440 Speaker 1: mean for spot futures energy price action? 139 00:08:06,320 --> 00:08:10,940 Speaker 2: Yeah. So higher freight rates uh does mean higher shipping costs. 140 00:08:10,950 --> 00:08:14,100 Speaker 2: So if you're a refiner, then your input cost of 141 00:08:14,109 --> 00:08:18,459 Speaker 2: of crude um is going up and either your margin 142 00:08:18,470 --> 00:08:23,279 Speaker 2: will be squeezed um or you will try and pass 143 00:08:23,290 --> 00:08:28,130 Speaker 2: through those costs um to your end user which means 144 00:08:28,140 --> 00:08:31,739 Speaker 2: you see higher prices of fuel prices at the pump. 145 00:08:32,030 --> 00:08:35,440 Speaker 2: Now, what's happening a couple of things? Uh The reason 146 00:08:35,450 --> 00:08:38,169 Speaker 2: we are not seeing this immediate pass through of the 147 00:08:38,179 --> 00:08:40,039 Speaker 2: high freight cost that you're probably reading 148 00:08:40,320 --> 00:08:44,080 Speaker 2: uh every day in the news is that first of all, it's, 149 00:08:44,090 --> 00:08:46,179 Speaker 2: there's going to be a bit of a lag effect. 150 00:08:46,309 --> 00:08:49,619 Speaker 2: So it typically, if you're looking at a refiner, you know, they, they, 151 00:08:49,630 --> 00:08:52,760 Speaker 2: they get the crude into the refinery, uh it's, it 152 00:08:52,770 --> 00:08:56,098 Speaker 2: takes a few weeks to a couple of months until 153 00:08:56,109 --> 00:09:00,750 Speaker 2: that uh crude is transformed into refined product and hits 154 00:09:00,760 --> 00:09:04,840 Speaker 2: the market. Um or basically your, your fuel pump. Um 155 00:09:05,460 --> 00:09:08,939 Speaker 2: there you in, in some parts, especially here if you 156 00:09:08,950 --> 00:09:12,439 Speaker 2: are looking at Asia, uh it's not always easy for 157 00:09:12,450 --> 00:09:16,000 Speaker 2: Refiners to pass through. Um all of the increased costs. 158 00:09:16,010 --> 00:09:20,059 Speaker 2: So they may take some of the hit. Um And 159 00:09:20,070 --> 00:09:23,650 Speaker 2: then the other is, is a lag effect. Uh So 160 00:09:23,659 --> 00:09:27,390 Speaker 2: you probably not see that sort of crunch time until 161 00:09:27,400 --> 00:09:28,679 Speaker 2: a few weeks down the line. 162 00:09:28,940 --> 00:09:32,630 Speaker 2: Um You mentioned uh So when we talk about uh 163 00:09:32,650 --> 00:09:37,630 Speaker 2: benchmark crude futures, now those, so let's say we talk 164 00:09:37,640 --> 00:09:41,368 Speaker 2: about brand wt I or, or Dubai um all of 165 00:09:41,380 --> 00:09:44,080 Speaker 2: those prices that let's say what you're seeing on the 166 00:09:44,090 --> 00:09:47,239 Speaker 2: screen um or you are being talked about in the 167 00:09:47,250 --> 00:09:50,359 Speaker 2: market are free on board prices. So they do not 168 00:09:50,369 --> 00:09:55,059 Speaker 2: include uh shipping charges of freight costs or insurance costs 169 00:09:55,070 --> 00:09:55,840 Speaker 2: for that matter. 170 00:09:56,099 --> 00:09:59,189 Speaker 2: So that's also a reason for a bit of a 171 00:09:59,200 --> 00:10:02,640 Speaker 2: lack of transparency. So while you can see what Brent 172 00:10:02,650 --> 00:10:05,728 Speaker 2: is doing, um you know, you can't always see what 173 00:10:05,739 --> 00:10:08,400 Speaker 2: the landed cost of the of the refiner is doing. 174 00:10:09,950 --> 00:10:13,439 Speaker 1: I see. Um and uh I remember um years ago, 175 00:10:13,450 --> 00:10:16,189 Speaker 1: I think this was long before you and I showed 176 00:10:16,200 --> 00:10:19,489 Speaker 1: up in our podcast platform. Uh I think 10 years ago, 177 00:10:19,590 --> 00:10:22,080 Speaker 1: there was this all this discussion of the oil market 178 00:10:22,090 --> 00:10:26,000 Speaker 1: being in Contango and back and the relationship because of 179 00:10:26,010 --> 00:10:29,369 Speaker 1: the spot on the futures. So how would you characterize 180 00:10:29,380 --> 00:10:31,669 Speaker 1: the relationship between spot and futures right now in the 181 00:10:31,679 --> 00:10:32,369 Speaker 1: oil market? 182 00:10:33,260 --> 00:10:37,559 Speaker 2: Yeah. So the two have to be absolutely connected. Um 183 00:10:37,570 --> 00:10:42,239 Speaker 2: And um the connection or comparison that is more often 184 00:10:42,250 --> 00:10:46,280 Speaker 2: discussed is between the so called physical market where you know, 185 00:10:46,289 --> 00:10:50,559 Speaker 2: buyers and sellers are actually bidding and offering a physical 186 00:10:50,570 --> 00:10:54,880 Speaker 2: crude barrels and the futures market. So futures then 187 00:10:54,965 --> 00:10:59,335 Speaker 2: most often than not, they are financially settled instruments and 188 00:10:59,344 --> 00:11:02,794 Speaker 2: you can buy as little as just 1000 barrels of 189 00:11:02,804 --> 00:11:06,195 Speaker 2: a contract wt I or, or, or Bren and so on. 190 00:11:06,255 --> 00:11:10,015 Speaker 2: The two are definitely connected at the hip. They have 191 00:11:10,025 --> 00:11:14,575 Speaker 2: to have to move uh in, in tandem. Um What 192 00:11:14,585 --> 00:11:18,044 Speaker 2: we are seeing right now in the future is let's 193 00:11:18,054 --> 00:11:21,184 Speaker 2: say the forward curve you mentioned Contango and backwardation. 194 00:11:21,549 --> 00:11:25,468 Speaker 2: Uh wt I the, the US benchmark crude is in 195 00:11:25,830 --> 00:11:30,770 Speaker 2: a in a Contango which reflects the fact that there 196 00:11:30,780 --> 00:11:34,429 Speaker 2: is plenty of supply, immediate supply in the prompt market. 197 00:11:34,580 --> 00:11:37,760 Speaker 2: Brent is in a little bit of uh but very 198 00:11:37,770 --> 00:11:41,949 Speaker 2: mild backwardation, which again tells you that there is plenty 199 00:11:41,960 --> 00:11:45,010 Speaker 2: of supply in the market and that is exactly what 200 00:11:45,020 --> 00:11:47,329 Speaker 2: is being reflected in the physical market as well. 201 00:11:47,690 --> 00:11:50,439 Speaker 2: So in the physical market, for instance, um you know, 202 00:11:50,450 --> 00:11:54,939 Speaker 2: something that a lot of attention is paid to is 203 00:11:54,950 --> 00:11:58,280 Speaker 2: these official selling prices from the Middle Eastern producers that 204 00:11:58,289 --> 00:12:01,630 Speaker 2: are announced in a month on a monthly basis. And 205 00:12:01,640 --> 00:12:05,218 Speaker 2: a major talking point a few days ago was when 206 00:12:05,229 --> 00:12:09,210 Speaker 2: Saudi Aramco, it sort of sets the stage for, um 207 00:12:09,219 --> 00:12:11,169 Speaker 2: you know, what, what's the, what's the mood in the 208 00:12:11,179 --> 00:12:13,199 Speaker 2: market and, and especially amongst the 209 00:12:13,309 --> 00:12:18,500 Speaker 2: Middle Eastern producers and exporters, it slashed in a big way. 210 00:12:18,510 --> 00:12:23,260 Speaker 2: Uh the differential that it charges to customers in Asia 211 00:12:23,270 --> 00:12:26,669 Speaker 2: and actually around the world for February loading cargo. So 212 00:12:26,679 --> 00:12:29,780 Speaker 2: there's plenty of anecdotal evidence whether you're talking about the 213 00:12:29,789 --> 00:12:33,329 Speaker 2: physical markets or the futures markets, uh that there is 214 00:12:33,340 --> 00:12:37,049 Speaker 2: plenty full of supply and perhaps a view that demand 215 00:12:37,059 --> 00:12:39,049 Speaker 2: is going to be sluggish this year. 216 00:12:40,460 --> 00:12:44,440 Speaker 1: That's right. So I want to talk a little more 217 00:12:44,450 --> 00:12:47,718 Speaker 1: on the issue of supply and demand momentarily. But before that, 218 00:12:47,770 --> 00:12:50,880 Speaker 1: let's stick with geopolitical a little longer. So we talked 219 00:12:50,890 --> 00:12:52,250 Speaker 1: a bit about the Middle East, but then there's a 220 00:12:52,260 --> 00:12:56,419 Speaker 1: whole Russia Ukraine conflict and its energy demand dimensions. So, 221 00:12:56,429 --> 00:12:59,409 Speaker 1: you know, you and I last time talked about the 222 00:12:59,419 --> 00:13:02,750 Speaker 1: Ukraine conflict when there was tremendous uncertainty about where would 223 00:13:02,760 --> 00:13:05,409 Speaker 1: Europe get its gas? Where would you get its oil? 224 00:13:05,419 --> 00:13:08,819 Speaker 1: Who can Russia sell to and can there be a cap? 225 00:13:08,929 --> 00:13:09,358 Speaker 1: So 226 00:13:09,669 --> 00:13:12,640 Speaker 1: let's sort of walk through the last two years uh 227 00:13:12,650 --> 00:13:17,030 Speaker 1: with respect to Russian oil and Russian energy and gas 228 00:13:17,039 --> 00:13:20,450 Speaker 1: and how, how that has sort of impacted the global landscape. 