B (7:26)

So, okay, so a couple of questions coming off that. One would be, can you just talk about the products piece a little bit more the sort of the. At the same time, we're talking a big choke point on refining, refined products that are coming out. We're seeing that in jet and diesel price. Can you just give us some sense there as well?

A (7:41)

Yeah, so, I mean, I mentioned that the biggest, I guess, flow that I would tend to focus on is NAFTA, which is this kind of really niche product. About 10% of accrued yield. A lot of the steam crackers.

B (8:00)

This is the petrochemical.

A (8:01)

The petrochemical, exactly. So you would put naphtha into a steam cracker, you get ethylene out, you turn that into polyethylene, or you can put naphtha into a paraxylene unit. Ultimately that becomes polyester. So really, really vital to all kind of plastic production in Asia that, you know, Asia was getting about a million barrels a day of naphtha out of Hormuz. All of the naphtha that came out of Hormuz went to Asia Pacific. Pacific. And about 60% of Asia Pacific's NAFTA came from the Strait of Hormones. So it's a real problem for petrochemicals. The Other big flow in terms of products out to Asia is of course lpg. So the Saudis massive LPG producer they've actually had to force majeure some of their, their LPG exports to Asia as well. So you know, just in terms of the petrochemicals, it's a real problem for Asia in terms of transport fuel. Europe is more affected because Europe gets about 14% of its jet from the Middle East Gulf. So the jet markets have become the, I would say absolute focal point in oil for the supply crunch, for the price pressure. That is where the strength in prices and showing up. And if you look at the physical price of jet, it is now over $200 a barrel in both Europe and Asia. That's insane. That's crazy. And the price has gone up so much since before the war. When you think about, I mean you mentioned like people talking about futures prices conspiracy theories. Is the US government sort of selling futures WTI futures to try and push

B (9:53)

down the price which it might well be given cme, you know, conspiracy theories.

A (9:59)

I had a look at the swaps data, I couldn't, I couldn't, I couldn't see it myself. But I would say that, and this is a kind of interesting sidebar which it is worth maybe touching on briefly. But obviously if you have a long position in a futures market, you can lose all your money, right? If prices go to zero and you're long, you lose all your money. If you're short in a futures market, your prices are potentially, your losses are potentially infinite. So this would be a terrible idea I think for the US government to try and you know, stick its finger in the dike of the futures market. If it were true, it would just be terribly ill advised. Which doesn't mean that it's not happening.

B (10:37)

Yeah it does. You know, I mean they do have quite a large debt they've run up. So there's not necessarily a feeling of fiscal responsibility. But that aside. Okay, so one of the things I find fascinating here is that there's sort of a, let's create a sort of false dichotomy and one is stopping the flow by blocking the strait but not doing any lasting physical damage to all of the ports, the storage, the pipelines that enable that flow. And we're sort of seeing that a little bit in terms of, you know, what the US did with COG over the weekend. It was going after the military sites rather than going against the actual oil operations sites. If you go after the latter, that has a long term systemic and profound impact on markets. Where are we at on a sort of. You mentioned Fujairah and there's been these attacks. That's obviously a key outlet that they want to stop. Where are we at in terms of the attacks on the actual infrastructure that couldn't be easily repaired on a scale of 1 to 10 or whatever scale you want to use. And is that ultimately the key thing that traders are watching? Are they, you know, I don't mind whether this, you know, ships aren't going through, but what I really mind if this particular asset or pumping station goes down, is destroyed. That then is my. Is a profound impact for the long term. Can you give us some sense there?

A (12:02)

Yeah, I think that would be a real kind of step up. That would be a real escalation. So far what we've seen is. And you know, just to look at Fujairah again, it has been repeatedly hit by drones, but each time they've kind of patched it up and it's been operating again, albeit at reduced levels. I think if Iran were to go after pumping stations or the east west pipeline, and I'm not a military guy, Paul's like, I don't know how feasible that is. I presume if they could, they would, but they haven't. So I presume it is an order of magnitude harder. But yeah, that would be, that would be a real problem. I mean already what we're seeing.

