00:00We are seeing positive sentiment in the markets right now. Is it perhaps premature? How are you assessing the current sentiment?
00:08Thanks, Jennifer. Well, the oil market has almost the exact opposite reaction to improving relationship between the U.S. and China
00:14than the gold market does, as we were just hearing there in the gold price. The oil price, conversely, is up.
00:20And one of the reasons for that is that when you put demand for oil from the United States and China together,
00:26they actually account for nearly 40% of world oil demand.
00:31So any change in the relationship between the U.S. and China, particularly one that is supportive of economic growth
00:37and therefore supportive of stabilized or stronger oil demand, is going to have an outsized impact on the price of oil.
00:44Having said all of that, an outsized impact on the price of oil is just the kind of move you're seeing on screen here today,
00:49which is up about a half a percent.
00:50That tells you that the market is still dealing with some pretty significant overhang of supply issues,
00:56which are really in the background, keeping a lid on any positive reaction here.
01:01Do you think then, Dave, we'll see sort of a cap on some of the upside momentum for oil at this point,
01:08considering the overhang you just mentioned there?
01:11Yeah, there's a pretty significant issue in the oil market that suppliers are working their way through,
01:19which is OPEC Plus has been bringing production back to market at the same time that demand has been growing at a fairly moderate pace.
01:28This means that total available supply to the market is probably growing in the order of a combined one and a half to two million barrels a day
01:35over the coming 12 months, at a time when demand is really only growing by 800,000 barrels a day to maybe 1.2 million barrels a day.
01:42So you can see that there's almost twice as much supply coming to market as there is demand coming to market.
01:47And that and the background needs to be cleared by the market somehow.
01:51We can already see that inventories are growing for crude oil in the fourth quarter.
01:56That's not unusual.
01:57We're not surprised to see stocks growing.
01:59They usually do this time of year.
02:00But the market needs to find the clearing price, which will find balance again.
02:04That's, generally speaking, the price at which U.S. production would start to fall.
02:09So we still expect oil prices would fall below $60 a barrel after the turn of the year.
02:15That's what I was going to ask next, Dave.
02:17What is key to the price action moving forward?
02:22Is it potentially increased production from the U.S.?
02:25Is it demand in Asia?
02:26Is it OPEC Plus?
02:28How do you look into it?
02:30Well, generally speaking, demand is kind of growing at a subdued but stable rate of that sort of close to a million barrels a day level.
02:39So we sort of take that as a starting point for thinking through supply and demand fundamentals.
02:45The biggest wild card, Jennifer, is actually what happens with Russian supply into the market.
02:50This is the big wild card out there, which could turn the market on its head a little bit and put more of a bullish impetus behind prices.
02:57As I'm sure you've been covering, as most of the world's been looking at, the new U.S. sanctions on Russian oil suppliers is having a big impact on how people are thinking about supply.
03:08To give you an example of what that means, India consumes about 6 million barrels a day of crude oil, give or take.
03:13Around a third of that is supplied by Russia.
03:16So if India does need to scramble to find a fresh supply of, let's call it 1.5 million barrels a day of oil, and that starts to pull from other sources, and if that Russian oil effectively gets locked in, that would rebalance the market very, very quickly indeed and have a bullish impact.
03:33So the effect of Russia sanctions is the wild card right now, and where the market goes, we'll find out towards the end of November as those sanctions start to be implemented.
03:43What do you look for then?
03:45Is it waiting for the implementation?
03:47Is it more rhetoric out of the U.S. and other nations?
03:52Yeah, the implementation is the key there, Jennifer.
03:54I think that people are trying to keep their eye on the ball here, including our researchers and analysts, by not leaning too hard into the rhetoric, because the rhetoric is very strong and can be very distracting.
04:06It's part of the process.
04:07But at the end of the day, how those sanctions are implemented and how buyers of Russian oil respond to that is the key for where prices go next here.
04:17It's a complicated picture in the sense that not every barrel of Russian oil that gets exported moves on a ship is visible to the international eye.
04:28And so we won't see a full impact of these sanctions on total Russian exports, but quite how impactful they are.
04:34And particularly that Russian question into India of one and a half million barrels a day and what Turkey does, which is almost a half a million barrels a day.
04:44Those are the kinds of questions on implementation that we'll be watching very, very carefully.
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