229 00:13:21,599 --> 00:13:26,250 Speaker 2: Yeah, great question. Uh Timor and what a difference two 230 00:13:26,260 --> 00:13:29,530 Speaker 2: years makes and actually it's been less than two years, right? 231 00:13:29,539 --> 00:13:33,939 Speaker 2: Since Russia was cornered, it found itself in a corner 232 00:13:33,950 --> 00:13:37,390 Speaker 2: as a result of sanctions as a result of embargoes 233 00:13:37,400 --> 00:13:38,209 Speaker 2: whereby 234 00:13:38,440 --> 00:13:42,669 Speaker 2: uh Europe and the G7 countries uh said that we 235 00:13:42,679 --> 00:13:46,979 Speaker 2: are going to phase out and with the purchases of 236 00:13:46,989 --> 00:13:50,539 Speaker 2: Russian oil, with the view of completely ending it, which 237 00:13:50,549 --> 00:13:55,299 Speaker 2: is exactly what they've done. So uh in November, uh sorry, 238 00:13:55,309 --> 00:14:02,390 Speaker 2: December 2022 Europe completely halted all sea born imports of 239 00:14:02,400 --> 00:14:03,419 Speaker 2: Russian crude. 240 00:14:03,729 --> 00:14:07,869 Speaker 2: Um for Europe was the biggest market for Russia. Russia 241 00:14:07,880 --> 00:14:10,109 Speaker 2: was the biggest supplier for Europe. So here we're talking 242 00:14:10,119 --> 00:14:15,830 Speaker 2: about a major, major shift in uh in, in trade 243 00:14:15,840 --> 00:14:19,070 Speaker 2: routes and, and trade patterns, you know, the, the the 244 00:14:19,080 --> 00:14:23,760 Speaker 2: likes of which we haven't seen. Um And then, and 245 00:14:23,770 --> 00:14:28,119 Speaker 2: in February of last year, Europe completely halted all sea 246 00:14:28,130 --> 00:14:31,789 Speaker 2: borne refined product imports from uh from Russia. 247 00:14:32,260 --> 00:14:36,280 Speaker 2: And uh you know, when this whole thing started. So 248 00:14:36,289 --> 00:14:40,239 Speaker 2: this is we're talking about the early months of 2022 249 00:14:40,250 --> 00:14:42,859 Speaker 2: after the Ukraine invasion. There was a great deal of 250 00:14:42,869 --> 00:14:46,409 Speaker 2: fear that because let's face it, you know, nobody had 251 00:14:46,419 --> 00:14:49,679 Speaker 2: seen a country of the size of a producer of 252 00:14:49,690 --> 00:14:50,159 Speaker 2: the size of 253 00:14:50,255 --> 00:14:53,864 Speaker 2: Russia, an exporter of the size of Russia um being 254 00:14:53,875 --> 00:14:57,174 Speaker 2: slapped with sanctions and embargoes. So we had, we, we 255 00:14:57,184 --> 00:15:01,135 Speaker 2: had the experience of embargoes and sanctions rather us sanctions 256 00:15:01,145 --> 00:15:06,255 Speaker 2: against Venezuela, Iran, you know, much smaller producers and exporters 257 00:15:06,265 --> 00:15:08,195 Speaker 2: compared with Russia. So there was a lot of fear. 258 00:15:08,445 --> 00:15:10,955 Speaker 2: Um and as it turned out that that fear was 259 00:15:10,965 --> 00:15:13,914 Speaker 2: turned out to be completely unfounded and, and thank God 260 00:15:13,924 --> 00:15:15,424 Speaker 2: for that because, you know, 261 00:15:16,090 --> 00:15:19,669 Speaker 2: some people were contemplating Armageddon in the oil markets. You know, 262 00:15:19,679 --> 00:15:21,250 Speaker 2: if you're talking about like 263 00:15:25,359 --> 00:15:28,400 Speaker 2: indeed, and which is, which was understandable. And again, you know, 264 00:15:28,409 --> 00:15:30,919 Speaker 2: this is like talking, this was the worst case scenario again, 265 00:15:30,929 --> 00:15:34,099 Speaker 2: which is very hard to contemplate, very hard to price 266 00:15:34,109 --> 00:15:35,739 Speaker 2: in as a result of which people were sort of 267 00:15:35,750 --> 00:15:38,780 Speaker 2: like putting a number in the air that, you know, 268 00:15:38,789 --> 00:15:41,429 Speaker 2: who knows, we could see 200. Well, thank God, as 269 00:15:41,440 --> 00:15:44,929 Speaker 2: I said, none of that happened. And um this is 270 00:15:44,940 --> 00:15:47,489 Speaker 2: testimony to the remarkable Brazil 271 00:15:48,315 --> 00:15:53,205 Speaker 2: of the global oil markets. Uh the the fil the 272 00:15:53,215 --> 00:15:57,354 Speaker 2: the interconnectivity, the the resilience of supply chains in a 273 00:15:57,364 --> 00:16:01,145 Speaker 2: way as well that all of that Russian crude and 274 00:16:01,155 --> 00:16:05,505 Speaker 2: refined products which got locked out of Europe have been 275 00:16:05,515 --> 00:16:09,315 Speaker 2: very smoothly, I would say relatively smoothly. Yes, it's, it's 276 00:16:09,325 --> 00:16:09,945 Speaker 2: caused some 277 00:16:10,210 --> 00:16:12,840 Speaker 2: uh tightness in the in the tanker market and so on, 278 00:16:12,849 --> 00:16:17,869 Speaker 2: but relatively smoothly for such a big operation have been rewired. 279 00:16:17,880 --> 00:16:21,229 Speaker 2: So um what we see is like close to 4 280 00:16:21,239 --> 00:16:25,820 Speaker 2: million barrels per day of Russian Seaborne crude exports. And 281 00:16:25,830 --> 00:16:29,080 Speaker 2: I'm stressing on, on Seaborne because there's some pipeline crude 282 00:16:29,090 --> 00:16:31,260 Speaker 2: that continues to flow from Russia into Europe and it 283 00:16:31,270 --> 00:16:33,229 Speaker 2: certainly goes into China as well. 284 00:16:33,530 --> 00:16:37,559 Speaker 2: Uh And, and Seaborne exports about 3, 3.5 million barrels 285 00:16:37,570 --> 00:16:41,940 Speaker 2: per day of refined products exports have all found homes 286 00:16:41,960 --> 00:16:47,570 Speaker 2: outside Europe. So China and India have stepped up. India 287 00:16:47,580 --> 00:16:50,770 Speaker 2: has actually stepped in to buy it, used to buy 288 00:16:50,989 --> 00:16:56,429 Speaker 2: next to zero. Russian crude, the Ukraine. So you China 289 00:16:56,440 --> 00:16:59,989 Speaker 2: and India are lapping up the vast majority of Russian crude. 290 00:17:00,030 --> 00:17:05,079 Speaker 2: It's refined products have been routed into markets like Brazil, 291 00:17:05,089 --> 00:17:09,290 Speaker 2: Brazil has become a major importer of Russian diesel. Russia, 292 00:17:09,300 --> 00:17:11,880 Speaker 2: Brazil used to depend quite a bit on the US 293 00:17:11,890 --> 00:17:13,989 Speaker 2: for diesel. So you see, you know, you can just 294 00:17:14,000 --> 00:17:16,849 Speaker 2: picture all that the rewiring that's gone on, right? And, 295 00:17:16,859 --> 00:17:19,329 Speaker 2: and it it's it's quite massive. So 296 00:17:19,588 --> 00:17:24,228 Speaker 2: um us used to export diesel to Brazil, some of 297 00:17:24,239 --> 00:17:29,139 Speaker 2: which has has obviously been edged out by Russia. So 298 00:17:29,178 --> 00:17:32,288 Speaker 2: us has been exporting more diesel to Europe. In turn 299 00:17:32,348 --> 00:17:35,667 Speaker 2: Russian refined products have also made inroads into, into parts 300 00:17:35,678 --> 00:17:40,078 Speaker 2: of Africa and even actually in the Middle East. So 301 00:17:40,165 --> 00:17:43,864 Speaker 2: all of this has happened. Uh basically the dust has 302 00:17:43,875 --> 00:17:47,333 Speaker 2: settled on this day or so. Um as we stand 303 00:17:47,344 --> 00:17:51,295 Speaker 2: today and even through 2023 what may happen as a 304 00:17:51,305 --> 00:17:55,505 Speaker 2: result of Western sanctions and even price gap on Russia 305 00:17:55,594 --> 00:17:59,224 Speaker 2: and the fears and the apprehensions related to that are 306 00:17:59,234 --> 00:18:00,625 Speaker 2: all in the rearview mirror. 