B (12:51)

That is an interesting question. If they could, they would though because the same game theory applies around kind of, you know, if you shut it, if you do that, what is, what then do the Gulf States start doing? What then does it do for the ability to de escalate? What we need is sort of a. Got some feelers out, but we need a military man on to sort of say no. Of course they're trying. They're doing it every second and we're just shooting them down. Or actually so far they've been very good at sort of just doing a few tanks and storage to let them know this could be a possibility. Is this is an. Trying to understand that question. That dynamic seems to be one of the hardest things, maybe very obvious to some person, but it seems at the moment, yeah, we're on sort of a low lower end of that 1 to 10 scale, I think so.

A (13:34)

I mean you have to think that, you know, something like after ABC was, was hit by the Houthis, you know, that was hugely disruptive. You have to think that things like the east west pipeline, things like the ABC pumping station must be some of the best guarded facilities in the region. And you know, that Saudi and people like this would be. This is kind of their raison d'. Etre. So they've got to keep those going. I'm not a military man, but you know, that would be, I think, a real sign of escalation. So far, what we've seen though, we've seen these disruptions to ports, we've seen attacks on refineries, we've seen attacks on storage sites. And the effect of that has of course been to force producers essentially to start cutting back on production. And my colleagues in Dubai did some great work on this last week and put the production loss, and this was the middle of last week, it may well be greater now at about 8 million barrels a day of production. And then of course you have to say, well supposing war ended today while we were recording, you know, does that solve the problem? And the answer is no, because you've got an enormous backlog of supply commitments and damaged infrastructure that needs to be kind of cleared out of the way before we get a resumption of normal oil flows. And I think, you know, our consulting team, obviously, you know, they're doing a lot of work on this because they're trying to come up with a. With a balance. And I think our tentative assumption is that for now we wouldn't assume a resumption of normal flows through the strait kind of until the end of August. So quite a considerably long running problem and certainly far longer running than I think market expectations were when this all kicked off. And I was obviously talking to a lot of people in the market and there was a rather charming kind of faith that someone would step in to prevent this getting worse. And you have to ask, well, who's the adult in this room, Paul?

B (15:50)

Yeah, well, and it's amazing, as Nick Cumleben mentioned in the latter part of the episode we did over the weekend, that actually Polymarket's got a pretty good grip on it. And actually the tightest correlation between crude prices is the duration of the war on Polymarket. So, you know, make of that plus you will. So we obviously don't want to. We're not going to go into the business of naming names and there's just a lot of scuttlebutt out there. But obviously this has had a tremendous roiling effect on trading, as you mentioned, right. On long term contracts and short term opportunity. And P. Ls have been swinging around all over the place, I'm sure. And so we know what might be true today might Be the obverse tomorrow. But, you know, just, just a general sort of schema of what's going on. You know, tremendous fortunes are being won and lost at the moment. Can you, roughly speaking, kind of, what, what, what stood you in good stead for this event and what didn't.

A (16:52)

That's, that's absolutely fascinating. I think, you know, and I think the hedge funds have had a pretty rough time of it. I think the irony there is that, you know, if you think about kind of typically the guys who are working for hedge funds, the traders, the analysts, these are some of the smartest people in the room and they looked at the buildup of military assets in the Gulf and they thought, well, no one would be crazy enough to risk economic crisis by actually starting a war. And I think they had discounted that as a trading strategy. Bear in mind, before the war, prices were very weak. You know, the global oil market this year was broadly considered likely to be oversupplied to the tune of about a million barrels per day. So it would kind of, you know, it's justifiable to look at, you know, going short into that, expecting prices to fall, expecting to profit from, from, from falling prices. And now, of course, you know, as a result, you've got a lot of oil firms, leveraged hedge funds now finding themselves on the wrong side of financial market positions intended to profit from lower price prices, facing pretty hefty margin calls. And similarly, you know, trading companies, again, that had looked at the global balance this year and gone, well, there's too much crude. And what is crude? Too much crude means not enough freight to move it. So you can position yourself in a market by going long freight short oil. Well, now you've got a drop in oil supply and you've got, as a result of that, too much freight. So again, if you were long freight short oil, you're also, I think, under considerable balance sheet pressure, presumably, as long

B (18:46)

as this goes on. Because what the hedge funds don't have that the trading houses do, and indeed the sort of asset backed traders do is the ability to solve problems in time and location. You know, so the longer this goes on, you can imagine that whatever initial losses might have been made by those trading houses, suddenly you've got a massive, you know, if you, if you've got the capacity to buy some oil cheaply in the Western hemisphere, and I'm, this

A (19:12)

is my, these things are relative simplistic

B (19:15)

take on trading, you can probably sell it at a premium the other side of the world and therefore, you know, it's probably not as, as opposed to the hedge funds where as you say, this is mainly, it seems like financial traders do not have that capacity to make up what they've lost on financial markets in the physical markets.

