00:00Sarah, we had that initial spike of up 13 percent. We've now pulled back. We're only up around, well, still
00:06up around six and a half percent. What do you make of the price action so far?
00:12Well, it's natural that the market was calm before the weekend and then during the weekend, all the geopolitical headlines
00:21and shocks have been built up.
00:23So definitely the market would open at higher risk premium. The traders would open it at a higher risk that
00:31has been built to catch up with the events during the weekend.
00:37And this has been a significant event since in the past few years that market has been seen.
00:45But something that is important is that market has adjusted itself. And something that we have to bear in mind
00:52is that something that is different this time from 1970s, let's say, is that most of the trades and the
00:58paper market are done by algorithms.
01:00And our algorithms are very quick to adjust the prices and risk premiums within hours rather than previously within days
01:08or weeks.
01:08So we see that price adjustment and risk premium adjustment happening much faster with the algorithm pricing and the machines
01:18are faster.
01:20Interesting. Interesting. Sarah, do you see prices holding up at these levels, i.e. this price shock that we got
01:28to oil? Is it likely to be sustained over the foreseeable future?
01:32So as of now that the market has opened, we don't have any missing barrels, which means there hasn't been
01:39any physical disruption of the barrels.
01:44There hasn't been actual closure of the Strait of Vermeule or attack on the infrastructure, oil infrastructure.
01:51However, definitely the market perceives a threat of flow.
01:56There is three main threats on the barrels. The most significant ones is the flow of oil through the Strait
02:03of Hormuz, the corridor, because most of the oil, 20 million barrels per day of the seaborne oil from the
02:11region passes through these straits.
02:13So that's the largest. And then also the threat of attack on physical energy infrastructure in the region.
02:21However, that threat has not been materialized yet. Nevertheless, we see that already the tanker movements in the Strait of
02:29Hormuz has been significantly reduced due to the significantly increased insurance.
02:35Tankers, many of them are not willing to go through this corridor.
02:41The rates of shipping has already been increased, a lot of rerouting.
02:45And so far, really, we could say a lot of Chinese tankers are moving.
02:48So something that the market perceives is that usually it doesn't feel rational for Iran to close the Strait of
02:57Hormuz because they have the import of the crucial goods, like crucial food for them.
03:03It also spikes significant retaliatory attacks on its infrastructure.
03:10But also, majority of this oil goes to China and India.
03:14So we turn them against the country.
03:18Yeah. Yeah. Sarah, I don't know if you had the chance to read a column that Bloomberg Opinion columnist Javier
03:25Blas put up yesterday.
03:26And I thought he made a very, very salient point that this time around, the capacity of the world to
03:33absorb an oil shock emanating from the region is a lot higher,
03:37namely because of the shale revolution in the U.S.
03:39And the fact that shale really has changed the nature of the industry, the U.S. are a lot less
03:45dependent on the supply of OPEC oil than they have been in the past.
03:50Do you think that, to a certain extent, is cushioning the extent of the price reaction that we're getting today
03:56in oil?
03:58Of course, because we have a significant oil exports that going from different locations doesn't pass through this Strait of
04:07Hormuz.
04:07So we have a diversity of supply.
04:09But something else that is very important is that China's demand and the stockpile that China built.
04:16At this time, perhaps one of the reasons that prices adjusted to kind of a lower risk premium from the
04:24opening of the market is that we have plenty of inventories around the world.
04:29If we think about the attack on Saudi facilities back in 2019, Saudi Arabia was able, even though its facilities
04:39have been under attack,
04:41has been able to, during the month that they were repairing the facilities, to continuously supply their customers through the
04:52inventories and the storages that they built around the world.
04:56But also we have OECD inventories.
04:58We have a strategic petroleum reserves.
05:00We have commercial reserves.
05:01But thinking about China, part of that Chinese import today is for stockpile, which they can't afford and not importing
05:12at that level.
05:15But also they have already built a huge stockpile in the past couple of years.
05:20So China has the ability that its inventories, both the commercial, strategic and also the teapot refineries,
05:26to absorb a shock if it's, let's say, a week or two of closure of Strait of Hormuz in terms
05:31of the import from China.
05:33However, Asia and Asian markets are going to bear this risk higher because the shale oil has a different quality
05:42from the oil that is exported from the Strait of Hormuz.
05:46So that's all you need to be able to bear this risk of stopping the oil.
05:46So now we'll be able to bear with us.
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