00:00What would be your prediction, given the peace talks falling through or not succeeding to end the conflict, of where
00:07oil opens tonight?
00:09I think oil is going to open quite sharply higher, you know, in IG trading, if that's any guide over
00:15the weekend, it's already up 6%.
00:18You know, what surprised me in this market is this consistent belief.
00:24I would say a lot of the macro traders have that somehow there will be a resolution because the alternative
00:29is just too difficult to fathom, too difficult to kind of really think through and say, OK, what does this
00:37do to the global economy?
00:38I don't disagree with that, except that that's not the reason why the trade is shut to begin with.
00:43So we're in denial, essentially, about the ramifications of this?
00:47Absolutely. And I think Christina said that, you know, if this is a real supply disruption, it has been a
00:52real supply disruption.
00:54Pretty much since the end of February, across March, 10 million barrels per day of upstream production was shut in.
01:01That's rising to 13.13 this month.
01:05The damage has been done already.
01:07We've drawn down all the oil on water that was floating from Russia, somewhat Iran as well.
01:12All the buffer that, you know, people have been talking about, the oversupplied oil market, that has gone.
01:16Attacks on Saudi Arabia, the kingdom came out and also highlighted.
01:21Yes, they fixed a lot of those attacks already.
01:23That just goes to show how strong Aramco is and the amount of buffers they've built up.
01:28But the fact that there have been attacks reduces the volume of spare capacity available to the market going forward
01:33as well.
01:34So this is the biggest energy shortfall in history.
01:38And the fact that, you know, we're still talking about whether this is real or not.
01:42I think that's almost the problem we have, the discrepancy we are seeing in the futures market, like, you know,
01:47what you and I see on the screen, versus the physical price of crude oil.
01:51It's anywhere between $30 to $40 higher.
01:54And that's never happened before.
01:56My other question is, this is not like, even if they'd come up with a deal in Islamabad overnight, it's
02:02not like this is a switch they can just turn back on, right?
02:05You've got to get those ships that are still 20,000 sailors and mariners stuck in the Gulf.
02:09You've got to get them out.
02:10And then you have to be brave enough to get suppliers who are willing to go back in when a
02:15deal could potentially fall apart again.
02:17So, Amrita, I'm wondering what the difference is between the straight being, we've said this over and over again, nominally
02:22open and functionally open, and if that's going to impact price, if insurance rates, if what you have to pay
02:28people to be willing to crew these ships goes up, even if the straight returns to a faster tempo, is
02:33that going to reflect in oil prices and futures as well?
02:36I think you've literally hit the nail on the head.
02:39And that's why I said at the start, right, I find it fascinating so many people are considering this to
02:44be binary.
02:45It's open or shut, but it's not.
02:47It's anything but binary, right?
02:49Like, first and foremost, like you said, the cost, right?
02:52The cost of getting a ship in.
02:54When the ceasefire first happened, we found out from certain sources that the quote that a ship owner was giving
03:00them for a ship to go in was $40 per barrel compared to $6 per barrel outside of the straight,
03:07right?
03:07$40 per barrel, that's even before insurance.
03:10And imagine the cost of doing that.
03:12Basically, everything then just gets more expensive.
03:16And nobody wants to be the first one to get their vessels in.
03:19The vessels out, you could argue, slowly, but surely they will get out if, you know, whenever that is, we
03:26get some form of a ceasefire that is, that holds, not the one that's right now, where Iran clearly has
03:31complete leverage over this trade right now, right?
03:34So it is going to be a very gradual process.
03:37There's the rumors about mines.
03:38I think that's going to make commercial shippers extremely anxious as well, because you don't want to necessarily take the
03:44risk.
03:45So I think there's a whole host of factors that we need to consider.
03:48Also, production takes time to bring back up.
03:51It could be months for certain countries like Iraq, certain fields in Kuwait.
03:55We've got satellite data, and we're very privileged to have that through Keros, and we can see that actually tanks
04:02across the countries are not full.
04:04At best, you have five to six days of inventory cover.
04:08So let's say, best case scenario, you get six days' worth of quote-unquote flows.
04:14Then what happens?
04:14It will still take weeks and months for production to come back.
04:17So then there will again be a gap, right?
04:19So this whole normalization, even in the best-case scenario, is months away.
04:24Amrita, we're going to be speaking with former National Security Advisor under President Trump, former U.S. Ambassador to the
04:29UN, John Bolton, a little later in our program.
04:31And he said that the U.S. should blockade the strait, allow no Iranian oil out at all until Gulf
04:39oil can transit safely as well.
04:41He also talks about military force being used to open the strait.
04:46You're nodding.
04:47Is that where this goes?
04:48Is that ultimately what happens?
04:51No, I'm nodding because I've heard what he said.
04:54Look, I mean, this is the most complicated picture right now, right?
04:58That the fact that the strait wasn't secured is what has given Iran the biggest leverage it's had over 40
05:03years.
