BofA's Blanch Sees 'Long and Shallow' Oil Price War

Watch BofA's Blanch Sees 'Long and Shallow' Oil Price War - Bloomberg on Dailymotion

Transcript

00:00Good morning.

00:01Let's start with OPEC+, because I think that's been the main event for the crude market over

00:04the last several months.

00:05What's policy now, and what's the strategy behind it?

00:09So you could make a case that OPEC is trying three things at once.

00:14It's trying to increase market share.

00:16I think it's more of a Saudi thing.

00:18You could argue there is a discipline element to what Saudi is doing, because it's really

00:22driven by Saudi Arabia.

00:24And the third bit of it is, well, why now?

00:28Probably lower oil prices can help offset some of the upside pressure of inflation on

00:33US tariffs.

00:34So let's say it's Trump administration pressure to get those barrels in.

00:40So I think maybe the three of them are our objectives.

00:43But what's important about this strategy is that we believe this is not a price war that

00:49is going to be short and steep.

00:51Rather, it's going to be a price war that's going to be long and shallow.

00:55And it's going to be long and shallow for a couple different reasons.

00:58First, because in 2024, Saudi became a net borrower for the first time.

01:02Whereas the shale patch is actually in pretty rural health from a debt perspective.

01:06They don't really issue that much debt anymore, and they can flex their muscle up and down depending

01:13on where prices are.

01:15But the shale patch themselves have their own issues, right?

01:18Because the higher tariffs are also bringing up costs.

01:20Oil is steel on the ground, and steel is 50% more expensive than it was at the beginning

01:25of the year.

01:26So margins are coming in.

01:28Lower oil prices, higher steel costs.

01:30We are seeing a big drop in the rate count.

01:32And that's exactly what Saudi is trying to do.

01:34They have the lowest market share they've had in a very long time, not just against non-OPEC,

01:39but also, even within OPEC, Saudi has lost market share.

01:42They've done this price support already by themselves pretty much for three plus years,

01:49having this huge shale response.

01:51They're done with that.

01:52They need to get, it hasn't really worked, $85, $90 oil, six million barrels a day of exports.

01:59Not working.

02:00You want to get maybe lower prices with just more barrels.