307 00:18:02,119 --> 00:18:06,020 Speaker 1: But brother, I remember in that summer of 2022 there 308 00:18:06,030 --> 00:18:09,079 Speaker 1: were all these oil bulls who are saying global refining 309 00:18:09,089 --> 00:18:12,319 Speaker 1: capacity is at a stretch because there hasn't been that 310 00:18:12,329 --> 00:18:16,399 Speaker 1: much capa uh you uh she producers who were telling 311 00:18:16,410 --> 00:18:19,389 Speaker 1: the Congress don't uh you know, force us to, you know, 312 00:18:19,400 --> 00:18:22,909 Speaker 1: make budgets about increasing production. Uh We can because we 313 00:18:22,920 --> 00:18:25,859 Speaker 1: don't have enough labor, we don't have enough equipment. There's 314 00:18:25,869 --> 00:18:29,819 Speaker 1: not on rigs, et cetera. So how did the industry 315 00:18:29,829 --> 00:18:30,579 Speaker 1: get that, 316 00:18:31,109 --> 00:18:34,099 Speaker 1: so to speak wrong? And then within six months, we 317 00:18:34,109 --> 00:18:37,729 Speaker 1: saw supply side start to revive in a pretty dramatic manner. 318 00:18:39,130 --> 00:18:45,520 Speaker 2: Yeah. So I wouldn't say the numbers were, weren't wrong. 319 00:18:45,530 --> 00:18:50,359 Speaker 2: They had a point. Those who were expressing concern that 320 00:18:50,369 --> 00:18:54,790 Speaker 2: perhaps global refining capacity was not adequate did have a 321 00:18:54,800 --> 00:18:59,640 Speaker 2: point because we saw quite a dramatic act 322 00:18:59,714 --> 00:19:05,584 Speaker 2: acceleration in the shutdown, permanent moth balling of refining capacity 323 00:19:05,594 --> 00:19:10,794 Speaker 2: across the globe. Of course, mostly in smaller, less profitable, 324 00:19:10,805 --> 00:19:15,214 Speaker 2: low complexity refineries around the world. Um It had been, 325 00:19:15,224 --> 00:19:19,685 Speaker 2: it was a phenomenon pre COVID, it was accelerated after COVID. 326 00:19:19,694 --> 00:19:22,254 Speaker 2: So between 2019, 327 00:19:22,599 --> 00:19:26,660 Speaker 2: um to let's say to end 2022 or so, we 328 00:19:26,670 --> 00:19:31,239 Speaker 2: saw about 4.4 million barrels per day of global refining 329 00:19:31,250 --> 00:19:33,099 Speaker 2: capacity permanently shut. 330 00:19:33,349 --> 00:19:35,540 Speaker 2: Uh So, and you know, that was a, that was 331 00:19:35,550 --> 00:19:39,209 Speaker 2: a substantial number. What has and, and the period that 332 00:19:39,219 --> 00:19:42,869 Speaker 2: you're talking about was there were there were periods of 333 00:19:42,880 --> 00:19:45,650 Speaker 2: crunch time, phases of crunch time, I would say through 334 00:19:45,660 --> 00:19:51,459 Speaker 2: 22 and 23 when this ring of product flows was 335 00:19:51,469 --> 00:19:53,770 Speaker 2: going on and mind you Russia as a major exporter 336 00:19:53,780 --> 00:19:54,530 Speaker 2: of diesel. 337 00:19:54,829 --> 00:19:58,560 Speaker 2: So diesel was the sort of focal point of these worries, 338 00:19:58,569 --> 00:20:01,800 Speaker 2: you know, nearly a million barrels per day of diesel 339 00:20:01,810 --> 00:20:07,099 Speaker 2: is exported by Russia. And as you know before this 340 00:20:07,109 --> 00:20:11,930 Speaker 2: rewiring was was complete, there was concern obviously in Europe 341 00:20:11,939 --> 00:20:15,030 Speaker 2: that you know, would there be enough diesel available in 342 00:20:15,040 --> 00:20:17,510 Speaker 2: in Europe. And to some extent, it was also linked 343 00:20:17,520 --> 00:20:18,489 Speaker 2: to Europe's 344 00:20:18,564 --> 00:20:23,044 Speaker 2: fears over adequate gas supply. So we do know that 345 00:20:23,055 --> 00:20:27,054 Speaker 2: Europe has also lost since 2022 a big chunk of 346 00:20:27,064 --> 00:20:30,364 Speaker 2: pipeline gas supply from Russia. And when um in in 347 00:20:30,464 --> 00:20:34,104 Speaker 2: periods of distress, when gas prices are too high, there's 348 00:20:34,114 --> 00:20:39,145 Speaker 2: not enough supply. Diesel is a product that is uh of, 349 00:20:39,155 --> 00:20:43,014 Speaker 2: you know, the product of choice for switching. So all 350 00:20:43,025 --> 00:20:46,665 Speaker 2: of this created a sort of a perfect storm around 351 00:20:46,675 --> 00:20:47,744 Speaker 2: diesel if you will. 352 00:20:48,449 --> 00:20:52,719 Speaker 2: And that's what links to this uh concern now, quite 353 00:20:52,729 --> 00:20:57,150 Speaker 2: a distinct phenomenon. Um That is equally worth noting when we, 354 00:20:57,160 --> 00:20:59,229 Speaker 2: when we talk about the refining capacity 355 00:20:59,489 --> 00:21:02,560 Speaker 2: uh globally is that uh we are now in a 356 00:21:02,569 --> 00:21:06,859 Speaker 2: wave of major growth in refining capacity and and thank 357 00:21:06,869 --> 00:21:12,699 Speaker 2: God for that. So between roughly 2023 and 2027 so 358 00:21:12,709 --> 00:21:15,170 Speaker 2: some of this capacity that I'm talking about yet has 359 00:21:15,180 --> 00:21:19,390 Speaker 2: to come on stream. But between these years, um we 360 00:21:19,400 --> 00:21:23,030 Speaker 2: have nearly the same amount. So about 4.3 million barrels 361 00:21:23,040 --> 00:21:27,349 Speaker 2: per day of new refining capacity coming on stream. 362 00:21:27,619 --> 00:21:31,800 Speaker 2: Uh So I would say that for the foreseeable future, 363 00:21:31,810 --> 00:21:35,560 Speaker 2: uh uh refining capacity shortage is not going to be 364 00:21:35,569 --> 00:21:39,380 Speaker 2: a major problem. Um Another shift that has happened with 365 00:21:39,390 --> 00:21:43,089 Speaker 2: this is, as I mentioned, it's the less profitable, uh 366 00:21:43,099 --> 00:21:47,729 Speaker 2: less efficient, older, simpler refineries that shut down and what 367 00:21:47,739 --> 00:21:51,229 Speaker 2: is coming on stream in countries like China, a lot 368 00:21:51,239 --> 00:21:54,239 Speaker 2: of it in the Middle East. Um Nigeria, a major 369 00:21:54,250 --> 00:21:55,159 Speaker 2: refinery started 370 00:21:55,234 --> 00:21:59,375 Speaker 2: up there in Mexico. The D Os Bocas refinery um 371 00:21:59,385 --> 00:22:03,704 Speaker 2: is all of these refineries are closer to the demand centers. 372 00:22:03,864 --> 00:22:06,014 Speaker 2: And I think I should have mentioned it in, in 373 00:22:06,025 --> 00:22:09,145 Speaker 2: the reverse order is that they are much bigger. So 374 00:22:09,155 --> 00:22:11,925 Speaker 2: they are mega refineries, they have economies of scale, they 375 00:22:11,935 --> 00:22:13,454 Speaker 2: are higher complexity. 376 00:22:13,699 --> 00:22:16,880 Speaker 2: Um And they're closer to the demand centers. In the 377 00:22:16,890 --> 00:22:19,489 Speaker 2: case of Middle East, they are close to the production 378 00:22:19,500 --> 00:22:22,010 Speaker 2: center of the feedstock as well. So all of them 379 00:22:22,020 --> 00:22:26,800 Speaker 2: are going to be um you know, definitely far more effective, 380 00:22:26,810 --> 00:22:30,209 Speaker 2: more efficient. Um And I think going forward, I would 381 00:22:30,219 --> 00:22:33,119 Speaker 2: say with the short to medium term, um I don't 382 00:22:33,130 --> 00:22:37,550 Speaker 2: see a problem on that account. Uh possibly uh if 383 00:22:37,560 --> 00:22:39,688 Speaker 2: we had to look beyond the next, let's say five 384 00:22:39,699 --> 00:22:41,920 Speaker 2: years into next decade even 385 00:22:42,150 --> 00:22:45,399 Speaker 2: uh there is a view that this current wave of 386 00:22:45,410 --> 00:22:48,750 Speaker 2: capacity is probably the last wave we are seeing. Uh 387 00:22:48,760 --> 00:22:55,010 Speaker 2: so if oil demand globally continues to remain robust, if 388 00:22:55,020 --> 00:22:59,688 Speaker 2: not rise, um and not follow the sort of extreme 389 00:22:59,699 --> 00:23:04,329 Speaker 2: decline that some forecasters are talking about. Like then we 390 00:23:04,339 --> 00:23:08,688 Speaker 2: may be in a period of not enough refining capacity again, 391 00:23:08,890 --> 00:23:11,290 Speaker 2: you know, potentially sometime in the next decade. 392 00:23:12,530 --> 00:23:16,188 Speaker 1: OK. Uh The rewiring story, I I find it so 393 00:23:16,199 --> 00:23:20,150 Speaker 1: fascinating and we have two very large energy importers, India 394 00:23:20,160 --> 00:23:26,540 Speaker 1: and China, how have their energy import orientation switched uh 395 00:23:26,550 --> 00:23:29,680 Speaker 1: to uh to Russia and the Middle East over the 396 00:23:29,689 --> 00:23:30,430 Speaker 1: last two years. 397 00:23:31,430 --> 00:23:37,938 Speaker 2: So uh China was always uh a major customer for Russia. 