05:04And our view going into the weekend, A, was the fact that, you know, deal or not in the sense
05:09that this is not going to get resolved in two weeks' time.
05:11It's going to take a lot longer.
05:12And we still are of the view that Iran is more likely to give in on some of their nuclear
05:19issues given, you know, their nuclear capabilities have been heavily depleted versus the strait.
05:25The strait is their leverage.
05:26So, yes, look, I think there's been a lot of chatter in the market about how the U.S. has
05:31allowed Iranian oil to flow.
05:32But I'll also say that this has gone further because the U.S. has also given waivers to allow Iranian
05:39oil that's floating to be bought by buyers.
05:42So, and that is money that's going back to the Iranians.
05:45I think this is fundamentally the issue, right?
05:48Yes, the U.S. is the biggest producer in the world, and we are not expecting shortages outside of maybe
05:54the West Coast.
05:55But U.S. policymakers have to appreciate this is a global market, and this kind of a blockade does mean
06:02high domestic prices.
06:03I think that's where the conflict is, so as to speak, within the U.S., right?
06:07If you don't want to allow oil prices to go up, that's why, you know, things like Russian oil and
06:13water is being allowed, Iranian oil and water has been allowed,
06:16even Iranian ships are being allowed, because whatever you can flow to get, quote-unquote, oil prices down is being
06:22okayed right now.
06:24And that's why we have this discrepancy.
06:26I also want to ask about the possibility of a toll, the big fear from a lot of EU and
06:31global allies.
06:32And we were just talking with our White House correspondent, Jeff Mason, about this, is that the president, who keeps
06:38saying over and over again,
06:39the U.S. doesn't need the strait, which I think you can debate, will pull out of this conflict, which
06:44some sort of nominal deal,
06:46something that lets him save face, claim victory, and leave the strait in a worse strait, pardon the phrasing, than
06:53it was before.
06:53And Iranians could functionally enact a toll.
06:57What would that do for oil prices globally?
07:00And is that something people in the industry are factoring in?
07:04That is genuinely one of the worst-case scenarios in terms of what could come out of this situation.
07:10There is no way we see the GCC agreeing to this.
07:14Look, ultimately, over the next few years, we will have alternative routes, right?
07:17New pipelines will get built.
07:19But these things take time.
07:20It's a huge region.
07:21It's going to take five, maybe ten years to normalize that.
07:23But the right here, right now, for the next three to five years, will then just mean much higher oil
07:29prices as a steady state, right?
07:31Sure.
07:32And oil should be even higher today.
07:33Like I said, the physical price is at $150, and futures prices are about $100.
07:38So even if the futures prices catch up, what I'm talking about is, say, months from now, if that becomes
07:43the new reality,
07:44which, again, I'm struggling with, given the GCC is not going to agree to it.
07:49You just have to have a floor of maybe $80 to $90, even $90 to $100, because now you need
07:54to start taking those things into account as just the cost of doing business.
07:58And that may not be a fight Iran really wants to pick, right?
08:01That's levers that they're using.
08:02But do they really want to go up against Saudi, UAE, Qatar, Oman, all these exporting countries that would not
08:07be able to tolerate this?
08:08Yeah, I mean, to your point, we had Eddie Fishman, the author of Choke Points, on last week, and he
08:12threw out a number that was pretty mind-boggling,
08:14$100 billion in revenue per year if they charge $2 million per ship.
08:19Wow.
08:19That's serious, serious money.
08:21Listen, speaking of money, if we look at the futures curve for oil right now, going to December, $82 a
08:29barrel.
08:30In your view, does that accurately reflect what you think prices will be?
08:34No, but, you know, this has been such an interesting and yet challenging market, including for traders, right, to trade
08:40this, and for any policymaker or decision-maker, CEO and otherwise,
08:44for the simple reason that the way futures works, right, we tend to trade a month and a half or
08:50two months further out, right?
08:51For Brent, we are now trading June, but we are in April for WTI.
08:55We're trading May, but soon to be trading June.
08:57The problem we have is everybody is reflecting what is going on right now at the very prompt.
09:03That's why physical crude is trading at those crazy premiums.
09:07Further out, nobody knows exactly what this trade is going to look like, but people are not willing to deploy
09:13risk either to bid that up,
09:14because the general narrative still is the U.S. doesn't want or will not allow high oil prices ahead of
09:21the midterm.
09:21The realities are very different, and what we continue to see is as those contracts become prompt, it just keeps
09:28rolling up, right?
09:29That's effectively been the trade.
09:30It's a roll-up trade, as we would call it.
09:32I don't think $82 further out, sure.
09:35Look, if we get a massive recession to balance this, that's a different situation,
09:38and I do think the risk of that is rising every single day.
09:41But in general, prices just need to be higher than that $82 going forward.
09:45I don't think the risk of that is rising every single day.
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