00:00Nadia, I'll bet at the beginning of this week you weren't expecting to see what we saw.
00:04How concerned were you after we got the President's comments on Wednesday morning at the NATO summit?
00:10Well, at least he chose a point that we had been in a very low oil price environment heading into
00:16that summit.
00:16So I think the expectations of the market were that we're going to have this supply glut going into the
00:21summer.
00:21It's all over. So we're rising from a very low level on the oil price in terms of speculation.
00:28A lot of shorts are out in that market. And Saudi Arabia had just dropped the oil price massively.
00:34$15 discount for their official selling price for August for Europe and $11 discount month on month to Asia.
00:41So big moves.
00:42Now, how much did we get done in June? So the strait kind of reopened, partially reopened.
00:48But barrels were really, you know, tanks were almost empty, right? Reserves were pretty low around the world.
00:53Did we manage to get the ships out of the strait and start refilling some of those SPRs and so
00:59on?
00:59Where do we get to? Because it doesn't look like we'll have really normal traffic through the strait anytime soon
01:04again.
01:05Absolutely. So according to us, it's fell on capital.
01:08We think we gained around 6 to 7 million barrels per day of oil month on month in June, which
01:13cleared out most of the backlog.
01:15That includes Iran. That includes Saudi Arabia, the major GCC countries in terms of what they managed to send out.
01:23However, the critical point for us is that we didn't see ships comfortably sailing back into the strait,
01:30which then prevents the GCC countries from really ramping up production and the Iranians as well,
01:36where we've had mixed reports on how those fields have been hit.
01:39And so it's yet to be seen if there is damage to their actual production facilities.
01:43So we're in no way in a normal market in our view.
01:47And you get these odd headlines. So the U.S. targeting Cargillin, for example, that was out there as a
01:53potential.
01:53There was also the idea that Ross Laffan won't be coming online as quickly as we might have thought, the
01:58LNG facility.
02:00So where do we stand now going into the end of July and August?
02:04Are things picking up again or are we sort of stagnating once more?
02:07I think right now things are a bit more paused.
02:10What we saw before this happened is a balanced crude market, but refined products were looking much tighter, meaning diesel.
02:18And this is helped by those strikes on Russian refineries by the Ukrainians.
02:22We hit in June a 17-year low for refinery runs in Russia of 4.4 million barrels per day.
02:28And what we've seen this week is diesel cracks have absolutely skyrocketed.
02:33Gasoline, that's what we need to continue the driving season and so forth.
02:38And U.S. refiners have been running at max.
02:41Europeans have not quite been doing that.
02:44And the opportunity, in our view, for them, when we got some contango in the Brent curve and we had
02:49contango in the Dubai market, was for refiners to really buy that crude.
02:52They didn't do it.
02:53And then China has now announced that they're relaxing their export ban of refined products, which means to me that
03:01they're coming back into this market and they're going to start buying crude.
03:04So they had cut their imports by 4 to 5 million barrels per day in the last couple months.
03:10So if they're coming back, that 6 to 7 million barrels per day backlog suddenly looks like a much tighter
03:16market if they are, in fact, going to hit those export numbers for refined products.
03:22So are you saying that Western refiners may have missed their window?
03:24Yeah, I think in Europe they may have missed it a bit.
03:29In the U.S., we've been running flat out.
03:31So there wasn't more that the U.S. could really do.
03:35But what we saw in the data last week is that U.S. product exports hit an all-time high.
03:40And historically, China has been the OPEC of refined products, balancing that market.
03:45And the U.S. has come back despite all the refinery closures we've had since COVID because Europeans and others
03:52have been protecting themselves and not running.
03:54You said China is coming back to the market.
03:58Where do we stand with demand destruction in China?
04:00Does that demand come back online at some point or is it permanently gone or shifted to another resource?
04:05Well, part of the demand destruction is really this energy transformation and things like that.
04:10And we see that not only in oil but especially in the LNG market.
04:14Part of it is domestic production of oil, of gas, further deals with Russia and so forth.
04:21But China has historically imported 17 million barrels per day in some months, 15, 17 million barrels per day.
04:28If you include their demand, that includes what goes into storage and what is imported.
04:33That's the 15 to 17 million barrels per day.
04:36Suddenly, we had them at a much lower number.
04:39And that is that flip that the market is concerned about.
04:42In addition, in the last two years, we've had SPR building in China.
04:46We've had SPR drawing in the U.S.
04:49And China clearly wasn't interested in doing that in the last couple of months.
04:54I think that their announcement that they will export products mean they think oil prices got low enough and it's
05:01time to buy again.
05:03Fascinating.
05:04So that rise in oil prices that we did see, I mean, we're back down today, does it reflect reality?
05:10I mean, we're at less than $75 a barrel on Brent now, around $70 on WTI.
05:14Is that reflective of the situation and what's out there?
05:18In our view, not.
05:19We've really lost that geopolitical risk.
05:21But, of course, we're in the holiday season.
05:24So, typically, people don't want to be short ahead of the 4th of July weekend and then they kind of
05:31fade that rally.
05:32We didn't have a rally going into that.
05:34Right now, it's really led a lot by algorithmic trading.
05:37And this is where moving averages matter a lot.
05:40So Brent is higher than the moving averages that we've been below in the last month.
05:44So that starts to create a buy signal for some of the algorithmic traders.
05:48So that very strong, short positioning should lessen.
05:52But it's also the shape of the curve.
05:54So prices should come down is what you're saying?
05:56No, no.
05:57Prices should come up because now we're above those moving averages.
06:01So what has been a continuous sell signal for algorithms now looks like more of a buy signal to buy
06:09from.
06:09I want to briefly ask you about shipping costs.
06:11Yes.
06:11I mean, have they come down a little bit?
06:14It seems like they should have.
06:16But then again, are shippers really still shipping through?
06:18I mean, is it safe yet?
06:19So shipping costs became astronomical.
06:22Historically, you want the cost of shipping to be 2% to 3% of the value of the cargo.
06:27What we saw already in May and June, in the start of June, is that those prices were 20%
06:32to 25% of the value of the cargo.
06:34What does that mean?
06:35Well, oil prices and LNG prices need to be higher and shipping needs to be lower.
06:40We had the market declining on the Brent side, which meant that shipping costs really had to come down.
06:45And they did.
06:46But now we have this geopolitical premium coming back in very low volume.
06:50So let's see what happens.
06:52But Brent was down 18% in June.
06:55Shipping costs were down for TD3, 25%.
06:58That's Rastanera, Saudi Arabia, to China for crude oil.
07:02Refined products were down 31% for shipping the index.
07:09So they had come down, but we didn't have that volumetric difference to make up for that lower price that
07:16you were getting for using your ship,
07:18which was hitting the tanker equities.
07:20Now we're kind of resetting and looking to see what happens, but we don't see those ships flowing into the
07:25Strait of Hermes now.
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