00:00Let's get perspective with Samantha Dart, co-head of Global Commodities Research at Goldman Sachs. Good to have you with
00:05us. We're not just talking about one crisis, not even talking about two, but three crises all happening at the
00:10same time. Hormuz, Red Sea, Black Sea. This is pretty much unprecedented. Could you put that in perspective for us?
00:17Yeah, I think especially on the oil side, on the natural gas side, when Russia curtailed its supplies to Europe
00:25back in 22, it was a slightly larger impact. But on the oil side, you're absolutely right. This is unprecedented.
00:33And it really reminds us that even though we're so used to thinking of commodities as these global markets, your
00:40supply side can be incredibly geographically concentrated.
00:44And when you have certain passageways that can be blocked, it makes this even more vulnerable to any instances of,
00:53let's say, using that concentration as leverage. So Iran seems very willing to use this trade as leverage now. And
01:01I think this is the biggest thing. So geopolitics aside, we see the headlines causing volatility. Yes.
01:07But for example, on our side, what we're really paying attention to is the volumes, how much is crossing, how
01:14much has stopped and so on.
01:16And what are you anticipating in the coming weeks, next three, four or five weeks in terms of fuel supplies,
01:22in terms of flows, trade flows even?
01:24Yeah. So what we saw in terms of the ramp up of oil flows after the MOU had been announced
01:31was pretty extraordinary. We saw flows in the straight. Well, not just in the straight, to be fair. If you
01:36take into account the straight plus the reroute via pipelines, think about the Persian Gulf exports.
01:42They had gone from 40 percent of normal to 80 percent of normal. And then this re-escalation happened. And
01:49now we're back near those 40 percent of normal type of flows.
01:53So if you have a way to reactivate the straight, the potential is certainly there because we've just seen it.
02:02The only difference is, I would say, for the first time around, you had a lot of oil sitting around,
02:07so it's easier to just move it. And now we're past that moment.
02:11So I would say the next layer of increasing flows is probably going to take a little bit longer to
02:17normalize.
02:18We're already in August. We're counting down to winter. And that's when, you know, people need their heating energy. Are
02:25you concerned that, you know, as we inch towards the winter months that we're not seeing a resolution in sight?
02:31That's right. I think you touched on a very key point. When you think of natural gas, its main use
02:37is for heating purposes in the winter in the northern hemisphere.
02:40So if you think of Europe, if you think of Northeast Asia, that's when you need it for people to
02:47survive the winter.
02:48When you think of diesel or heating oil, a lot of that also has stronger demand in the winter for
02:54heating purposes.
02:55So I would say for those two products in particular, that's the main upside that we're worried about, especially on
03:02the natural gas side.
03:03Pipelines have been constructed as we speak, but they're not going to be in service till maybe one or two
03:10years down the road.
03:11In the meantime, what happens? Do we see more volatility in terms of pricing? What are you anticipating and what
03:17will countries be doing?
03:18In the meantime, I think the market remains completely vulnerable to the straight being blocked or having flows interrupted.
03:27We might not see a lengthy interruption, but we might see an occasional slowdown in the flows where I think
03:35we have yet to understand how that's going to work, how that flow is going to work.
03:40But the vulnerability is there. So in terms of pricing, what are we anticipating?
03:43I mean, we're seeing how, you know, all prices have been reacting to headlines, basically.
03:48Exactly right. So I'd say our base case is that you would have production from the Persian Gulf normalizing, say,
03:56by early Q4.
03:57If that were to happen, we could have Brent crude oil prices averaging Q4 at about $80 a barrel.
04:04We could have next year, that would be our base case, averaging about $70 a barrel.
04:09But to your point, if you have a headline suggesting, oh, maybe here we go again and you can have
04:16another interruption of flow, then I think that's that's the risk that we have.
04:20The other thing that we need to track is how much production we see once this is over and done.
04:27So, for example, we've had high prices for so long that the U.S. is investing more in production.
04:33We're going to have more production from the Americas.
04:35So what if Saudi and the UAE, for example, can increase production a little bit more than what we expect?
04:42So you can also come out of this into 27 into an environment that might be a little softer than
04:49what we expect today.
04:50So I think there is a range of outcomes here.
04:54The biggest risk that we see is if we don't have a sustainable resolution and maybe we have to go
05:01through next year still ramping up slowly that this this flow through this trade.
05:08In that case, we could see prices well over $100 a barrel.
05:12Is that the worst case? I mean, you talk about the base case. Is $100 a barrel the worst case
05:17scenario?
05:17Yeah, the worst case scenario that we're working with at the moment is, let's say, if we only have a
05:22gradual improvement over the course of next year,
05:26we would be looking at $120 a barrel in Q4 this year and next year could average around $100 a
05:32barrel.
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