00:00This, at the very least, is a clear direction of travel.
00:03We're still at about 20% higher when it comes to oil prices pre the start of this war.
00:09You can forgive the market for having a degree of scepticism at this point, right,
00:14given that this is essentially an MOU to end a war.
00:18Yeah, that's correct.
00:19I think there are a lot of critical details that have not been confirmed yet.
00:23It's basically a 60-day extension of the so-called ceasefire,
00:26while the two sides continue to talk about critical issues.
00:29Like the future of Iran's nuclear program, what happens with highly enriched uranium,
00:35the pace of sanctions relief for Iran is a little bit uncertain.
00:39So I think what's happening right now is that the market is reacting to the headlines.
00:42Certainly, it's good news that the peace deal appears to be imminent.
00:46But a lot of the really critical details for the oil and gas industry and for transit
00:50through the Strait of Hormuz revolve around the safety of tanker transit.
00:55And I think a lot of those questions are still unresolved at the moment.
00:59Well, in fact, even in the initial stages of reacting to this agreement,
01:03it seems like how the reopening of the Strait of Hormuz will look like
01:08is being characterised differently by each side.
01:10President Trump says no tolls.
01:12It's reopening essentially going back to where we were before this war.
01:15Iran is suggesting that they would want to be involved,
01:17that Oman may be involved in getting vessels through.
01:20So do we have an idea or certainty as to what the Strait of Hormuz might even look like when
01:26it reopens?
01:29Well, there are two important elements of Trump's statement today.
01:32He said that the U.S. blockade would be lifted immediately and that there would be potentially
01:38a 60-day window in which Iran could have a licence to increase its oil sales or to sell
01:44without any restrictions.
01:45So I think those things will be well-received by the market.
01:49Other elements around what the future of transit looks like through the Strait of Hormuz
01:53are really quite uncertain at this point.
01:55And as you said, there are conflicting statements between Iran and the United States.
01:59Now, I note that Iran has been pretty clear for weeks now that one of the conditions
02:02for any peace deal would be immediate release of frozen funds,
02:08funds that have been frozen by Western countries throughout the sanctions period.
02:12And I think it's basically insisted on having that immediate financial relief
02:16before it allowed open transit through the Strait.
02:19Whether or not the U.S. has agreed to that, whether or not all the funds will be released,
02:23or only half, remains a little bit uncertain at this point.
02:25And as you said, there was an Iranian statement that, you know,
02:29transit would somehow be managed between Iranian authorities and Omani authorities.
02:33And these are really unknown details, and they're really critical details for tankers.
02:37You know, if you're a vessel owner or if you are a captain,
02:40you ultimately want to know if your people and your assets are going to be safe.
02:44Are there safe transit routes through the Strait of Hormuz?
02:48Which transit authorities do you have to deal with?
02:50Is there a prospect that you're going to have to pay a fee now or 60 days from now?
02:53These things remain a little bit uncertain,
02:55and I think ultimately that's going to dictate the pace of resumption of flows through the Strait.
03:01Yeah, just because you have a deal doesn't necessarily mean ship owners will feel safe
03:05to actually send their vessels through the Strait of Hormuz, right?
03:08But one has the closure of this waterway that takes up about a fifth of global oil flows.
03:15How has that fundamentally changed how ship owners, how countries also view energy security?
03:25Well, I mean, I think in the last couple months we've seen that countries are doing what they can
03:31to ensure transit through the Strait.
03:32Countries are cutting side deals.
03:34They're trying to negotiate with the Iranians directly.
03:36There are some rumors about payment in, you know, non-Western currencies.
03:42And this just shows how critical energy security is to these countries.
03:45Getting that access to crude oil, petroleum products, liquefied petroleum gas is so important to governments.
03:53And, you know, there are conflicting reports, honestly, about what has actually escaped through the Strait.
03:57There's a lot of reporting in the last week that, you know, smaller tankers have gone dark
04:01and done these runs throughout the night and then done ship-to-ship transfers outside the Strait.
04:05So people are slowly revising upward the numbers of, you know, tankers have been able to get out of the
04:10Strait.
04:11I think what's clear, though, is that until there is a broad understanding that it's safe for oil and gas
04:16to flow through the Strait before most, you're not going to see anywhere near a resumption of the pre-war
04:21flows.
04:22And that's what really matters.
04:23Because if we don't have anything like, you know, pre-war flows,
04:27that suggests that inventories will continue to decline
04:30and governments will continue to have to make these emergency measures.
04:33And we're 100 days plus into this process.
04:36We've had a lot of buffers that have gotten us to this point.
04:39We've pretty much burned through all these buffers.
04:40So every week that we don't have a firm resolution, that was going to be more problematic.