A (19:31)

No, I think that's, that's probably fair enough. Although you know, the, the, the cost of becoming a physical trader if you're a hedge fund I think is, is, is very, very high and it's an enormous logistical undertaking.

B (19:48)

Yeah, they're not going to do it. Right. And the other thing is these events come along as we now know, every two to three years and you know, there are such magnitude that they can make or break you, but it's a very expensive infrastructure to hold on in general for most of the time unless you are, you have really committed to a big system that generally can, you can make some money throughout the year anyway kind of thing.

A (20:09)

Yeah, so, yeah, but so now you've got a really, I mean just on the trade, just on that, on that trading front, you've got a situation now where in the Dubai market our friends and rivals at Platts have the benchmark for that. That's a really tricky position for people to be in because the ports to which you can deliver crude to settle short positions in the Dubai markets essentially been reduced to two, which is Fujairah and Minal Fahal in Oman. And so already you've got a massive drop in liquidity. You can only deliver Merbon to Fujairah, you can only get, you know, Oman crude at Mina Fahal. And the impact on physical market liquidity in the Dubai space is absolutely chronic. So I mean, ballpark figure, if you said in months gone by, say you got, in terms of crude you can deliver to settle short positions in the Dubai benchmark, you've got four grades, you've got Al Shaheen, you've got Merborn, you've got Upper Zak and you've got Omni Oman and you've got Dubai of course, Al Shaheen Dubai, very small quantities. Essentially you've got a million barrels a day of Upper Zaka, a million barrels a day of Merborn, million barrels a day of Oman. Now we don't know what's going to happen because Fujairah keeps being hit with drones. And of course Oman tends to be a very China dominated market and they would take about a third of that on term. So essentially the potential liquidity in the Dubai markets now down to sort of five or six hundred thousand barrels a day. And that I think is really why we see this Incredible squeeze in the sour crude market. And if you look at the spot market premium for Oman crude which is potentially the only grade you can still deliver in in May, that is trading at a $50 barrel premium to the benchmark. That is insane. And then factoring the cost of freight volume loss insurance cost of capital crude is now, I don't know, $160 on a kind of delivered Asia basis. It's crazy. The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Encoinsights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters. Learn more@encoinsights.com just out of interest and

B (23:02)

this might need to be more formally put into our long term consequences bucket but just again sort of idiot's corner of question like what happens if you, you know, you have no capacity to physically settle that bourbon contract, you as a hedge fund or whatever bought, I mean do suddenly we get a force majeure situation like what happens when you know, obviously there's just the last person to sort of get the hold of that contract just cannot deliver on it the day before? Yeah, I mean, you know, does that do. Is that the breakage of the Merbon contract? Like I mean this is quite unprecedented. Usually if you're in a war, this situation basically all this stuff gets suspended, the government steps in, backstops, you know, we've covered that in the grain markets and so forth. You know a lot of these independent structures can't hold in such an environment. So what, what is going to happen there if this continues and actually Merbon as a contract is no longer viable

A (23:59)

or indeed I think, I mean that's a really interesting question. And so far the UAE ADNOC have not issued force majeure. Rather the buyers who are buying from them which will then deliver that crude into Dubai have not declared force majeure. But I mean these are long term trading relationships which is possibly in no one's interest to kind of blow up over a force majeure question. And possibly these deals can be, can be quietly cancelled. I don't know exactly how it's going to work, I don't think anyone does. But then of course if you are, if you are long Dubai and you were going to have to pay an enormous, you know, say that $150 to buy this Oman on a physical basis, you're presumably offsetting that with a paper position which would be larger maybe, you know, you'd be two times leveraged. And at that point essentially you're sitting on a huge naked long position in the swaps market with no physical exposure, no physical cost and so your profits would be astronomically high because the swap position you put on would be, I don't know with a bank or someone like that, it's not with the physical counterparty. So these are two different kind of legs and tearing up one or canceling one does not necessarily lead to the ripping up of the other contract. So potentially if you are long in the Dubai market, you could, you could be making a lot of money. Yeah.

