The Oil Surplus Expands

Bloomberg

18 hours ago

Transcript

00:00There have been these long-held predictions that the surging production is going to push

00:05the market into a surplus. From your view, where are we at right now? Are we at some sort of tipping

00:10point? Great to be with you, Kayleigh. We are. You know, we're like a bunch of folks at the beach

00:16who've been hearing on the radio that a tsunami is coming, but kind of questioning if it's coming

00:21or not. Now, RapidAnne is predicting or forecasting, to extend the analogy, a tsunami for quite a

00:27while. And we're starting to see it on the horizon. But it's a good news story for consumers,

00:33whereas a tsunami is a bad news story for bathers, right? We're about to cross through $3 a gallon.

00:39It's by some metrics we already have, according to GasBuddy. And, you know, if you think about it,

00:44President Trump never was above $3 a gallon in his first term. We got close. So he enjoyed

00:50a $2 pump price in his term. And the White House is just overjoyed because, you know,

00:55whether they deserve it or not, a sitting president gets the blame when gasoline prices

01:00get up, go up, and it gets the joy and the congratulations and the benefit when they go

01:07down. And barring a geopolitical disruption, the way my colleagues and I at RapidAnne look

01:13at the markets, we think gasoline prices are more likely headed down further into that $2

01:17range on a national average.

01:20Wow. That's something, Bob. It's good to have you back. And I appreciate it. I'm looking at your

01:24note to clients, predicting daily prints in the 40s by early next year when it comes

01:30to crude oil. You just mentioned where we're going in terms of gasoline. You know, as Tyler

01:36mentioned a moment ago, we're looking at increased production levels. But this isn't because of

01:42drill, baby, drill, right? This is because of many other outside factors.

01:47You know, you're right. We are quite bearish in the near term. But I want to hasten to mention,

01:52Joe. What we're telling clients is brace for the great crude steepener, like a steepening yield

01:58curve. Near term, we've got supply growth running three times faster than demand growth. And that's

02:05only partly a U.S. story, as you said. That's an Argentina story. That's a Brazil story. Brazil

02:11adding almost as much as the United States. Guyana. But near term, we have a glut. But, and I hasten to

02:17say, but in the medium term, this market is going to tighten it up. So we're telling clients, prepare

02:22for this. Consumers enjoy it. We're going to go down. But then in the coming years, we're going to

02:27go much higher. We think we're going to go into a tightening market. But politics are always about

02:31what's tomorrow. And tomorrow is likely to see a deluge of oil. And we have to ask ourselves, Joe,

02:37what stops crude oil prices falling in the 40s? And we think either OPEC plus has to step up and cut

02:43production. They've been raising it. Or President Trump has to follow through. And he may feel he

02:48has the ability to do that by restricting Russian or Iranian oil exports with tough sanctions instead

02:54of weak sanctions. And Joe, if neither OPEC plus nor President Trump and sanctions remove a lot of

03:01oil next year, it's the U.S. sales sector that's going to take it on the chin. And we'll have an echo

03:06of 2020 when the price will fall further to shut in shale wells. And that will not be a happy story.

03:11President Trump did not enjoy 2020. Gasoline was at 170 a gallon. The president was not happy,

03:17though, because we were shutting down U.S. production. Well over 2 million barrels a day

03:20shut down in a few months. Wow. Well, Bob, let's build on one of the geopolitical risks that you

03:26just mentioned, which is, of course, Russia. How are you watching this as you hear President Trump

03:31say that he's expecting to have potentially this meeting with Vladimir Putin, Zelensky saying that he

03:37also wants to come to the table? How is the calculus changing here day by day as we await for

03:42any sort of developments towards a ceasefire there? Yeah. You know, we've learned with President

03:48Trump, he has an M.O. with these negotiations, and you have to take them pretty seriously.

03:52Consider Iran just as a template for what we're about to see with Russia. I think he could have

03:56signed a deal with Tehran. He could have lifted sanctions. He could have opened an embassy had they

04:02agreed to a deal, but instead he became the president who ordered an aerial attack on the

04:06Fordow facility. I don't think any of his predecessors would either have done a deal

04:10or ordered an attack. He can go either way. With Russia, it's the same way. I think if President

04:15Putin doesn't agree to a ceasefire here, and President Trump's going to go the last mile

04:19and then a few hundred yards after the last mile for diplomacy. He really doesn't want to

04:23drop the bomb here, if you will, figuratively now speaking. Now, if they don't get to a deal

04:29in the coming weeks, I think the president is ready, this White House is ready, along

04:34with the Europeans, to impose tough sanctions on Russian oil, to do what they were unwilling

04:39to do in 2022, which is actually cut into Russian production and risk higher oil prices.

04:45Again, going back to the glut we were just talking about, if the president sees and the

04:49White House sees this glut develop, he'll be more willing to really crack down on India,

04:54Turkey, even China, and shut in Russian production, more willing than his predecessor

04:58was in 2022. So he can go either way, either a deal with Putin, or I think very tough sanctions

05:06here down the road.

05:07Well, as you predict an oil tsunami, Bob McNally, I wonder what that means for refilling the SPR.

05:14Should we not be bidding right now on 50-something dollar a barrel, or to your point, eventually

05:2040-something dollar a barrel oil?

05:22Absolutely, Joe. And it's just a shame. And I think there is bipartisan consensus, even.

05:29We should be doing that. The problem is the money. When I was working for President Bush,

05:34we had authority to do what we call a royalty in kind program. Didn't have to ask Congress.

05:39We just said to those oil companies producing oil in federal waters, hey, pay us in oil instead of cash.

05:45And we filled it for the only time to the top. But Congress took that authority away. So I think

05:49one thing Congress should be working on with the president is either get that authority back so we

05:53can start taking those royalties in oil and fill it up that way, or even better, appropriate the

05:58money. We can't even open the government, as you've been talking about all day. But if we open the

06:02government, it'd be great if we could pony up some money and refill the SPR. Absolutely.

06:08Bob, in the final minute that we have with you, we had reporting out from Bloomberg News this

06:12weekend that India is actually making progress when it comes to a trade deal with the U.S. We've

06:18heard President Trump suggest that India could abandon its imports of Russian energy supplies.

06:24Of course, 25 percent of the tariff currently in place against the country has to do with its

06:29imports of Russian energy supplies, the so-called secondary tariff. But in your view, how realistic

06:34is this? Is India going to move away? I think they will. You know, India took no Russian oil,

06:40remember, before President Putin invaded Ukraine, and now has become the biggest customer. And of

06:46course, India has been having a wonderful time enjoying cheap, discounted Russian oil. Who

06:52wouldn't? Who wouldn't enjoy a 15 percent discount on pump prices if you can get it over your neighbors?

06:57However, if forced to choose between enjoying this discounted Russian oil supply, on the one hand,

07:04or having economic relations and trade and so forth, much less stable political relationships,

07:09with not only the U.S., but the EU. The EU has some tough sanctions coming in on India in January.

07:16I think India will side with maybe letting go of that enjoyable discount and preventing a sort of

07:22worse and more costly trade measures on the other side. It's a cost benefit, and I think they'll

07:27quietly, they won't enjoy it, they won't say it publicly, but quietly, I think they'll move away from Russia.

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