00:00With more, let's bring in Peter McNally, Global Head of Sector Analysts at the research firm
00:05Third Bridge. Thanks so much for being with us on the programme. As we say, G7 finance ministers
00:11saying a little earlier that they're prepared to implement necessary measures, as they put it,
00:15in response to surging oil prices. Now, those oil prices, they have dropped somewhat since
00:21Donald Trump reassured the world in his words that, you know, the US was very close to winning
00:27this war. Difficult to know exactly what's happening there. But talk to us about what
00:31the G7 nations are actually likely to do in your view, Peter.
00:38Well, I think it's something we want to wait and see first and how this plays out. It's the duration
00:44of the outage in the Middle East is going to be the biggest factor. And that's something we still
00:49don't know yet. And it seems to change every 12 hours. You know, last night, you know, the election
00:56of a new supreme leader was viewed as very hawkish, you know, and for a longer period or a longer
01:04conflict was likely to occur. But now Trump in the last few hours seems to have indicated that
01:09things will calm down. So I think it's a little early for the G7 countries to act with strategic
01:15reserves. But now those reserves are lower than the last time we had a supply crisis, you know,
01:20four years ago after the invasion of Ukraine. So more wait and see.
01:25And Donald Trump as well expected to perhaps review as early as today, a set of options to
01:30tame oil prices after making those comments a little earlier. How do you exactly expect him
01:37to act? Do you think that, you know, what kind of options are open to the US here?
01:43In the short term, very few. I mean, the only thing that's going to regulate is high prices
01:49will kill some demand. This was supposed to be an oversupplied market in 2026, for sure.
01:57But, you know, now that is cooling off quite a bit. US oil production is kind of flattened out here
02:05over the last 12 months and drilling activity is down pretty significantly because the prices
02:11have been weak. But, you know, all of the world's spare capacity has been in the Middle East. And
02:17now that's effectively off. And even the base of production is now being called into question. So
02:22really, in the short term, there are very few things that politicians can do to drive the oil
02:28price down other than make demand go lower. And even in the highly unlikely event that the war
02:34were to end immediately, how long would it take then to return to normal deliveries?
02:42Well, that's the thing that we don't know just yet. And I guess if there are two questions that
02:47that we still have is what are the export capabilities for oil in all of the Gulf states,
02:53particularly Iran, it seems to be, and then how quickly natural gas production can ramp back up and
02:59in Qatar. And that's a that's going to be a bigger issue for power prices, particularly in Europe.
03:05Now, Europe has become more dependent on importing natural gas from outside the continent, both here
03:11where I'm in the US and from the Middle East. But it's going to take certainly at least a few
03:19days,
03:20you know, if things do calm down to have a real better sense of what export capabilities look like.
03:27And Peter, the EU saying there's no imminent oil supply shortage. All of this, though,
03:32it really underlines how closely energy security is actually tied to national security. How concerned
03:39should we be here in Europe? Well, you know, in the short term, inventories are plentiful. If we look
03:47across the OECD, I mean, today, it's about 2.9 billion barrels of crude oil and and refined products,
03:55you know, compared to where we were four years ago when Russia invaded Ukraine, it was only 2.6.
04:00And at that point, you know, there was talk of $200 oil. And I think the price, you know,
04:05the price of Brent reached $139 intraday. You know, we're just not in that tight of a situation,
04:14you know, right now. So, you know, leaders at least have a few weeks to figure this out. But if
04:1815 million barrels a day don't get through the Strait of Hormuz, that excess inventory that the
04:26developed world has will evaporate pretty quickly, you know, probably in about three weeks. So,
04:32you know, so far that will be the big thing to watch.
04:35And how diversified then is the global oil and gas system overall compared to the way it was back
04:42in the 1970s, for example? Well, the oil system is certainly far more diverse. And one of the
04:50big drivers, you know, of the oversupply in recent years, we point you towards South America,
04:56Brazil, Guiana, Argentina are all growing. You know, the United States had decades of declining
05:02oil production that started to reverse in 2009. And now here we are, we're the largest oil producer
05:09in the world. Canada has continued to grow and they have more export options. There's some exciting
05:16things coming longer term in West Africa that could be interesting. So the problem is, though,
05:23so much of the Middle East oil goes through one choke point there in the Strait of Hormuz,
05:29and it's still important for global markets. Most of it, most of that oil ends up in Asia,
05:34Asia. But it really is a global market. And in the short term, it's just difficult to manage
05:40the logistics when something like this happens, you know, frankly, out of nowhere.
05:47And do you think then that Asian buyers would be likely to outbid Europe, for example,
05:51for any gas that does become available?
05:55Well, you know, in towards the end of 2025, China in particular have been stockpiling oil,
06:03as noted, you know, noted earlier, inventories have been climbing for some time now. And that's
06:10one of the reasons we've actually had low prices and lower drilling activity over the last few years.
06:16And again, you know, the market was expected to be oversupplied. So in the short term, there is a
06:22cushion of inventories, you know, anywhere, but that can quickly reverse given what's been going on in
06:28the Middle East. And Peter, how exposed is the United States to an oil price shock? Donald Trump
06:33coming under a little bit of criticism for failing to refill reserves?
06:41Well, you know, the oil price, you know, will flow through transportation costs. And it's part of a
06:47bigger affordability question that we have here. I mean, electricity prices, which are not driven by
06:53the price of crude oil have been going up. And, you know, tariffs have had an impact on food
07:01here in the United States. So the cost of driving is certainly going up in the next few weeks. You
07:09know, we're already seeing it, seeing it at the pump. And that's really important to consumers.
07:15Peter, we'll have to leave it there for now. Thanks so much, though, for being with us on the
07:18programme this evening. That's Peter McNally, Global Head of Sector Analysts at the research
07:23firm Third Bridge.
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