04:45I mean, given the risks, we have seen countries across Asia wheeling and dealing among themselves
04:52trying to procure more oil and reserves, right?
04:55What are some of the fundamental changes that we might see on oil flows,
04:59especially also to the availability of U.S. energy as well?
05:03Yeah.
05:05I mean, I think Asian countries are going to learn from this episode,
05:08as they learned from the 2022 energy price shock that we saw with Russia's full-scale invasion of Ukraine.
05:14You know, there could be more of an effort by Asian countries to learn from each other
05:18on how to build stockpiles the way that the Japanese have,
05:21how to share resources,
05:23potentially how to trade notes on how to deal with the most acute pain points for certain countries.
05:28You know, this shock has showed up in different ways in different countries.
05:31For some, it's about crude oil.
05:33For some, it's about LNG or liquefied petroleum gas.
05:37You know, there may be a way for countries to explore things like joint stockpiles and sharing of resources.
05:43But, you know, this is the second major energy shock we've had in the last five years.
05:47I think it's going to have a huge impact on policy and planning decisions the governments make moving forward.
05:51So they're really going to, they will want to insulate themselves from shocks like this.
05:56And one thing that we've seen in the last month is that, you know, the economic toll of this is
06:00growing
06:00because a lot of governments in Southeast Asia and South Asia maintain fuel subsidy regimes.
06:05And those have gotten pretty costly.
06:06You know, governments understandably want to insulate their citizens from fuel price increases,
06:10but the fiscal burden gets bigger and bigger the longer this goes on.
06:16Ben, you've talked about the lessons learned and perhaps some of the things that can happen,
06:20but none of them have worked as a panacea to what has been the biggest energy shock in history, right?
06:26And this has happened as a result of essentially a unilateral decision to go to war
06:31that's held the entire world's economies at this pain point.
06:38So I do wonder, has this created more of an opportunity for the energy transition?
06:43Because it feels like this sort of happens time and time again,
06:46but not enough progress happens to be able to avoid the sort of pain that we're seeing a lot of
06:52economies,
06:53mostly those in Asia, suffer.
06:56Yeah, that's absolutely true.
06:57I mean, this shock hit Asia first and hardest.
07:00And I think sitting in Washington, D.C., where I live, it can seem a little bit distant
07:04because energy prices have risen here, not that much.
07:07But if you're in South Asia or Southeast Asia, there was an almost immediate impact on fuel prices
07:11and almost immediate emergency mode for governments.
07:15I think one longer-term impact of this will really concern the role of natural gas and LNG.
07:20A lot of the long-term growth in LNG demand, gas demand, globally was expected to be in Asia.
07:28And that's principally in China, Southeast Asia, and South Asia.
07:31And these are generally more price-sensitive markets.
07:34And again, this is the second price shock that we've had in the last five years.
07:37It's made LNG quite expensive.
07:39Countries in South Asia, Pakistan, Bangladesh, India in particular, have had trouble paying these prices.
07:45So I think in terms of the longer-term impact on the energy transition and alternatives to fossil fuels,
07:50you know, it's possible that governments will be rethinking the role of gas
07:53and looking at both coal and renewables as maybe safer alternatives,
07:58things that they should rely on, rather than being exposed to, you know,
08:02gas prices that look a little bit more expensive and volatile.
08:06There is an element to this MOU being done in that it gives President Trump some breathing space domestically
08:12to deal with some of the political and economic pressures.
08:14But have you been surprised by perhaps less of the impact when it comes to domestic pump prices
08:22and the impact on the broader economy there?
08:27I think the last hundred days have been full of surprises for energy analysts.
08:31It's really illustrated to me how flexible and resilient the global refining system is.
08:37Refiners noticed that there was a problem with jet fuel availability.
08:40They were able to adjust their slate of refined products and push out more jet.
08:46We've seen increased supply at massive numbers from the United States in particular,
08:51about 13 million barrels a day of crude oil and refined product exports last month.
08:55That's a huge increase from where we were pre-war, about almost a 2 million barrel increase.
09:00So flows have changed around the world.
09:04Refiners have been forced to, you know, intake different crudes and adjust their product slates.
09:09The system has adjusted quite well, better than many people thought.
09:12It's kept a lid on prices.
09:13And again, you know, the stockpile releases and, you know, the inventories,
09:18these are buffers that got us through the first hundred days.
09:21And I think the impact on prices has been more modest than many people would have expected, myself included.
09:26But, you know, I want to emphasize one thing.
09:28Even if there is an imminent peace deal, we still have very low inventories.
09:32And we still have a couple months that could be pretty challenging ahead as we work out all these kinks
09:36with global shipping.
09:37We're not quite out of the woods yet, and there's still some potential room for upside run in prices
09:42after the immediate market impact of, you know, the headlines of this peace deal.
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