398 00:23:38,109 --> 00:23:42,739 Speaker 2: Uh in fact, uh in the years just before COVID 399 00:23:42,750 --> 00:23:45,979 Speaker 2: and um possibly just after that as well. 400 00:23:46,260 --> 00:23:50,689 Speaker 2: Um Russia and Saudi Arabia had been neck and neck 401 00:23:50,699 --> 00:23:53,680 Speaker 2: in terms of um being number one and number two, 402 00:23:53,689 --> 00:23:57,839 Speaker 2: supplier of crude to, to China and Russia had actually 403 00:23:57,849 --> 00:24:02,819 Speaker 2: overtaken Saudi Arabia in a few years. So um China 404 00:24:03,270 --> 00:24:07,339 Speaker 2: um as I mentioned a pipeline, so it sort of it, 405 00:24:07,349 --> 00:24:10,989 Speaker 2: it there's a um about 800,000 barrels per day of 406 00:24:11,000 --> 00:24:13,650 Speaker 2: crude that it gets from from Russia, you know, that 407 00:24:13,660 --> 00:24:16,589 Speaker 2: is not subject to the to the spot market or 408 00:24:16,599 --> 00:24:19,510 Speaker 2: the vagaries of, of pricing and, and shipping and so on. 409 00:24:19,739 --> 00:24:23,619 Speaker 2: And China also takes a lot of Seaborne crude imports 410 00:24:23,630 --> 00:24:27,339 Speaker 2: from from Russia. Um India as I mentioned earlier was 411 00:24:27,349 --> 00:24:32,800 Speaker 2: taking zero crude from Russia and uh started lapping up 412 00:24:32,810 --> 00:24:37,109 Speaker 2: now and, and, and very quickly, um, ramped up the 413 00:24:37,119 --> 00:24:39,919 Speaker 2: volumes it was taking as well. Now, both of these 414 00:24:39,930 --> 00:24:43,739 Speaker 2: countries are price sensitive, of course. And you know, if 415 00:24:43,750 --> 00:24:44,479 Speaker 2: they were being 416 00:24:44,574 --> 00:24:49,185 Speaker 2: offer discounted crude at, at times, Russian crude was going 417 00:24:49,194 --> 00:24:52,354 Speaker 2: at a discount of as much as $25 a barrel which, 418 00:24:52,364 --> 00:24:55,194 Speaker 2: you know, had given those prices. It was almost 25% 419 00:24:55,204 --> 00:24:59,274 Speaker 2: discount was a great deal for Refiners in those two countries. 420 00:24:59,285 --> 00:25:02,765 Speaker 2: So if you look at 2023 India and China have 421 00:25:02,775 --> 00:25:06,635 Speaker 2: together bought an average of about 3.8 million barrels per 422 00:25:06,645 --> 00:25:09,254 Speaker 2: day of Russian crude, which is um 423 00:25:09,719 --> 00:25:13,430 Speaker 2: up almost 65%. Uh but a big chunk of this 424 00:25:13,439 --> 00:25:18,040 Speaker 2: growth has actually been India. So Indian crude imports in 425 00:25:18,050 --> 00:25:24,239 Speaker 2: 23 were up 165% over 2022. Uh So 2022 it 426 00:25:24,250 --> 00:25:26,849 Speaker 2: had just made a beginning and it was ramping up. 427 00:25:26,859 --> 00:25:29,339 Speaker 2: Uh what the numbers illustrate is that that 428 00:25:29,439 --> 00:25:32,689 Speaker 2: ramp up continued pretty much through 2023. It was only 429 00:25:32,699 --> 00:25:37,550 Speaker 2: towards the end of 2023 that when Russian crude became 430 00:25:37,560 --> 00:25:41,579 Speaker 2: a bit pricier, uh the the discount started narrowing, that 431 00:25:41,589 --> 00:25:47,530 Speaker 2: we actually saw Indian imports or from, from Russia starting 432 00:25:47,540 --> 00:25:49,180 Speaker 2: to decline a little bit. So again, 433 00:25:49,489 --> 00:25:54,150 Speaker 2: that also tells you that India will buy happily from Russia. It's, it's, 434 00:25:54,160 --> 00:25:57,310 Speaker 2: it's not concerned about sanctions and well, there are no 435 00:25:57,319 --> 00:26:00,760 Speaker 2: sanctions against India buying Russian crude. Let's be very clear 436 00:26:00,770 --> 00:26:03,709 Speaker 2: about that, but it will continue buying. But as long 437 00:26:03,719 --> 00:26:06,780 Speaker 2: as it makes sense economically, so this is not a 438 00:26:06,790 --> 00:26:09,829 Speaker 2: political decision, it's a completely commercial decision for India. 439 00:26:10,880 --> 00:26:13,579 Speaker 1: Speaking of commercial decisions, is it also the case that 440 00:26:13,589 --> 00:26:16,530 Speaker 1: India has become a very large exporter of refined petroleum 441 00:26:16,540 --> 00:26:20,880 Speaker 1: goods to Europe, basically to your point, huge import of 442 00:26:20,890 --> 00:26:23,420 Speaker 1: Russian crude and then it actually ends up in Europe, 443 00:26:24,349 --> 00:26:27,250 Speaker 2: you know, and thanks for asking that question, Timor, it's 444 00:26:27,260 --> 00:26:31,579 Speaker 2: it this this issue gets is has been heavily politicized, 445 00:26:31,780 --> 00:26:38,250 Speaker 2: it's got overblown a bit. Um So yes, uh India 446 00:26:38,260 --> 00:26:42,250 Speaker 2: has a marginal surplus refining capacity. 447 00:26:42,469 --> 00:26:46,020 Speaker 2: Uh But what I mean by that is that, you know, 448 00:26:46,030 --> 00:26:50,030 Speaker 2: it's got a huge growing captive market at home, right? 449 00:26:50,040 --> 00:26:54,109 Speaker 2: So pretty much its refining capacity is spoken for in 450 00:26:54,119 --> 00:26:58,770 Speaker 2: terms of domestic fuel sales. Uh So, you know, contrasted 451 00:26:58,780 --> 00:27:02,479 Speaker 2: with China, for instance, which has way more surplus capacity. 452 00:27:02,489 --> 00:27:05,410 Speaker 2: So if China consumes, let's say 15 million barrels per day, 453 00:27:05,505 --> 00:27:09,805 Speaker 2: its current refining capacity is around 18, more than 18 454 00:27:09,816 --> 00:27:12,926 Speaker 2: million barrels per day growing as we speak, you know, 455 00:27:12,936 --> 00:27:17,015 Speaker 2: new and new refineries being put on stream. So, so 456 00:27:17,026 --> 00:27:20,125 Speaker 2: India is not quite on that scale. And so yes, 457 00:27:20,135 --> 00:27:22,566 Speaker 2: it had the Refiners had a little bit of room, 458 00:27:22,576 --> 00:27:25,326 Speaker 2: it's mostly the two private Refiners in the country, you know, 459 00:27:25,336 --> 00:27:28,446 Speaker 2: reliance industries in Naara, the state Refiners 460 00:27:28,541 --> 00:27:32,601 Speaker 2: pretty much um cater to the domestic market. So yes, 461 00:27:32,612 --> 00:27:37,651 Speaker 2: Indian exports of refined products to the to Europe and 462 00:27:37,661 --> 00:27:40,021 Speaker 2: to some other parts of the world also went up 463 00:27:40,031 --> 00:27:42,192 Speaker 2: a little bit last year. But really at the end 464 00:27:42,202 --> 00:27:45,921 Speaker 2: of the day, India has very little scope to increase 465 00:27:45,932 --> 00:27:49,031 Speaker 2: because first and foremost, and the government will make sure 466 00:27:49,041 --> 00:27:51,482 Speaker 2: that the domestic market is well supplied 467 00:27:51,859 --> 00:27:57,109 Speaker 2: uh before any surplus is uh exported. Um externally, 468 00:27:57,119 --> 00:28:01,589 Speaker 1: uh w what about fundamentals based demand before this Red 469 00:28:01,599 --> 00:28:04,599 Speaker 1: Sea issue became prominent, I'm sure you were busy writing 470 00:28:04,609 --> 00:28:07,979 Speaker 1: your 2024 outlook and you were assessing demand around the 471 00:28:07,989 --> 00:28:12,199 Speaker 1: world from my sort of economics vantage point. I don't 472 00:28:12,209 --> 00:28:14,270 Speaker 1: really see that much upside to the global economy in 473 00:28:14,280 --> 00:28:15,119 Speaker 1: 2024 474 00:28:15,420 --> 00:28:18,250 Speaker 1: with a bit of a soft landing projected for the 475 00:28:18,260 --> 00:28:22,089 Speaker 1: US India is one shining exception. But after that, you know, 476 00:28:22,099 --> 00:28:25,280 Speaker 1: China cause lots of uncertainty and these are the big 477 00:28:25,449 --> 00:28:29,260 Speaker 1: marginal importers, Europe also forecast to remain rather flat. So 478 00:28:29,270 --> 00:28:32,438 Speaker 1: does that sort of, you know map with your view 479 00:28:32,449 --> 00:28:33,520 Speaker 1: of oil demand? 480 00:28:34,550 --> 00:28:38,760 Speaker 2: Yeah, so Timor, the global economic prospects that uh you 481 00:28:38,770 --> 00:28:45,189 Speaker 2: are zeroing in on is exactly the what is shaping 482 00:28:45,199 --> 00:28:49,079 Speaker 2: the outlook for the global oil market as well. So 483 00:28:49,270 --> 00:28:52,680 Speaker 2: um for oil, there's a pretty direct connection. Of course, 484 00:28:52,689 --> 00:28:56,209 Speaker 2: there's plenty of dots in between that need to be connected. 