00:00Well, if you look at how we've been draining the inventory stocks, we've been draining commercial stocks.
00:06The U.S. has also been draining its SPR at a very rapid rate.
00:10And so if you look at all of the oil that's actually off the market from the Middle East because
00:17of this stoppage,
00:18and then you look at the rate at which we're still using oil, we're draining our inventory stocks, really oil
00:24prices should be much higher.
00:26They're pricing in all of this expectation that there's going to be a piece deal, you know, right around the
00:33corner.
00:34And at a certain point, we're going to drain our inventories.
00:38They're going to be essentially gone.
00:40OK, and then what are we going to have left to fall back on?
00:44And so at some point, there has to be some kind of a price rise to accommodate for that.
00:49And, you know, the question is really, when are we going to see that?
00:54I think we've seen Exxon and Chevron saying it's coming pretty soon.
00:57Other people say maybe July, maybe not until late July, definitely by August.
01:02But it does seem like there is a great disconnect here and that because prices have really remained below 100,
01:09we're not seeing the kind of demand destruction that we would need to see, given how much supply is actually
01:15off the market.
01:16Ellen, is there an expectation that there will, I'm not going to say always, but for the foreseeable future,
01:23be a risk premium for any of that energy that comes out of the Middle East that you just really
01:28cannot get comfortable with the Strait of Hormuz no matter what peace agreement comes?
01:33I believe right now we are in a we have fundamentally changed the way that oil flows out of the
01:39Persian Gulf at this point,
01:40because, you know, if you just take the Bab-a-Mandam Strait, for example,
01:44and not even nearly that much oil actually went through the Bab-a-Mandam because the Suez Canal can't even
01:49handle the largest crude carriers.
01:52Traffic, marine traffic has never returned to where it was after two and a half years after these Houthi attacks.
02:00Now we've got the Strait of Hormuz closed. That risk premium is never going to go away.
02:04Combined with the fact that we're now going to see Gulf oil countries, we're going to see them building more
02:10pipelines.
02:11They are going to see pipelines as a national security imperative, whereas before it was something that might be nice
02:18if, you know, you had the money to do it.
02:20Now it's a national security imperative. And so I do think that that oil flows will be forever changed because
02:26of this,
02:27because no matter what, there's always the idea that this could happen again.
02:31When you say that pipelines are a national imperative, who is that good for? Who gets left out?
02:40Well, so that's an interesting story because Saudi Arabia and the UAE have been in a relatively good position because
02:46they'd already built pipelines.
02:48They're definitely going to be building more at this point to bypass the Strait of Hormuz.
02:51But then you've got countries like Iraq, Bahrain, Kuwait, Qatar that are basically trapped.
02:58Iraq has a small pipeline that goes up to a Turkish port, but Iraq can start investing in pipelines.
03:04Iraq has more options. They can go, you know, all the way to Syria, potentially.
03:08Maybe they could go through Jordan to the Mediterranean and ship oil through there.
03:11You're going to have countries that are going to invest in oil storage all around the world just so that
03:18they can keep commercial stocks available the next time this happens.
03:23But really, Kuwait, and I would say Kuwait, Bahrain, Iraq, and Qatar, they're really in the worst position, and they're
03:31going to have to work together.
03:32They're going to have to have deals with other countries, with Oman, with the UAE, potentially even with Saudi Arabia,
03:38to secure pipeline access so that their crude, or at least a portion of their crude and their natural gas,
03:45can continue to flow the next time this happens.
03:48Is there a risk that that whole part of the world, the Middle East, the 20% of oil that
03:53flows through the Strait, that they lose market share to other producers around the world?
03:57That, you know, as a buyer on the margin, I'm not even going to talk to these guys in the
04:01Middle East.
04:02So that's a possibility, but they always have the potential to lower their prices.
04:07Remember, these are big state oil producers.
04:10A lot of them are fairly well capitalized, particularly, say, the UAE and Saudi Arabia.
04:14And now there's an opportunity for these other producers to act in similar ways, to buy up storage capacity, to
04:21build storage capacity.
04:22Look, Saudi Arabia, Aramco, has storage facilities in Egypt, for example.
04:26They have storage in Japan.
04:27They have storage all over the place, and that provided them with a great buffer to continue to be able
04:33to supply customers.
04:35They can't necessarily change the price of oil, although, you know, they can act through OPEC to impact it.
04:41But they can make it so that they have more built-in redundancies to be able to continue supplying their
04:48customers with oil,
04:49which in turn then, you know, makes their revenue more secure.
04:52What are the U.S. producers saying, Ellen, about their production goals in the, I guess, the short term and
04:59the longer term?
05:01Yeah, that's a really great question.
05:02I think we've seen some growth in terms of more wells, but not a whole lot.
05:07The question is really, I think producers are looking at these oil futures prices, and they're saying, hey, look, these
05:15prices, yeah, they're higher, but how long is this 60 percent increase going to remain?
05:20Is it worth it for me to, you know, diverge from this capital discipline that we've been practicing that has
05:27been so profitable, you know, for them and to expand in a mass way?
05:31Or are they going to be looking for incremental ways to, you know, produce more and take advantage of higher
05:37prices right now without having to, say, lay out for massive new projects?
05:41And I think that that really depends on where oil prices go, you know, in the next couple of months.
05:47And also, once it becomes clear, say, if there is some kind of deal that reopens the straight-of-form
05:54moves, it's going to be a long process.
05:56Things are not going to go back to where they used to be.
05:58But as that plays out, I think producers will have a better sense of how long they can expect, say,
06:05increased demand for their domestic oil in the United States
06:08and whether it pays to invest more and drill more.
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