00:00You called this the worst energy crisis of our lifetimes and said the level of complacency
00:04is astounding. Why is this so bad? What are we missing?
00:09Well, I think what the market is missing is the West is really yet to feel the true impact. When
00:14you read stories about product hoarding, you read about operators of gas stations being shot dead
00:20because they ran out of product in India and was unable to fill up cars. You hear about fishing
00:25boats in the East not being able to fill up because the economics of going out and fishing
00:28just don't make any sense. We see the world through a Western lens and yet this is a global
00:33crisis. When you think about the true impact, like the Strait of Hormuz, people may say this
00:38now, but no sober mind ever thought that it could ever actually be impeded because it was
00:43just too critically important. Roughly 22 million barrels per day of oil and product were flowing
00:48prior, which is obviously massive from a global context for oil. We know LNG, 20% of global
00:55flows as well. And so when you consider that global oil production today is down about 11
01:01million barrels per day, it's forecasted that between barrels already lost and those yet to be
01:07lost, we will lose about 900 million barrels in Middle Eastern production this year. Contrast that
01:14to COVID, you know, the biggest demand shock in history and demand fell about 870, 880 million barrels.
01:19So it just puts things into perspective and yet the market remains very, very complacent, both
01:25on the near-term impact and also the long-term impact of it. Okay. So let's talk numbers here
01:30because I, GLC go on the Bloomberg terminal. I look at global commodities right now. Uh, Brent
01:3611437 WTI 10410 right now, what prices should those be to reflect what you say is this supply shock?
01:46Well, let's walk through where we're going that we can answer the question more intelligently. And so
01:50where we sit today is there are safety buffers that are being used up in real time. We've had the
01:55unsanctioning of Russian barrels, floating storage. We've had the unsanctioning of Iranian barrels.
02:00We have a very modest SBR release globally, but it's all a rounding error relative to the context. And so
02:06it's just as those safety buffers use are used up and you hear more and more about actual physical
02:12shortages. Like it's not going to be a matter of price. It's a matter of is, is the product, is
02:18the barrel
02:18of jet fuel, is the barrel of oil actually available? That is when I think you will see a bridging
02:24of the
02:25paper market and the physical market. The paper market we know is 50 times bigger. It's been suggestive that
02:31perhaps at least in the WTI market, the invisible hand of government may or may not have been involved in
02:36terms of
02:36where we're going. If the trade does not open and we need to kill demand, past scenarios would be when
02:44about 5.5% of the global economy, global GDP is being spent on oil. That is when the onus
02:51is too
02:51great and you see real demand destruction. That in today's measurement would be about $177
02:58per barrel. That is where we're going if the trade is not opened.
03:02All right. Wow. $177. A lot of ifs though, right? And this is where we are and this is what
03:06makes it
03:06so difficult to kind of figure out short-term versus long-term impact. At this point, how are you
03:15advising investors to position within the energy patch that this is a longer-term problem and
03:20situation or no? And I'm just curious what you're hearing from those players in the energy, whether
03:26it's the ENP space or whether, you know, whatever it may be, are they ramping up because they're
03:33seeing that they're going to have to, to meet demand because of the destruction in the Middle East
03:37or what? Like help us kind of figure out the picture here.
03:41You bet. So energy investors should never buy energy stocks based upon a geopolitical
03:45spike. What I'm really focused on is what I call the day after, you know, the straight is going to
03:50open. It's just a matter of time and the assets required from either the U.S. military,
03:54whatever coalition is forming, it has to be opened. And so what does the oil market look like? What
04:00does the energy market look like after that? What I think people are not understanding is that coming
04:05into 2026, it was anticipated by most that we were facing the biggest glut in history. That is no more
04:11just given how much oil production we have lost and in the read-through that that is having on
04:18inventories. By the end of this month, we will be approaching multi-year low levels from an inventory
04:23perspective. The second is I think there's going to be the introduction of a permanent
04:28political risk premium in the oil price of at least $10 to $20 per barrel. That is enduring because
04:34the market's focus rightfully shows should be on, you know, OPEC spare capacity. We thought coming
04:39into this event was about 1.5 million barrels per day. Much of that was behind the straight. You know,
04:45Saudi Aramco through Herculean efforts have increased exports out of the Red Sea. But again,
04:49that's a rounding error relative to the total impact. And so it may be true that OPEC has
04:54spare capacity, you know, that safety buffer. But in the future, it can always be impeded once
04:59again with a mere $30,000 drone. The last impact I think is on actual curtail production. I mentioned
05:05we're down about 11 million barrels per day. It's going to be country specific. Kuwait said it will
05:10take three to four months for them to fully ramp. There's a lot of concern in Iraq, which has gone
05:15a full
05:15force majeure, that there's over a million barrels per day of production that could be subjected to
05:21below surface reservoir damage. And so the fear is maybe there's permanent or semi-permanent loss
05:28of productive capacity whenever this comes on. And so, you know, this notion that the straight opens
05:33up, oil falls to $60 and we, you know, energy stocks fall, I really think is naive. The past is
05:39not going to equal the present and there's no new normal. There's, there is in fact, a new normal
05:43to go to now. Is part of the new normal going forward though, a hostile Iran going forward and
05:49a Strait of Hormuz that is maybe problematic? Or do you think after this is resolved and whatever that
05:55looks like, that it is a place where there can be safe passage of vessels? I think you'd have other
06:03guests who can more intelligently pontificate on that. I think it's clear that Iran has weaponized
06:09energy. It means that the most critical straight for flows for LNG and oil on the, on planet earth
06:15are now a lot riskier than before. And so that's why I think at least a 10 to $20 political
06:20risk
06:21premium is relevant and likely. It also places emphasis, and I'll be accused of home team
06:27advantage here, but being in Canada, but those countries with long dated reserves in politically
06:33secure areas with adequate takeaway capacity, I think the value of those reserves have become
06:39wildly more valuable.
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