485 00:28:56,219 --> 00:28:59,050 Speaker 2: But nonetheless, a connection definitely between 486 00:28:59,319 --> 00:29:03,339 Speaker 2: the health of the global economy and the health of 487 00:29:03,349 --> 00:29:07,050 Speaker 2: global oil demand and oil demand growth. So we are 488 00:29:07,060 --> 00:29:12,219 Speaker 2: now contemplating a second year of global economic deceleration, right? 489 00:29:12,640 --> 00:29:17,219 Speaker 2: Um And then we have within that uh you know, you, 490 00:29:17,229 --> 00:29:20,170 Speaker 2: you tend to look at, OK, what's going to happen 491 00:29:20,229 --> 00:29:24,119 Speaker 2: um most likely in the US, in terms of economic momentum, 492 00:29:24,170 --> 00:29:28,099 Speaker 2: what's happening in OECD Europe and what's happening in China. 493 00:29:28,109 --> 00:29:31,099 Speaker 2: So just for the sake of sort of simplification, you know, 494 00:29:31,109 --> 00:29:31,219 Speaker 2: so 495 00:29:31,324 --> 00:29:33,724 Speaker 2: when we talk about global economy and global oil demand, 496 00:29:33,795 --> 00:29:36,724 Speaker 2: you then as a next step, the oil market participants 497 00:29:36,734 --> 00:29:41,035 Speaker 2: tend to um zero in on, on these three regions. 498 00:29:41,244 --> 00:29:45,314 Speaker 2: And um so you look at the US economy, OK. 499 00:29:45,324 --> 00:29:47,925 Speaker 2: Perhaps a soft landing, I think a lot depends on 500 00:29:47,935 --> 00:29:49,905 Speaker 2: what the FED does with the interest rate, 501 00:29:50,189 --> 00:29:53,339 Speaker 2: um whether it cuts or not and so and so on. 502 00:29:53,489 --> 00:29:58,650 Speaker 2: Um Eurozone or let's say OECD Europe uh not in 503 00:29:58,660 --> 00:30:01,630 Speaker 2: as good a position as the US. Uh You know, 504 00:30:01,640 --> 00:30:05,270 Speaker 2: we saw an ECB official saying in Davos on the 505 00:30:05,280 --> 00:30:07,329 Speaker 2: sidelines yesterday, for instance, that 506 00:30:07,609 --> 00:30:11,130 Speaker 2: um do not bet on interest rate cuts. Uh because 507 00:30:11,140 --> 00:30:13,839 Speaker 2: I think it's, it appears that uh inflation is a, 508 00:30:13,849 --> 00:30:17,260 Speaker 2: is a far bigger problem, more stubborn in, in Europe. 509 00:30:17,310 --> 00:30:19,430 Speaker 2: And then you come to, to China and you know, 510 00:30:19,439 --> 00:30:21,869 Speaker 2: I we'll talk a little more about that separately. But 511 00:30:21,949 --> 00:30:25,060 Speaker 2: for a moment, let's just take these three regions together, right? 512 00:30:25,069 --> 00:30:29,150 Speaker 2: If you look at the US, uh Western Europe and 513 00:30:29,160 --> 00:30:30,869 Speaker 2: Chinese oil consumption, 514 00:30:31,569 --> 00:30:36,290 Speaker 2: the three of them together account for 50% of global 515 00:30:36,300 --> 00:30:37,119 Speaker 2: oil demand. 516 00:30:37,640 --> 00:30:41,150 Speaker 2: So that gives you so the remaining 50%. This is 517 00:30:41,160 --> 00:30:45,819 Speaker 2: the other important attribute to keep in mind, the remaining 50% 518 00:30:45,880 --> 00:30:51,260 Speaker 2: is distributed amongst much, much, much smaller consumers. And the 519 00:30:51,270 --> 00:30:54,540 Speaker 2: reason it's important to keep that in mind is that 520 00:30:54,550 --> 00:30:58,609 Speaker 2: even if some of those consumers India, for instance, are 521 00:30:58,619 --> 00:31:02,369 Speaker 2: going to see a strong economic growth, a strong oil 522 00:31:02,380 --> 00:31:05,819 Speaker 2: demand growth, none of them are going to be the 523 00:31:05,946 --> 00:31:09,844 Speaker 2: engines of global oil demand growth. Like let's say the 524 00:31:09,855 --> 00:31:13,446 Speaker 2: China was in the nineties and the early two thousands, right? 525 00:31:13,645 --> 00:31:17,365 Speaker 2: So just look at China and India for instance, the 526 00:31:17,375 --> 00:31:21,696 Speaker 2: second and the third largest oil consumer and and what 527 00:31:21,706 --> 00:31:25,215 Speaker 2: a big gap between their consumption. So China consumes a 528 00:31:25,225 --> 00:31:28,965 Speaker 2: little over 15 million barrels per day. India consumes 5 529 00:31:28,975 --> 00:31:31,105 Speaker 2: million barrels per day. And if you were to line 530 00:31:31,115 --> 00:31:34,166 Speaker 2: up the next seven major consumer 531 00:31:34,251 --> 00:31:37,712 Speaker 2: in the next 10 consumers of oil, you'll find that 532 00:31:37,722 --> 00:31:42,391 Speaker 2: oil consumption globally is is split into much smaller consumers. 533 00:31:42,401 --> 00:31:46,712 Speaker 2: So basically that that gives you a smaller base of growth. So, 534 00:31:46,722 --> 00:31:49,082 Speaker 2: so this is what so so when the oil market 535 00:31:49,092 --> 00:31:55,541 Speaker 2: participants contemplate 2024 they're looking at ok, economy, softening, most 536 00:31:55,552 --> 00:31:59,952 Speaker 2: likely oil demand growth in China, so growth it will grow, 537 00:31:59,962 --> 00:32:02,472 Speaker 2: but the growth itself is softening. 538 00:32:02,739 --> 00:32:06,959 Speaker 2: Um we estimate China uh Chinese oil demand grew by 539 00:32:06,969 --> 00:32:11,540 Speaker 2: like about 900,000 barrels per day um year on year, 540 00:32:11,550 --> 00:32:15,380 Speaker 2: last year, this year, perhaps about half a million barrels 541 00:32:15,390 --> 00:32:15,880 Speaker 2: per day. 542 00:32:16,160 --> 00:32:22,469 Speaker 2: The Western Europe and us actually present an interesting contrast. 543 00:32:22,589 --> 00:32:26,810 Speaker 2: So both these countries, not just by virtue of their economies, 544 00:32:26,819 --> 00:32:30,949 Speaker 2: but mature economies, but also by virtue of, of demographics 545 00:32:31,270 --> 00:32:35,739 Speaker 2: are actually well past their peak oil demand. And you know, 546 00:32:35,750 --> 00:32:38,849 Speaker 2: that's very, very clear in the data that we have 547 00:32:38,859 --> 00:32:40,719 Speaker 2: in front of us. So 548 00:32:42,030 --> 00:32:44,329 Speaker 2: if we for the whole world and a lot of 549 00:32:44,339 --> 00:32:46,489 Speaker 2: the countries we tend to talk about, OK, so where 550 00:32:46,500 --> 00:32:49,650 Speaker 2: is this country or the global oil demand today or 551 00:32:49,660 --> 00:32:53,170 Speaker 2: in 2023 versus where it was in 2019? Right? We 552 00:32:53,180 --> 00:32:55,040 Speaker 2: we tend to go with like so has the, has 553 00:32:55,050 --> 00:32:58,300 Speaker 2: the COVID demand destruction been made up for? So yes, 554 00:32:58,310 --> 00:33:01,920 Speaker 2: on a global level, it has. So in 2023 global 555 00:33:01,930 --> 00:33:03,569 Speaker 2: oil demand for the first time 556 00:33:03,859 --> 00:33:08,650 Speaker 2: climbed above 2019 demand. So, but if you look at 557 00:33:08,770 --> 00:33:14,550 Speaker 2: us and Western Europe together, the two regions are about 558 00:33:14,560 --> 00:33:18,920 Speaker 2: 1.6 million barrels per day lower in terms of oil 559 00:33:18,930 --> 00:33:20,959 Speaker 2: consumption than when they were 560 00:33:21,094 --> 00:33:25,015 Speaker 2: in 2019. And the path forward for them is like 561 00:33:25,025 --> 00:33:29,844 Speaker 2: is probably between flat stagnation in a best case economic 562 00:33:29,854 --> 00:33:35,015 Speaker 2: growth scenario to perhaps a continuing downward decline. If the 563 00:33:35,025 --> 00:33:38,094 Speaker 2: economies are struggling to grow. 564 00:33:40,219 --> 00:33:43,719 Speaker 1: Fascinating and sort of tells you that some offsets here 565 00:33:43,729 --> 00:33:46,859 Speaker 1: and there. But those three chunks are the key determining 566 00:33:46,869 --> 00:33:49,839 Speaker 1: factors as far as you know, energy market is concerned. 