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Marsh Representative
Bloomberg Audio Studios podcasts Radio news.
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Carol Massar
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stanvak on Bloomberg Radio.
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Bloomberg Host
Oil when we talk about the commodity. We talked about this earlier with Bill McGlone coming off a rough year, its worst in fact, since 2020, as concerns about a surplus pressured prices. And we continue to see some of that pressure. You can see that one year chart, the movement to the downside, geopolitical risks still out there, seemingly not enough though to stem the losses. Which is kind of interesting because every time we see either picking up in the Middle east or elsewhere around the globe, we take a look at oil and it doesn't always spike or spikes very quickly. Well, joining us live with what lies ahead for energy, the energy markets and the energy supply are Bloomberg's senior US Oil reporter Kevin Crowley and Tim Morris, senior research analyst at Clear Street. He covers the clean energy transition as well as oil and gas. So perfect twosome to talk to Kevin Kick it off with us. We just talked with our own Josh Saul and Mark Glengloff talking about the drawdown on energy supplies that we have been seeing that are expected to continue into 2026 and the impact it may have or is having on the climate. But kick it off remind us to about the world's energy supplies. Prices are low and that's because there's a lot of oil out there.
- [02:40]
Kevin Crowley
That's exactly right. Wall street is almost unanimously bearish on oil going into 2026. As you said at the top there, oil dropped about 18% last year and very few people think that it has any room to increase from, from here. Brent crude $60 a barrel, WTI trading in the, in the high 50s. And it's really because of this massive oversupply that you mentioned. The IEA expects there to be about 3.8 million barrels a day of excess supply this year, mainly driven by growth in non OPEC producing countries such in the Americas, Canada, Brazil, Guyana, also US Shale here, which despite the low prices continues to grow. And so that' that's really driving this, this, this period of very low prices, which of course is something that is favored by, by President Trump. Now this has been one of the most well telegraphed oversupply instances in a very long time. So the question really is when do investors start to see through these short term oversupply imbalances and start to really look at the medium term, which looks much more constructive.
- [03:58]
Bloomberg Host
When you say more constructive Kevin, what does that mean? That there's going to be a floor under oil prices and we'll start to see some move to the upside? I mean this is against a backdrop where we talk about data center build out and how we're going to need all forms of energy to power it and the increasing demand that we are seeing on the world's energy supplies. It's all needed. So do you anticipate then, or what you're hearing from analysts who cover oil, that prices will head higher and if so, when?
- [04:26]
Kevin Crowley
Well, that's right. In the medium term demand looks very, very strong. Oil demand continues to grow despite the, despite the energy transition. And with the, with the, with the data center build out and lowering interest rates here in the US if the economy stays strong, you'd expect that demand to continue to continue to grow. So eventually the world will work through this oversupplied market which will then help to drive, drive prices higher. But the big question is when that's going to happen. Now I think people are saying really by the middle of this year we should start to start to see some of that oversupply being being worked through. So I would expect, I would expect certainly the market to maybe stop, stop.
- [05:12]
Bloomberg Host / Interviewer
Moving around then Tim, on this prices, on these prices going into 2026, at what point does OPEC say, you know, we want to see higher oil prices will kind of tighten the spigot, close the spigot a little bit and we'll, we'll decrease supply so prices will go higher. Is that still A possibility.
- [05:34]
Tim Morris
We think so at Clear Street. You know, we've been watching this and we weren't too surprised since last April with, you know, the catch up that they had to do with the 2.2 million barrels a day, the curtailment they did the prior two years and catch up of 2.7, 2.9 million last year through the December. So, you know, we like what OPEC has done and talked about since October. You know, they vote this Sunday. We don't think that they're going to be raising the quota hikes for the first quarter. So this kind of lines up a bit with what Kevin was alluding to. You know, we like this up. We like when investors are bearish and think there's a low oil prices and we see reason for oil price, you know, to maybe average, possibly low 60s throughout the year. And what's more important to us is when does that roll off and start? And as soon as it starts rolling off that surplus supply, which we think are probably maybe get wrapped up by the one year anniversary of Liberation Day tariffs, maybe April, May, June, then you do have easier planning by EMP companies to drill and spending and usage, which is you want a tighter ban on oil price just for budget. So we feel pretty good about oil prices for next year. Nothing where it used to be in the 70s or 80s, but low 60s are good. And a lot of the stocks that we talk to and cover, they break even 50, $54 for free cash flow.
- [06:51]
Bloomberg Host / Interviewer
So is low 60s enough, Tim, to drill, baby, drill, as the president wants to see?
- [06:55]
Tim Morris
I think if you have some of the stocks that we cover, like Magnolia Oil and Gas, Yeah, they're doing 7% net production growth probably next year, you know, they might add a little bit more. I think it depends on your economics. But you know, 50 is not great and having a tighter band with less volatility probably this year than there was last year. And that's because of tariffs, maybe not as much of a headwind. OPEC quota is not as much of a headwind. I think that really helps to have a tighter band around the oil price. $5 each way instead of 10 to 15.
- [07:25]
Bloomberg Host
Kevin? Yeah, well, you know, and I just do wonder too, Kevin, I mean, obviously everybody's watching policy out of the White House and we have a White House that's pretty clear about their view or the President's view when it comes to alt energy, whether it's wind and other. So do the integrated oil companies.
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Bloomberg Host / Interviewer
Feel.
- [07:45]
Bloomberg Host
Confident though ultimately about drilling more? I mean, you said that we're looking for maybe prices to start to move up. I don't know whether it's mid year or later on this year that the metrics get better but I just do wonder about what really makes them wanting to increase supply even more because there is just so much out there.