B (25:28)

And this comes back to our sort of key question again that we sort of is out there is on that scale of 1 to 10, how much of the physical actual infrastructure that takes weeks and months to repair being damaged. That's we, we know that relatively well. What we don't necessarily know is this a lack of capacity by the Iranians, you know, or a lack of intent and how that equation changes over time. And it's a moving feast as we discussed. And this is going to recording this Choose St. Patrick's Day. And this will go out this evening. I know, yeah. Getting lots of texts of pictures of Guinness.

A (26:03)

And today of course we, you know, we heard that Iran's. Yeah. You know, does again, how much does that move the needle? He was an important guy obviously. But I think maybe in terms of, you know, the degree of control that Larajani exercised over the IRGC and its military decisions I think was probably relatively slight. So does it, does it change Iran's military strategy? Probably not seriously. And then so then you are kind of in the longer term consequences of where does this all end and you know, what happens and how scarring is it. And this is certainly, you know, when I talk to oil producers you might think, oh those guys must be absolutely rolling it right now, making pots of cash. But the abiding fear that I pick up when I talk to these people is that demand destroyed as a result of this may not come back as happened in 1979 where we saw as a result of the oil crisis then a big drive towards passenger car engine

B (27:10)

efficiency accelerate decoupling China, I mean the, the pivot point there that hinges and let's move on to it is China over there, obviously their petrochemicals industry because you can be as you can have as much solar and wind as you like, but you'll still need petrochemicals to make all the stuff that we then buy off them. But so let's, we'll come back to that long term consequences. And you know, one of the things just around Larajani's death is of course President Trump said yesterday, they keep killing the people I'm meant to negotiate with. So one consequence it does have is the capacity for the Iranians to group leadership into an area or at least you know, and then stand people up as leaders, you know, who might then be subsequently removed. Just prolongs anyway. Right. I mean it just adds to this massive uncertainty and the fact that every day the war, the predicted length of the war expands. But we spent, we spend a good half hour time setting up the scene. But I think it was important. I've certainly enjoyed it. But let's you know, where you are without equal is obviously what's happening in Asia on the demand side. We've, we had you on early well this time last year talking about China and crude and I urge people to go back to listen to that fascinating episode on, on both their domestic production but of course obviously their refineries, how they've developed what is going on. You know, this must be realizing all of China's horrors. Luckily they have a massive SPR they can draw on what's going on there.

A (28:45)

Yeah, so that's really interesting because of course you know, the IEA countries including the US after a bit of prevarication because you know the IEA came out and said oh we've agreed a 400 million barrel release. And then Washington said well we're not sure we've agreed to it. And you know, then we, you know, you see the futures price oscillating around. Eventually the US comes around and says yeah, we are going to release from the spr. And Japan, you know, other, other countries there are following a part of that. China interestingly appears to have rejected state owned companies requests to both withdraw crude from the SPR and also to make an, you know, a larger than planned withdrawal from even their own commercial inventories because it is worried that inventory cover currently is at the lower end of government requirements. So about 60 days. And Beijing does not see this as the kind of existential to China threat that justifies drawing on emergency stocks. And that may be because the threats in the Middle east. It may be because in a world where the global hegemon has taken on this very bellicose foreign policy turn the risks of an existential challenge to China maybe appear higher. Right. You don't want to run down your stocks for someone else's problem if there's no guarantee that you won't become the next target. Personally, I think the idea of a war between the US and China is almost inconceivable. Thankfully. Thankfully. But you know, from Beijing's perspective, maybe you hope for the best and you plan for the war.

B (30:23)

It's quite terrifying because there's a couple of, well, there's, there's two other scenarios that sort of meld into that one, of course, which is the terrifying one, is that they, this is not the intended purpose of their spr. Right. Yeah. And they have been building it up for another event, namely obviously Taiwan, that's relatively terrifying. So I find it, I found it profoundly, you know, impactful when you, when you said that they have not been drawing down on their spr, the other one might be, and this is where perhaps you have certainly more insight is, is this an indication of the parlor state of the Chinese economy? And actually they're quite relieved that they can sort of shut down some overproduction and over capacity as a result of this.