567 00:33:50,099 --> 00:33:53,380 Speaker 1: But we want to talk a little bit about the 568 00:33:53,390 --> 00:33:56,869 Speaker 1: medium term off and you in fact started touching on this. 569 00:33:56,880 --> 00:33:58,959 Speaker 1: But I want to talk specifically with respect to OPEC. 570 00:33:59,640 --> 00:34:02,790 Speaker 1: Uh in the last year, we've seen OPEC try super 571 00:34:02,800 --> 00:34:06,790 Speaker 1: hard to rein in on all production. And even though 572 00:34:06,800 --> 00:34:09,360 Speaker 1: the US government has been putting pressure on the Southeast 573 00:34:09,370 --> 00:34:09,870 Speaker 1: and others 574 00:34:10,148 --> 00:34:13,569 Speaker 1: to keep the global oil market well supplied, I think 575 00:34:13,579 --> 00:34:16,998 Speaker 1: they only had limited success. Maybe the softening demand aspect 576 00:34:17,009 --> 00:34:19,858 Speaker 1: that you've been talking about played a more pivotal role 577 00:34:19,868 --> 00:34:21,438 Speaker 1: in stabilizing oil prices than 578 00:34:22,250 --> 00:34:25,909 Speaker 1: the, the US pressure on OPEC. Um So what is 579 00:34:25,919 --> 00:34:29,070 Speaker 1: the medium term for OPEC? Does it survive in the 580 00:34:29,080 --> 00:34:29,550 Speaker 1: way it is? 581 00:34:30,729 --> 00:34:36,010 Speaker 2: That's a million dollar question. Uh So, Opec Plus, uh 582 00:34:36,020 --> 00:34:41,010 Speaker 2: the market perspective, uh expectations of OPEC plus, I would 583 00:34:41,020 --> 00:34:43,909 Speaker 2: say have undergone quite a dramatic shift. 584 00:34:44,459 --> 00:34:48,399 Speaker 2: Um I would say from around the second half of 585 00:34:48,409 --> 00:34:53,159 Speaker 2: last year. So, um the received wisdom through much of 586 00:34:53,169 --> 00:34:58,600 Speaker 2: last year was that OPEC Plus was in control in command. 587 00:34:58,770 --> 00:35:03,219 Speaker 2: Um It was quite cohesive uh under the leadership of 588 00:35:03,229 --> 00:35:05,899 Speaker 2: Saudi Arabia or, you know, sort of joint leadership of 589 00:35:05,909 --> 00:35:09,290 Speaker 2: Russia and Saudi Arabia, the two biggest producers within that. 590 00:35:10,135 --> 00:35:17,504 Speaker 2: Um It was quite determined and capable of putting a 591 00:35:17,514 --> 00:35:22,405 Speaker 2: floor under prices. Um If that's what it needed to do, 592 00:35:22,584 --> 00:35:25,634 Speaker 2: um You know, if there was downward pressure. And for 593 00:35:25,645 --> 00:35:29,495 Speaker 2: much of last year, actually, that was borne out. So 594 00:35:29,504 --> 00:35:33,824 Speaker 2: we saw OPEC Plus coming together last April announcing cuts 595 00:35:33,834 --> 00:35:34,604 Speaker 2: from May 596 00:35:34,860 --> 00:35:39,110 Speaker 2: and um they managed to, to sort of avert a 597 00:35:39,120 --> 00:35:43,520 Speaker 2: slide in prices, especially during the times when economic fears 598 00:35:43,530 --> 00:35:46,919 Speaker 2: were starting to, to swirl around in the markets. 599 00:35:47,679 --> 00:35:51,699 Speaker 2: What has changed I would say towards the latter half 600 00:35:51,709 --> 00:35:56,259 Speaker 2: of last year is that some things, some tensions, some 601 00:35:56,270 --> 00:36:01,659 Speaker 2: problems within that alliance, within its ideology, its strategy have 602 00:36:01,669 --> 00:36:05,029 Speaker 2: have come to the surface. Um A major one of 603 00:36:05,040 --> 00:36:10,479 Speaker 2: which is that the, when it instituted cuts starting last May, 604 00:36:10,489 --> 00:36:12,850 Speaker 2: it made a major departure from convention. 605 00:36:13,120 --> 00:36:16,379 Speaker 2: So the convention for OPEC plus uh you know, since 606 00:36:16,389 --> 00:36:19,310 Speaker 2: it came together as, as this alliance and before that, 607 00:36:19,320 --> 00:36:23,649 Speaker 2: for OPEC has been to set an overall target for 608 00:36:23,659 --> 00:36:26,399 Speaker 2: the whole alliance. And then that if let's say the 609 00:36:26,409 --> 00:36:28,300 Speaker 2: target is being increased or it's being 610 00:36:28,379 --> 00:36:33,229 Speaker 2: paid back, then that amount is equitably distributed between all 611 00:36:33,239 --> 00:36:36,719 Speaker 2: the members. And then everything is transparent, which, you know, 612 00:36:36,729 --> 00:36:38,989 Speaker 2: as we both know is very, very important for markets. 613 00:36:39,000 --> 00:36:41,339 Speaker 2: If you're trying to send a strong signal to the markets, 614 00:36:41,350 --> 00:36:43,560 Speaker 2: the markets need to see the numbers, right? 615 00:36:43,949 --> 00:36:46,280 Speaker 2: Um So then they would publish that this is our 616 00:36:46,290 --> 00:36:51,070 Speaker 2: overall target, this is the individual members quotas. Um And 617 00:36:51,080 --> 00:36:53,770 Speaker 2: then they would have regular meetings to assess how they 618 00:36:53,780 --> 00:36:57,399 Speaker 2: were doing against those targets. The members that were let's 619 00:36:57,409 --> 00:37:00,209 Speaker 2: say not complying were, you know, would, would get a 620 00:37:00,219 --> 00:37:02,899 Speaker 2: sort of a, a rap on the knuckle that, you know, 621 00:37:02,909 --> 00:37:05,949 Speaker 2: please get in, fall in line. And so on the 622 00:37:05,959 --> 00:37:10,969 Speaker 2: departure last year was that they did away with this convention. Um, 623 00:37:11,669 --> 00:37:15,929 Speaker 2: and they, so there's out of the 22 members until 624 00:37:15,939 --> 00:37:18,560 Speaker 2: the end of last December. Now there's 21 because Angola 625 00:37:18,570 --> 00:37:22,209 Speaker 2: has quit. But of the 22 members, 19 members were 626 00:37:22,219 --> 00:37:25,638 Speaker 2: participating in these uh in these pacts, right? But of 627 00:37:25,649 --> 00:37:29,270 Speaker 2: those only nine members came up with what was called 628 00:37:29,280 --> 00:37:32,500 Speaker 2: voluntary cuts. They were not announced the usual way with a, 629 00:37:32,510 --> 00:37:36,379 Speaker 2: with a full ministerial meeting and everything then officially published. 630 00:37:36,389 --> 00:37:38,739 Speaker 2: But each country made an announcement saying we are doing 631 00:37:38,750 --> 00:37:40,290 Speaker 2: these voluntary cuts. Now, 632 00:37:40,719 --> 00:37:44,750 Speaker 2: such voluntary cuts are not unheard of, but usually they 633 00:37:44,760 --> 00:37:48,459 Speaker 2: have been used by Saudi Arabia and as an ad 634 00:37:48,469 --> 00:37:51,549 Speaker 2: hoc mechanism, you know, sort of like a, a stop 635 00:37:51,560 --> 00:37:55,310 Speaker 2: gap arrangement if you will. Uh But as it turned 636 00:37:55,320 --> 00:38:00,899 Speaker 2: out last November, it, I, I feel they were probably 637 00:38:00,909 --> 00:38:03,388 Speaker 2: trying to get back to their track to their, to 638 00:38:03,399 --> 00:38:04,860 Speaker 2: their conventional way. 639 00:38:05,090 --> 00:38:08,870 Speaker 2: Um but a lot of tensions cropped up and they couldn't. 640 00:38:09,000 --> 00:38:12,129 Speaker 2: And so now we have the situation in which these, 641 00:38:12,139 --> 00:38:15,979 Speaker 2: you know, nine members have, um have come up with 642 00:38:15,989 --> 00:38:22,120 Speaker 2: voluntary cuts. The other 10 peers are not cutting output. 643 00:38:22,209 --> 00:38:25,509 Speaker 2: There's quite a bit of um uh 644 00:38:25,614 --> 00:38:30,574 Speaker 2: skepticism in the market. There's a lot of um doubts 645 00:38:30,584 --> 00:38:33,314 Speaker 2: in the market as to whether, you know, these being 646 00:38:33,324 --> 00:38:37,694 Speaker 2: voluntary cuts, to what extent the companies, sorry, the countries 647 00:38:37,705 --> 00:38:42,274 Speaker 2: will abide by them, whether they will be uh you know, 648 00:38:42,284 --> 00:38:45,504 Speaker 2: whether a discipline will be enforced and so on 649 00:38:46,610 --> 00:38:50,070 Speaker 2: background of all of this uh sort of an old 650 00:38:50,080 --> 00:38:52,638 Speaker 2: theme in the market but has cropped up all over 651 00:38:52,649 --> 00:38:57,270 Speaker 2: again is also speculation that perhaps OPEC plus is just 652 00:38:57,800 --> 00:39:01,879 Speaker 2: um sign some sort of a fatigue, you know, and 653 00:39:01,889 --> 00:39:05,989 Speaker 2: it's probably maybe uh the beginning of the end of 654 00:39:06,000 --> 00:39:07,870 Speaker 2: its market management policy. 655 00:39:08,100 --> 00:39:11,479 Speaker 2: So all of this is is casting a huge shadow and, 656 00:39:11,489 --> 00:39:14,199 Speaker 2: and if you look at last year, pretty much, it 657 00:39:14,209 --> 00:39:19,500 Speaker 2: was OPEC Plus being disciplined, cutting back output and then 658 00:39:19,590 --> 00:39:22,689 Speaker 2: the Saudi Energy Minister, you know, every now and then 659 00:39:22,699 --> 00:39:29,239 Speaker 2: sort of um warning uh speculators not to short oil and, 660 00:39:29,250 --> 00:39:32,580 Speaker 2: and all of that came together to hold a sort 661 00:39:32,590 --> 00:39:35,479 Speaker 2: of a floor on prices. Uh you know, let's call 662 00:39:35,489 --> 00:39:37,620 Speaker 2: it $80. That was the um 663 00:39:38,010 --> 00:39:40,870 Speaker 2: uh market expectation that that's where OPEC was trying to 664 00:39:40,879 --> 00:39:44,229 Speaker 2: put a flaw, but all of that has now disappeared. 