00:00Oil prices below $90 on the barrel now, a massive deceleration over the past three days or so since the
00:08U.S. stopped, attacking Iran late on Friday.
00:12But realistically, if this were to go on into a more protracted fighting, this back and forth, these escalations every
00:19now and then, what is the upside on Brent crude prices?
00:26Abir, good morning. Thank you. Thank you for having me. That is the big question, right? I mean, we don't
00:30know what is going on.
00:33Military tensions have increased in the last few weeks, couple of weeks. Now there seems to be a pause and
00:40therefore prices have retreated.
00:41But it really depends on what happens from now on. And we have done a lot of scenario analysis in
00:48the last few days.
00:49And there is this extreme scenario where fighting continues, where traffic to the Strait of Hormuz remain halted, where attacks
00:58on Bab el-Mandeb continue.
01:00If that happens, the extreme scenario says that oil prices could reach $150 per barrel.
01:06Now, it looks like in the last few hours that the diplomatic channel is reopened, that the hopes of a
01:13new deal are still there.
01:15And that's why prices have come down. In the very optimistic scenario where there is a deal tomorrow, let's say,
01:22prices should come down to around $75 per barrel.
01:25So the market is trying to understand where are we? Are we in the escalation phase or are we really
01:31looking at that de-escalation outlook going forward?
01:37Okay, so 75 and 150, best and worst case scenarios. But this time around is quite different, right? Because it's
01:45not just the Strait of Hormuz.
01:46We're also seeing Bab el-Mandeb. We're seeing the Red Sea, which is the alternative route that Saudi has been
01:51using in the midst of all of this under attack.
01:54We're also seeing action in Russia. And so we're seeing multiple attacks happening.
01:59And that makes it a different time around from what was happening in March. So what are the implications of
02:06those different fronts being open?
02:10For sure. That is a key issue here. I think back in March, back in April, we reached $120 per
02:18barrel.
02:18Now, this time around, as I mentioned, we could reach, in the worst case scenario, $150 per barrel.
02:24And there are three important elements that explain why this time around escalation could be potentially more dangerous for oil
02:32prices.
02:32The first one is that the IEA countries have already used 400 million barrels of SPR.
02:40So those barrels are already in the market. That means that we're less protected right now.
02:44There's less scope for further releases of SPRs.
02:48Let's not forget that U.S. SPRs are at the lowest levels since 1983.
02:52So we're a little bit less protected than what we were back in March. That's one element.
02:58The second element, as you correctly mentioned, is that back in March, we didn't have any action from the Hooties.
03:04Now there is the actual threat and attacks in the Red Sea that could limit Saudi export capacity.
03:11And finally, Russia. Let's not forget that Ukrainian drone attacks and the Russian infrastructure are having an important impact on
03:20Russian crude exports.
03:21So if I combine those three elements, that means really that potentially this situation could be more inflationary for oil
03:30prices.
03:33And Jorge, the first breakthrough or one of the first breakthroughs that we saw about three weeks ago or so,
03:40big banks were coming out and saying we might actually see an oversupply glut in the oil market by the
03:45end of this year.
03:47Do you think that the prospects of that are still very much prevalent with everything that's going on?
03:54I think very much depends on what happens with negotiations.
03:56If there is a deal and traffic to the Strait of Hormuz recovers, there's no attacks in the Red Sea
04:03by the Hooties, we're likely to see an oversupply market.
04:06Let's not forget that we have U.S. shale reacting to higher prices.
04:11We also have the UAE who has left OPEC that could rapidly ramp up production.
04:16So we're likely to see an oversupply market as soon as the situation in the Middle East normalizes.
04:27And just one more thing.
04:29When it comes to those shipping routes that Saudi has been using, the Strait of Hormuz, obviously a fifth of
04:36the world's energy goes through there.
04:38Those are all under risk right now.
04:41Now, what other realistic shipping routes can those countries in the GCC go through if we continue to see this
04:47escalation in the region?
04:51In the short term, very limited options to bypass the Strait of Hormuz.
04:54We have essentially two important bypassing options, which is the east-west pipeline from Saudi Arabia going to Yambou.
05:02But the problem now there is that part of the Saud exports going through Bab el-Mandev are under attack.
05:09And we also have the UAE, the Fujairah pipeline.
05:12Apart from that, there is very, very limited options in the short term to try to bypass the Strait of
05:17Hormuz.
05:17That's why it's key to understand and to follow the situation in the Middle East, in the Strait of Hormuz.
05:26That is key to understand how the market prices will react and whether we're going to have an oversupply or
05:33not in the coming months.
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