- [08:08]
Kevin Crowley
Well, the big, the big buzzword here amongst the big oils is capital discipline. They keep preaching this to, to Wall street, saying, saying that we're not going to spend excess money on production. We're going to focus on shareholder returns. We're going to focus on investing in the very, very best projects that will give us the lowest breakevens in order to generate those dividends and share buybacks. And what's interestingly what happened very interestingly last year is there was a bit of a departure between oil equities and the oil price. So oil went down almost 20% whereas, whereas the big oils actually rose about 10 to 15% last year. And the CEOs really believe that this capital discipline which will continue to drive that kind of outperformance. But the other thing that we've really seen especially in the US oil sector is this continual grind for efficiencies. US Shale in particular continues to innovate, continues to drive down costs. They drill longer, longer lateral wells, they put more power into their fracking. This is, is more changes in how they and how they produce oil which really allows them to, to drive down their break even and to make money at this, at a $60 level. They're really on the cusp at the moment. Some companies really, really don't like it. But at, at this, at this $6 60 level, US oil production still continues to, to increase. Now if we were to drop down into the, into the 50s, I think that that might change and US production may come off the, it's its record highs but the industry really continues to surprise on the efficiencies.
- [09:46]
Bloomberg Host
Yeah, it's kind of fascinating but it makes sense right that they, that they continue to do that. Tim, come on back in here because you follow the Alta Energy companies, you follow oil and gas. What's more promising when you think about it, maybe medium term, longer term, what's more promising? The outlook for oil and gas or the outlook for those clean energy companies?
- [10:06]
Tim Morris
You know, even though the clean energy companies outperformed the S&P 500 by almost 35% last year, you know, we think there's still room for them to do well this year if they have exposure to what we're calling the electricity shortfall. We cover several Stocks with this exposure, whether it's most tech and why our group, Bloom Energy, even Sunron and Will Dan Group, you know, they're pretty well positioned because, you know, as you probably know, the US has been. The power grid was only adding about one and a half to 2% a year of supply, but the demand is growing at 4 to 5% a year now. Half that caused by the new hyperscale data centers being built out. The other half caused from reshoring and EV charging, crypto mining, heat pumps. There's a lot of other reasons why. So we think there's a tailwind for the next three or four years of massive expense spending by the utilities. So a lot of stocks we cover, their customers are utilities or commercial industrial, new plants, semiconductor plants, even American superconductors should benefit from that. You know, we think that the utilities could probably spend about 35% more on the transmission distribution side over the next five years to really close that, that shortfall imbalance every year. That's pretty wide. Just the last three years. I mean, for about 40 years the demand grew 1 to 2% a year in the U.S. now it's growing 5, 6%, maybe this year.
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Bloomberg Host / Interviewer
But Tim, on the energy side of things, with low oil prices, doesn't it decrease the incentive for investing in new technology?
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Tim Morris
It could, depending what you're looking at. You know, we cover Sun Run, which is the, the biggest residential solar. Solar that's attaching battery storage. And you know, we think their stock's positioned to keep going up their number one in market share. It's very affordable and you know, commercial. You need, like your speaker, two speakers ago was saying, you need just more than one energy source. You need natural gas, you need some oil. You know, you need solar, you probably need some wind. So I think there is room for alt energy to do pretty well. Maybe not the offshore, when that the Trump administration might not be that supportive of.
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Bloomberg Host / Interviewer
Okay, Kevin, I want to throw you a crazy question that, that sort of has like politics in it because the U.S. u.S. Policymakers like to talk a lot about energy independence. Is the US Energy independent for all intents and purposes?
- [12:21]
Kevin Crowley
Largely is. I mean, clearly we still import a fair bit of oil, but that's, that's main to the, the makeup of, of the, of the refining system here. We need heavy oil which comes from overseas. But essentially, you know, the US is producing nearly 14 million barrels of oil a day, which is, which is, which is more than any other country has ever produced in history. It's, it's, it's at least 40% more than what Saudi Arabia is. That's amazing right now. So.
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Bloomberg Host / Interviewer
Right.
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Kevin Crowley
So the US from all, for all intents and purposes is as energy independent as it's been in decades.
- [12:59]
Bloomberg Host / Interviewer
Kevin that said, it is much more expensive for the US to extract a barrel of oil than it is for Saudi Arabia to extract a barrel of oil.
- [13:06]
Kevin Crowley
It is but that it's at that crucial level. It's as long as it's profitable to do so, then companies here will, will continue to do so. I mean, clearly, yes, Saudi Arabia can extract extract oil much more, much more profitable. But US US Breakevens are maybe in the, in the, in the low 50s. So they can, they can still, they can still extract or profitably. Now Saudi Arabia needs a much higher oil price to balance its budget. So that's something to take into consideration too.
- [13:38]
Bloomberg Host / Interviewer
Well, oil politics always intertwined. A big thank you to both of you for joining us. This is exactly the conversation the roundtable that we wanted to have this afternoon. That was Bloomberg Senior U.S. oil Reporter Kevin Crowley. Also Tim Moore, senior research analyst over at Clear street, covering the clean energy transition as well.
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Carol Massar
Want to know how Russian pranksters tricked a top government official?
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Kevin Crowley
Or how the only copy of a Wu Tang Clan album got auctioned for millions of dollars by the Department of Justice?
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Carol Massar
The answers are out there.
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Kevin Crowley
The trick is getting the government to share them.
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Carol Massar
I'm investigative journalist Jason Leopold. I spend most of my days getting documents from the government.
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Kevin Crowley
I'm attorney Matt Topic and them in court to open their files when they don't want to.
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Carol Massar
From Bloomberg and no smiling. This is Disclosure, a podcast about prying loose government secrets to listen early and ad free on Apple podcasts. Subscribe now at.
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Tim Morris
The.