A (31:08)

That, that's, that's, that's, that's a couple of really complex questions. Well, I'll try and unpick them. I mean, okay. And these are the issues of the day, right? China's economy and the status of Taiwan. Again, I am not a military dude. I am no expert in necessarily geopolitics. I'm a markets guy. My feeling is that for China there is a historical inevitability about the return of Taiwan that it doesn't maybe necessarily feel that it needs to force. Also that right now where China is, with so much of its economic growth deriving from trade, trade is of paramount importance to China. And so maybe risking trade by, you know, starting its own war would be, you know, another way of sabotaging its own, its own economy. Why, why is it, is it maybe seeing this as an opportunity to shut down unproductive petrochemical plants? I think that's, that's a possibility, but it's, it's a very blunt instrument because you've got state owned companies also shutting down petrochemical units. And that really is because in this kind of beggar thy neighbor environment, as a responsible government, your paramount duty is to ensure that your citizens do not run out of gasoline at the pump. It's not maybe to ensure that you can polythene, wrap your bananas or whatever. So normally you would think that Something like steam cracking would be relatively price inelastic in terms of its demand response, that the quantity of polythene demand doesn't change greatly on the price. But right now you're seeing a situation where governments are forcing refiners to divert petrochemical feedstocks into the transport fuel production process. So in China you're diverting naphtha into gasoline, in India you're divert, which was hugely dependent on LPG imports from the Gulf, you're diverting alkalate, you're producing lpg, using it to produce alkalate domestically and you're turning that into gasoline. So I think really the governments see it as their duty to ensure fuel supply in an energy crisis, not to ensure supply of petrochemical products which are less strategically sensitive.

B (33:59)

Interesting. So let's just talk a little bit more about India. Are they. China, you know, does have other sources of crude. You know, India, I mean, we're in a different world now that we've relaxed or this, the US has relaxed sanctions on Russia. But what. Yeah. Can you talk a little bit more about India and perhaps between the two, is India more adversely affected by this than China?

A (34:22)

Yes, I think, undoubtedly, because as I mentioned, you know, India's, I don't know, importing about 23 million tonnes a year of LPG from the Gulf, which it uses for, you know, cooking fuel and things like that. And it's not now getting that, so it's having to increase its own LPG production and essentially that's, that's poaching supply from its gasoline exports, which means, you know, it's exporting less transport fuel in terms of crude inventory cover. Of course, again, India was far less well provisioned than China was going into this crisis in that it had far, far smaller stocks of crude. And in part that is because it hasn't needed to have big stocks. It's a weak sailing from the Gulf and the Gulf has never stopped exporting crude before. So why invest huge sums of money in building up precautionary reserves when you're sitting right next door to the central bank of oil? The other factor, of course, has been that India has become the largest destination for Russian crude, which has been embargoed out of Europe. And so they've had that to draw on. Going into the crisis, of course, we saw a lot of Indian refiners pulling back from the Urals markets, or at least two. So Indian imports of Urals crude from Russia were running at about 1 1/2 million barrels a day last year. And we saw that drop to about a million barrels a day in January, February, as a result of simultaneously US Pressure to stop buying Russian crude as part of the trade deal with President Trump. And also because Europe, which imports quite a bit of diesel from India, has said we're going to ban imports of diesel derived from Russian crude. So if you were an export focused Indian refiner, suddenly you had to look at sort of non sanctioned crude in order to supply that market. And Indian refiners have historically been very dependent on exports of things like diesel. So if you are exporting a million barrels a day of Diesel, of which 200,000 barrels a day is going into Europe and you say, well, I'm not going to, I've got to produce that diesel for Europe from a different feedstock. It was just kind of more or less a multiple of three. You're essentially replacing sort of five or six hundred thousand barrels a day of Russian crude with non Russian crude. Now, you know, the US has lifted those sanctions for a month and so the Indian refiners have piled back into the Euros market. They hoovered up a lot of the Russian crude that was stranded at sea. We've seen prices for Russian crude. Last week they rose by about $7 a barrel. Now the amount of Russian crude that's just floating around the ocean looking for a home is greatly diminished. So, you know, you'd love to be,

B (37:14)

you know, that would have been a good, good trade had the European, sorry, I probably should know this but had the Europeans said, oh, fair enough, we, we'll buy that diesel now even if it is come from Russian cre. Are they holding strong?