665 00:39:44,429 --> 00:39:48,889 Speaker 2: So the market doesn't have the confidence now or the 666 00:39:48,899 --> 00:39:54,638 Speaker 2: expectation um that OPEC Plus will be able to continue 667 00:39:54,649 --> 00:39:58,089 Speaker 2: cutting even deeper if need be. So just to take 668 00:39:58,100 --> 00:40:01,279 Speaker 2: an a quick example from what's happening right now, so 669 00:40:01,290 --> 00:40:06,469 Speaker 2: last November, they decided that they will uh cut an 670 00:40:06,479 --> 00:40:07,159 Speaker 2: additional line 671 00:40:07,310 --> 00:40:09,699 Speaker 2: 1000 barrels per day. But they announced that just for 672 00:40:09,709 --> 00:40:13,320 Speaker 2: the current quarter, what's going to happen after this quarter, 673 00:40:13,330 --> 00:40:15,580 Speaker 2: you know, has been sort of, uh, is up in 674 00:40:15,590 --> 00:40:17,820 Speaker 2: the air or has been, you know, left for the 675 00:40:17,830 --> 00:40:21,279 Speaker 2: market to guess. So that's also all adding, basically, it's 676 00:40:21,290 --> 00:40:25,139 Speaker 2: become what in the market is traditionally called an OPEC put, right, 677 00:40:25,149 --> 00:40:29,259 Speaker 2: like no matter what OPEC will do something to, um, 678 00:40:29,270 --> 00:40:31,939 Speaker 2: to put a floor under prices, to prevent prices from, 679 00:40:31,949 --> 00:40:35,659 Speaker 2: from entering a downward spiral that OPEC put has disappeared 680 00:40:35,669 --> 00:40:36,339 Speaker 2: from the market. 681 00:40:38,060 --> 00:40:41,159 Speaker 1: Indeed. OK. The other big player, of course in the 682 00:40:41,169 --> 00:40:44,790 Speaker 1: oil market and which has also seen game changing developments 683 00:40:44,800 --> 00:40:48,479 Speaker 1: over the past decade is the US uh some comments 684 00:40:48,489 --> 00:40:50,839 Speaker 1: on the future of the shale industry in the US. 685 00:40:51,979 --> 00:40:55,319 Speaker 2: Yeah. So I think um once you start with the 686 00:40:55,330 --> 00:41:01,270 Speaker 2: sort of phenomenal and highly unexpected spot in growth that 687 00:41:01,399 --> 00:41:05,300 Speaker 2: we saw in the US last year in 2023 the 688 00:41:05,310 --> 00:41:08,609 Speaker 2: US production grew by about 1.1 million barrels per day 689 00:41:08,620 --> 00:41:12,629 Speaker 2: to a new all time high of about 12.9 million 690 00:41:12,639 --> 00:41:13,439 Speaker 2: barrels per day. 691 00:41:13,699 --> 00:41:17,259 Speaker 2: Now, um it was unexpected because if you, if you 692 00:41:17,270 --> 00:41:21,389 Speaker 2: look at all the other data and evidence that you 693 00:41:21,399 --> 00:41:23,319 Speaker 2: have in the shale sector. So, so for instance, what 694 00:41:23,330 --> 00:41:26,669 Speaker 2: the shale producers, for instance, when what what their executives 695 00:41:26,679 --> 00:41:29,679 Speaker 2: are saying are signaling to the market when they come 696 00:41:29,689 --> 00:41:33,350 Speaker 2: out with their quarterly results, you look at what's happening 697 00:41:33,360 --> 00:41:36,510 Speaker 2: to R counts to fracturing fleets and so on. 698 00:41:36,745 --> 00:41:42,625 Speaker 2: And the um sort of unchanging theme there has been 699 00:41:42,635 --> 00:41:46,304 Speaker 2: that they are funneling more and more of their profits 700 00:41:46,314 --> 00:41:50,985 Speaker 2: into paying off debt into rewarding shareholders doing share buybacks. 701 00:41:51,195 --> 00:41:56,165 Speaker 2: Uh provide um you know, distributing good dividends and not 702 00:41:56,175 --> 00:41:59,685 Speaker 2: so much of their profit into growing production. 703 00:41:59,959 --> 00:42:03,090 Speaker 2: Um A lot of yes Capex did, did go up 704 00:42:03,100 --> 00:42:04,830 Speaker 2: last year, but a lot of that, it was also 705 00:42:04,840 --> 00:42:09,649 Speaker 2: taken up by uh higher costs. So, you know, inflation 706 00:42:09,659 --> 00:42:15,209 Speaker 2: affected everything from manpower to r costs to the materials 707 00:42:15,219 --> 00:42:17,989 Speaker 2: used in, in the shale sector and so on. Now, 708 00:42:18,000 --> 00:42:22,699 Speaker 2: that story hasn't changed. Uh doesn't remains the same in 2024. 709 00:42:22,969 --> 00:42:26,449 Speaker 2: Uh uh There's a lot of consolidation that's also happening 710 00:42:26,459 --> 00:42:28,510 Speaker 2: in the shield sector. We saw that with some with 711 00:42:28,520 --> 00:42:32,070 Speaker 2: mega mergers at the end of last year. Um mega 712 00:42:32,080 --> 00:42:36,389 Speaker 2: big purchases, Bon Mo and, and Chevron, uh the consolidation 713 00:42:36,399 --> 00:42:41,589 Speaker 2: story will, will continue. Um That is another reason um 714 00:42:41,600 --> 00:42:46,189 Speaker 2: we expect uh production to be sort of continued in 715 00:42:46,330 --> 00:42:46,340 Speaker 2: a 716 00:42:46,459 --> 00:42:50,919 Speaker 2: moderate growth phase but not in a in sort of, 717 00:42:50,929 --> 00:42:56,239 Speaker 2: we don't expect companies to be prioritizing growth. Um So 718 00:42:56,250 --> 00:43:01,080 Speaker 2: 2024 currently, the expectations are maybe it will continue to 719 00:43:01,090 --> 00:43:04,199 Speaker 2: grow into to yet another new high, but perhaps by 720 00:43:04,209 --> 00:43:07,350 Speaker 2: you know, a much less amount than last year, perhaps 721 00:43:07,360 --> 00:43:09,840 Speaker 2: about 4 to 500,000 barrels per day. 722 00:43:11,320 --> 00:43:15,500 Speaker 1: Ok. Uh And us especially with the inflation Reduction Act 723 00:43:15,510 --> 00:43:20,830 Speaker 1: uh has really uh turbocharged its green transition process. Europe 724 00:43:20,840 --> 00:43:25,580 Speaker 1: is coming up with regular new regulations on border adjustment 725 00:43:25,590 --> 00:43:27,500 Speaker 1: tax and targets 726 00:43:27,574 --> 00:43:31,334 Speaker 1: for greening their economy. China is, you know, again going 727 00:43:31,344 --> 00:43:35,705 Speaker 1: on all cylinders uh in embracing EVs and green energy 728 00:43:35,715 --> 00:43:39,194 Speaker 1: and so on. So, but maybe we conclude on that 729 00:43:39,205 --> 00:43:43,754 Speaker 1: key issue that how does demand for conventional energy look 730 00:43:43,764 --> 00:43:45,435 Speaker 1: with the green transition in the night? 731 00:43:46,580 --> 00:43:51,570 Speaker 2: Yes. So it's um a, a key transition that is 732 00:43:51,580 --> 00:43:54,800 Speaker 2: enveloping the energy markets across the globe. 733 00:43:55,129 --> 00:43:59,280 Speaker 2: Um I think what doesn't help is that, of course, 734 00:43:59,290 --> 00:44:05,389 Speaker 2: it's a highly emotive issue. It's highly politicized. Um There, 735 00:44:05,399 --> 00:44:09,580 Speaker 2: in recent years, we've seen this major tension crop up 736 00:44:09,590 --> 00:44:12,469 Speaker 2: between the so called global south and the global north. 