00:00Well, I think there's this ongoing debate as to why crude prices are not higher, right?
00:04Because the military situation in the Gulf is developing in a way that's not great.
00:09And obviously the main focus of that is Saudi Arabia.
00:13Looks like we've got some peace in the UAE.
00:15We've got a settled situation in Lebanon.
00:18And then, of course, you've got an absolute beating that the Ukrainians are handing out to the Russian oil infrastructure.
00:24So I think the answer to the question is refining capacity limitations.
00:28And so there's not the ability to use more crude to bring down product prices.
00:34And you've got to remember that wholesale gasoline is right now $140 a barrel.
00:39So I think people are looking at the wrong oil price, in fact.
00:41Okay, this is critical because I've been featuring as Yongcheng Chen in China.
00:46Off the desk in Singapore, our oil people, they only go to Oxford and Cambridge and LSE.
00:52And so he comes up with the Ice Brent Distillate Refinery.
00:57Explain to our audience, by looking at the Wawa, if $4.20 isn't the way to look at this.
01:03You've got to look at ice gas oil in Europe.
01:06No, I slightly disagree.
01:08I mean, I think $4.20 at the Wawa is $160, $70 a barrel, right?
01:12So when you think about it in those terms.
01:14And then, you know, Brent's at $90, we've got a $70 refining margin.
01:18And I say that's a margin.
01:20That's not a price.
01:21So, you know, we've had Valero, for example, printing $12 this morning in their results.
01:25I think a year ago they made one or two.
01:28So there's, you know, it's just a question of how people look at it and they just focus on crude
01:33oil.
01:33But when you think about what happened in Hormuz, you shut down 6 million barrels a day of refining capacity.
01:38That's demand for crude.
01:39And China, of course, shut down 6 million barrels a day of crude oil imports.
01:43So there's been quite a big pressure when you combine it with the SPR and the emergency releases, all crude
01:49oil.
01:49And then you see this enormous price that we're paying.
01:52For example, jet fuel hasn't been far off $200 a barrel.
01:55What's fascinating as well, Tom, is people are still flying and driving, you know.
01:58So there's been a really interesting thing there.
02:00And another thing I'd highlight is the long-term thematic is the separation of the North American oil market from
02:06the global,
02:07basically because you can't buy Chinese EVs in North America.
02:11You've taken away the EV subsidy in North America.
02:14So what's happening, a Tesla can't give away a Tesla.
02:17So what you're seeing here is actually a situation where we're looking like we'll remain a very oil-dependent economy.
02:22The rest of the world will actually do everything they can post-Hormuz to get off oil even more than
02:27they already were.
02:28Can Hormuz ever go back to the way it was pre-war here?
02:32Absolutely not.
02:33No, I mean, it's done.
02:34It's a one and done.
02:35And, you know, you've seen that with the Houthis in the sewers.
02:37You know, it's three years now we've been at 50% of previous volumes.
02:41It's just too much risk.
02:43And the one thing about the Hormuz, you know, is it's the one incontrovertible, if that's the right word, choke
02:48point.
02:49So every other choke point globally, there's an alternate with Hormuz essentially as pipelines.
02:54But for LNG, you just, for example, Qatari liquid natural gas, I don't see a solution other than the Hormuz.
03:00So they're going to have to make some sort of agreement with the Iranians.
03:04The other thing people miss is if you look at where the U.S. Navy is, it's not in the
03:07Strait of Hormuz.
03:08Those aircraft carriers are way, way out in the Arabian Sea, which is actually limiting, you know, our ability to
03:14bomb, which achieves basically nothing in my view.
03:17So it remains a horrendous mess.
03:19The other thing I'd highlight is two things.
03:22One is Ukraine had a drone attack on Siberian refinery the other day.
03:26That's 1,800 kilometers, actually miles, I think.
03:29It's a long way.
03:30And the other mystery at the moment is that a U.S.-owned gas floating storage vessel in Egypt was blown
03:38up by a drone with no one claiming responsibility for that.
03:43But that was another thing that was a very strange outcome.
03:46Bottom line is the drone, you know, the emergence of drones, the emergence of Ukraine as a global superpower in
03:53drones makes all of this refining and tanker infrastructure incredibly vulnerable in a way that it wasn't previously.
04:00And the need for domestic energy, which the U.S. has in abundance, domestic infrastructure heavily defended, is going to
04:07become a very, very important thing and more than it was previously.
04:10And in that regard, the Americas look in very good shape.
04:13What does Iran want, do you think, from an energy perspective?
04:15In theory, I think economically they would want the Strait open to move their oil and their products.
04:23Is there a way to negotiate with them to really, just from an economic standpoint, say, let's just open this
04:29up because it's good for everybody, including you guys?
04:32I mean, I think where I would say, you know, is this a Suez moment for the U.S. that,
04:36you know, like the U.K., you just have to exit.
04:38The reason I would suggest it's the right thing to do is because at a given level, this is religious.
04:43You know, Iran and the Iranian proxies are all Shia.
04:46And Iran against Israel is like, are you going to really solve a religious war that goes back, you know,
04:52possibly, you know, in the case of the Shias, a thousand years, but, you know, generally longer?
04:56And what are we doing in that theater when we've got our own oil and gas is an open question.
05:02What's really interesting here is it seems like the UAE has made peace with Iran.
05:06You'll notice there's no attacks right now going on in the UAE.
05:09And, of course, Dubai historically was a Persian trading post.
05:13So there's a very close relationship there.
05:15What's not good is that you're now getting the U.S. bombing Iraq, which is where the Shias are attacking
05:21the Saudis.
05:22Right.
05:22And it's clear that the Saudis have a major issue here that they have to resolve, having not really had
05:26great relations historically with Iran in the way that UAE or Qatar has.
05:30I want to close the loop on this.
05:32We're going to have to go here, Paul Sankey.
05:33We've got to get you back shortly here.
05:35There's so much going on.
05:36You mentioned, and for a lot of people, this is ancient history.
05:39For you and me, it's not.
05:421956, Sir Anthony Eden blew up his career over Suez.
05:48Folks, we're not going to make this a history lesson.
05:50Listen, all you've got to know is the prime minister of the United Kingdom went down in flames.
05:54Yeah.
05:54How does President Trump extricate himself from the Sankey complexities you just gave us?
06:01Well, I think they have, actually, in real terms, because the U.S. Navy is out of the Gulf.
06:06And, you know, for example, the base in Bahrain is a skeleton crew.
06:10You know, we're actually being forced by military pressure.
06:12So I'm not believing a whole lot of what I'm hearing, frankly, from the U.S. administration about what's happening
06:16in that theater.
06:17I think it's going very poorly.
06:19So at a given level, you need to make an agreement with the GCC, with the Saudis and the UAE.
06:23Look, we're out of here.
06:24Agreed.
06:24We're out of here.
06:25Agreed.
06:25We've got to go.
06:26This is like World War I.
06:27It's like, you know, T.E. Lawrence coming over and looking at the Suez Canal.
06:30We have to make an agreement from the truchel states up to Kuwait and, indeed, even Iraq to extricate ourselves.
06:37And, you know, what I always said, Tom, right at the beginning is Trump has to immediately fly and see
06:41Xi and talk to him and sort this out.
06:43That's the only way you can sort it out is with Xi.
06:45Trump delayed the visit to Xi and didn't agree a whole lot.
06:48Right.
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