00:00It's clearly significant. We've had a massive repricing in the oil market, I would just say, over the last couple
00:05of weeks.
00:06I think the market's really sort of moved from this sort of being overly optimistic that we get some sort
00:13of resolution in the Persian Gulf to now one where there's sort of no signal for sort of a resolution,
00:21right?
00:21And clearly the market's repricing that, not just repricing sort of a continued blockage of flows through the Strait of
00:28Hormuz, but also the potential for escalation, re-escalation, right?
00:33And what that means for, again, not just oil supplies through the Persian Gulf, but also from the Red Sea.
00:41Yes. What do you think markets are pricing in about the expectation for the duration of this war?
00:49There had been really baked in optimism that because the market, you know, was expecting some resolution to come swiftly,
00:58that that would indeed happen.
00:59What do you think markets are thinking now about duration as we're in the third month of the war?
01:04Yeah. I mean, we've revised higher-out forecasts just earlier this week.
01:09We had been maybe sort of more in the optimistic camp, thinking that we would get some sort of resumption
01:16in flows,
01:17at least gradually sort of through April or the end of April, clearly not happening.
01:21So our sort of new base case now is that we'll see a gradual resumption through May and June,
01:29but still remaining essentially below pre-war levels for much of the year.
01:34And under that sort of scenario, we're looking at an average of $104 for Brent over the second quarter,
01:40clearly looking at where the front month futures are trading at the moment.
01:45Clearly, the market's maybe not that optimistic at the moment and probably pricing in something that's sort of more of
01:51a,
01:52sort of essentially a full closure pretty much through till the end of May, I would say.
01:57Okay. What level of demand destruction do you get with oil prices at $104 a barrel?
02:05Yeah. So up until now, I mean, we've been estimating that we have demand destruction in the region of about
02:101.6 million barrels a day.
02:14Look, you know, we're estimating that we need to see potentially fill a shortfall as much as 9 million barrels
02:20a day.
02:20So clearly, there's still plenty of scope for more demand destruction.
02:26And clearly, these price levels are going to sort of ensure that we do see some more of that.
02:30But, you know, the big issue is if we really want to sort of fill that full shortfall through demand
02:35destruction,
02:36we're going to actually have to see even higher prices.
02:40The U.S. is exporting oil and energy.
02:44Can it continue to do so?
02:46I mean, it's importing some other grades of oil from Latin America, as we heard from our EME News Director
02:54Will Kennedy only earlier this morning.
02:56But how much can the U.S.'s exports fill any of the shortfall?
03:03I mean, it certainly helps the market, right?
03:05I mean, we look at the last few weeks, we've seen sort of back-to-back record exports, whether it's
03:10on the crude side or refined product side.
03:13So certainly, that is helping the market to a certain extent.
03:18But again, right, I mean, we're losing, in terms of flows, about 13 million barrels a day of supply.
03:25The U.S. exported a little over 6 million barrels a day of crude oil last week.
03:28So, you know, the potential to increase that drastically, to fill that shortfall is really not there.
03:34And then also, just from a production point of view, we're not really seeing any signs of a big ramp
03:39-up in U.S. oil production.
03:43So if you look at the rig count activity from the U.S., it's been largely flat over the last
03:48couple of months,
03:50suggesting that we're not going to see any imminent increase in U.S. crude oil outputs, at least not this
03:54year.
03:55I think any supply growth that we do see coming through from the U.S. is probably going to be
03:59more of a 2027 story.
04:01So a bit too late.
04:03But also, the volumes are not going to be that significant.
04:05I'd say that most you'd see is probably about half a million barrels a day of supply growth coming through
04:09from the U.S.
04:10So again, not going to fill that gap.
04:14How then well positioned is China to be, I suppose, to survive or to cope with this record oil price
04:22shock?
04:24Look, I mean, I think Asia, obviously, as a whole, is clearly quite exposed to what's going on in the
04:30Persian Gulf.
04:32You know, basically 80% of Persian Gulf flows or more that go from the Persian Gulf go into Asia.
04:40Now, over the years, we have seen China insulate itself quite well from any sort of these supply shocks.
04:47They've been building up inventory pretty well and significant rates over the last several years.
04:55Earlier this week, you know, you had refiners essentially calling on the government to allow for the export of refined
05:03products once again,
05:03because the stock levels when it comes to refined products, gasoline and diesel, are actually very comfortable.
05:11So I think from that perspective, China is actually quite well insulated relative to some of the other countries.
05:19Yeah, the largest oil and gas company in China reported by Bloomberg saying that they would make every effort to
05:25ensure that there are no domestic shortages.
05:28That's China's National Petroleum Corporation.
05:31Just thinking more broadly about the commodities complex, I mean, crop prices are rising.
05:37We've seen farm commodity prices hitting a two-year high this week.
05:41Food packaging costs are also increasing.
05:44How much do you think about that side of the commodities complex?
05:49Yeah, absolutely.
05:51Input costs for farmers are certainly increasing, right, whether that's going to be your diesel costs for tractors and transportation
05:57and also just fertilizer application, right?
06:00Fertilizer costs are going up significantly.
06:02And that's just sort of as we go into the spring planting season in the Northern Hemisphere.
06:07So certainly that's going to raise input costs.
06:10It's also going to raise concerns over yields if you start seeing farmers reducing the amount of fertilizers they apply
06:18to crops.
06:19So clearly that does leave upside to food prices.
06:23And clearly we're starting to see that feed through in some of those grain prices.
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