737 00:44:12,689 --> 00:44:16,860 Speaker 2: Um We saw that kind of um in play at 738 00:44:16,870 --> 00:44:18,870 Speaker 2: cop 28 late last year. 739 00:44:19,159 --> 00:44:22,419 Speaker 2: Uh but, but, but let me sort of summarize it 740 00:44:22,429 --> 00:44:26,560 Speaker 2: in this way. So this shift away from fossil fuels and, 741 00:44:26,570 --> 00:44:30,069 Speaker 2: you know, certainly coal, oil and gas, I would say 742 00:44:30,080 --> 00:44:33,709 Speaker 2: to a much smaller and slower extent, but the shift 743 00:44:33,719 --> 00:44:38,419 Speaker 2: is happening. It's just not, I don't see it happening 744 00:44:38,510 --> 00:44:42,979 Speaker 2: at the speed as what some of the most optimistic 745 00:44:42,989 --> 00:44:46,520 Speaker 2: projections out there have 746 00:44:46,750 --> 00:44:51,189 Speaker 2: trade for the simple reason that, you know, energy is 747 00:44:51,270 --> 00:44:57,629 Speaker 2: like so crucial, underpinning our lives, our lifestyles, our economies, 748 00:44:57,639 --> 00:45:02,229 Speaker 2: our very existence that it's, it's just not, it's hard 749 00:45:02,239 --> 00:45:07,429 Speaker 2: to fathom how we could simply jettison oil and gas 750 00:45:07,439 --> 00:45:10,449 Speaker 2: and for that, for that matter, coal before we have 751 00:45:10,459 --> 00:45:14,209 Speaker 2: alternatives that are available on the same scale 752 00:45:14,570 --> 00:45:20,310 Speaker 2: um and are affordable and accessible. So we see, you 753 00:45:20,320 --> 00:45:22,939 Speaker 2: know that between this debate between the global South and 754 00:45:22,949 --> 00:45:26,909 Speaker 2: the global north part of that is also uh the 755 00:45:26,919 --> 00:45:29,509 Speaker 2: emphasis on energy security affordability, 756 00:45:29,614 --> 00:45:34,395 Speaker 2: the accessibility we know here in Asia, that's key for, 757 00:45:34,405 --> 00:45:37,745 Speaker 2: for policymakers. So all of that, you know, combined with 758 00:45:37,754 --> 00:45:39,804 Speaker 2: the fact that at the same time, there is an 759 00:45:39,814 --> 00:45:43,205 Speaker 2: acknowledgement and a realization that we do have to reduce, 760 00:45:43,215 --> 00:45:44,554 Speaker 2: continue reducing our 761 00:45:44,870 --> 00:45:49,060 Speaker 2: our emissions. But there's now this um I think an 762 00:45:49,070 --> 00:45:52,229 Speaker 2: acceptance that that it has to be a balancing act. 763 00:45:52,360 --> 00:45:55,020 Speaker 2: So within that context, I see, you know, it's, it's 764 00:45:55,030 --> 00:45:57,799 Speaker 2: very clear you have a lot of anecdotal evidence which 765 00:45:57,810 --> 00:46:00,299 Speaker 2: often makes its way into the headlines and 766 00:46:00,580 --> 00:46:06,280 Speaker 2: and sways perception as opposed to the ground reality. So yes, 767 00:46:06,290 --> 00:46:10,850 Speaker 2: renewables are growing. Yes, electrification uh in, in terms of 768 00:46:10,860 --> 00:46:13,850 Speaker 2: mobility is is growing, but they're all growing from a 769 00:46:13,860 --> 00:46:17,139 Speaker 2: small base. So I think we need to wait to 770 00:46:17,149 --> 00:46:20,959 Speaker 2: see them um have the sort of impact where we 771 00:46:20,969 --> 00:46:24,810 Speaker 2: can talk about. OK. We can now actually reduce, start 772 00:46:24,929 --> 00:46:26,839 Speaker 2: reducing our oil and gas consumption. 773 00:46:27,149 --> 00:46:30,870 Speaker 2: So there's electrification um of course, happening at a much 774 00:46:30,879 --> 00:46:35,040 Speaker 2: faster pace in some countries than, than others. I greener 775 00:46:35,050 --> 00:46:38,409 Speaker 2: alternatives and I wouldn't mix the two because let's again, 776 00:46:38,419 --> 00:46:41,530 Speaker 2: keep in mind that electrification in countries like China, right, 777 00:46:41,790 --> 00:46:44,489 Speaker 2: the fastest pace of electrification, 778 00:46:44,879 --> 00:46:47,459 Speaker 2: more than 60% of the electricity is coming from coal. 779 00:46:47,469 --> 00:46:50,699 Speaker 2: So it's not necessarily a greener alternative. But nonetheless, I 780 00:46:50,709 --> 00:46:53,759 Speaker 2: think we it is, it is something that is will 781 00:46:53,770 --> 00:46:57,199 Speaker 2: eat up slowly into the share of gasoline and diesel, right? 782 00:46:57,209 --> 00:47:01,860 Speaker 2: So then you have greener alternatives. So, renewables uh definitely, 783 00:47:01,989 --> 00:47:06,500 Speaker 2: um and then we have nuclear energy and we have biofuels. 784 00:47:06,510 --> 00:47:08,290 Speaker 2: So all of these also growing from a, 785 00:47:08,352 --> 00:47:12,511 Speaker 2: from a small base at double digit growth rates, some 786 00:47:12,521 --> 00:47:15,832 Speaker 2: of them, no doubt, but from a small base, nonetheless, 787 00:47:15,940 --> 00:47:20,271 Speaker 2: I think energy efficiency um is also something that doesn't 788 00:47:20,281 --> 00:47:22,822 Speaker 2: get much talked about, but that is also making its 789 00:47:22,832 --> 00:47:26,791 Speaker 2: own contribution. Uh but also this will be a slow burn, right? 790 00:47:26,802 --> 00:47:31,362 Speaker 2: You won't see it making a sizable dent in, in 791 00:47:31,372 --> 00:47:31,721 Speaker 2: oil and 792 00:47:31,944 --> 00:47:34,364 Speaker 2: demand anytime soon. And at the end of the day, 793 00:47:34,373 --> 00:47:37,813 Speaker 2: it's simply demographics. So as you discussed at the start 794 00:47:37,823 --> 00:47:41,634 Speaker 2: of this podcast, you know, what we are seeing happen 795 00:47:41,643 --> 00:47:45,703 Speaker 2: in US and Europe, which are, you know, mature economies 796 00:47:45,714 --> 00:47:50,683 Speaker 2: but also mature societies and, and graying societies if you will. 797 00:47:50,914 --> 00:47:54,272 Speaker 2: Um well, China is also going down the same path. 798 00:47:54,543 --> 00:47:55,204 Speaker 2: Um you know, 799 00:47:55,295 --> 00:47:58,915 Speaker 2: what might have been unthinkable in just in the last 800 00:47:58,926 --> 00:48:04,935 Speaker 2: decade now is that Chinese analysts themselves, you know, analysts 801 00:48:04,946 --> 00:48:08,075 Speaker 2: at the state owned Chinese oil companies are talking about 802 00:48:08,085 --> 00:48:12,045 Speaker 2: peak demand in China within this decade. You know, some 803 00:48:12,055 --> 00:48:14,545 Speaker 2: of them say even in the next two or three years. 804 00:48:14,555 --> 00:48:18,635 Speaker 2: So I don't think that's, that's out of the question. 805 00:48:18,949 --> 00:48:21,330 Speaker 2: Um In which case again, then you'll be left with, 806 00:48:21,340 --> 00:48:24,189 Speaker 2: you're left with the question. So where is the next 807 00:48:24,449 --> 00:48:28,419 Speaker 2: um demand growth going to come from? But globally, I 808 00:48:28,429 --> 00:48:31,850 Speaker 2: can see that perhaps by the end of this decade 809 00:48:31,860 --> 00:48:35,060 Speaker 2: as a result of all of these shifts, um we're 810 00:48:35,070 --> 00:48:37,989 Speaker 2: probably going to see on a global level uh peak 811 00:48:38,000 --> 00:48:41,639 Speaker 2: demand perhaps by sometime by the end of this decade. 812 00:48:43,270 --> 00:48:48,239 Speaker 1: And I'm personally really compelled by the efficiency argument. And 813 00:48:48,250 --> 00:48:51,149 Speaker 1: to that point, last year, car vigor in the US 814 00:48:51,159 --> 00:48:54,530 Speaker 1: was not an V but a hybrid. Uh to the 815 00:48:54,540 --> 00:48:57,540 Speaker 1: Prius and the Japanese car manufacturers in particularly are making 816 00:48:57,550 --> 00:49:01,600 Speaker 1: the point that looking for a middle solution where we 817 00:49:01,610 --> 00:49:05,129 Speaker 1: don't completely forsake oil and gas, but at the same time, 818 00:49:05,139 --> 00:49:06,250 Speaker 1: try to improve emission 819 00:49:06,610 --> 00:49:09,339 Speaker 1: might be the interim solution we need before we actually 820 00:49:09,350 --> 00:49:14,060 Speaker 1: have the charging infrastructure and the clean electricity. Uh that 821 00:49:14,429 --> 00:49:16,879 Speaker 1: would only make sense that entire transition without that, it 822 00:49:16,889 --> 00:49:21,070 Speaker 1: would be a half made cookie, uh fantastic, uh great 823 00:49:21,080 --> 00:49:23,500 Speaker 1: uh tour of the world in both near term and 824 00:49:23,510 --> 00:49:25,840 Speaker 1: short term. Thank you very, very much for your time 825 00:49:25,850 --> 00:49:26,429 Speaker 1: and insights. 826 00:49:27,030 --> 00:49:29,120 Speaker 2: It was my pleasure. Thank you for having me, 827 00:49:30,090 --> 00:49:32,790 Speaker 1: but great to have you Andrea. And uh until next time, 828 00:49:32,800 --> 00:49:36,089 Speaker 1: thanks to our listeners and viewers as well. Kbe Time 829 00:49:36,100 --> 00:49:39,529 Speaker 1: was produced by Ken Delbridge from Spy studios, Violet Lee 830 00:49:39,540 --> 00:49:44,360 Speaker 1: and Daisy Sharma provided additional assistance. All 115 episodes of 831 00:49:44,370 --> 00:49:46,860 Speaker 1: this podcast series are available on youtube and on all 832 00:49:46,870 --> 00:49:51,469 Speaker 1: major podcast platforms including Apple Google and Spotify. As for 833 00:49:51,479 --> 00:49:54,429 Speaker 1: our research publication, you can find them all by Googling 834 00:49:54,439 --> 00:49:56,870 Speaker 1: D BS research Library. Have a great day.