A (37:25)

They are holding strong for now. And it, it's kind of an interesting test of Europe's metal this because the, obviously the, the security situation in Eastern Europe hasn't changed. You've still got the Baltic States extremely concerned about Russian intentions. You've still got this horrendous war grinding on in Ukraine. And I think, you know, if this became a long term issue, you know, if it ran for several years, obviously, you know, Europe would probably think again. But again, coming back to what people, you know, people's assumptions that this state of affairs can't continue indefinitely at the risk of a massive global economic shock, Europe would look sort of vacillatingly weak, I think, probably were it to say, okay, fine, let's buy Russian crude, buy Russia.

B (38:26)

But again, where are we at in summer driving season if they have such a thing in Europe when significant portion of the fleet is still, well, you know, that's the next shoe to drop. Right. Suddenly again, European consumers are being asked to pay huge premiums off the back of, you know, events that are sort of. Well, it will be fascinating to see how high diesel could go and in Europe and how long they can hold out.

A (38:59)

Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and the mobility. The energy transition and the talent that delivers. It has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Cleantech podcast. Available on all platforms. Yeah, I mean, yeah, I think the real risk to Europe now would be an escalation in the kind of protection measures that we're starting to see creep into the market. So we talked about China.

B (39:43)

This nice lead to South Korea.

A (39:44)

So let's South Korea, China. So China has essentially banned further exports of gasoline, diesel. And, and China wasn't a massive exporter of gasoline and diesel, but it was a massive exporter of jet. So, for example, this month China intended to export 500,000 barrels a day of jet, largely into the Singapore market. And it's actually exporting just a fifth of that. And that is why you see jet prices in Singapore now over $200 per barrel. And it's a similar situation in Europe. A lot of Europe's jet came from the Middle East. It's not now getting that. And jet prices there are now over 200,000 to $200 a barrel. Jet, I would say, is probably the most price elastic element of the, of the, of the barrel. Right. The first thing that you triage in a, in a price shock is maybe your suddenly very expensive summer holiday, you know. So we are, I think, likely to see demand destruction at these kind of price levels. But the real threat would be if the US Banned exports, I think, of diesel, that would be a problem. A lot of that comes to Europe because, of course, Europe's long gasoline and short diesel. Europe exports gasoline to Europe and it imports diesel. Were the United States to halt exports of diesel, that would be a real problem for Europe.

B (41:17)

Wonder what the US Might start doing with crude if it keeps going up.

A (41:20)

Right, yeah. You just don't know anymore.

B (41:23)

No. Which again comes back to that kind of. Even if the profits are extraordinary from trading this, if you get on the right side, how predictable is the world today? To be able to actually trade some of this stuff if you don't have a large physical footprint and system to be able to optimize. And I guess, you know, we'll move on to that long term consequences in a second. Just we're a couple of weeks in at the political levels within, across these countries in Asia, which is a vast region, everyone has their own different setup and they should, people should come to you for the deep dive and deep discussions and on which refinery does what, where and so forth and how they buy their crude. You know, like, are we sort of, is there a mood swing here starting to go from kind of like triage and oh gosh, should be over soon to actually panic stations? I mean, where are we at on kind of that tipping point, you know, as the, as we're seeing these governmental responses come out?

A (42:23)

I think, I think we are moving towards that point because it's, it's not clear how this ends, you know, and you, and you and Nick and Laban had this really interesting discussion the other day. It's existential for Iran and it seems poorly conceived and kind of directionless from the point of view of the United States. So one side, albeit it's the kind of militarily underpowered side, essentially cannot give up and the other side has no very clear goal in mind. And it's very hard, I think, for the United States to kind of row back from where it is now, even though it may be becoming apparent that it was, it was an unwise gambit. And so as a result of that, I think people are, you know, starting to radically recalibrate their views on how long this persists and the, the amount of demand that has to be destroyed to compensate for the quantity of oil that cannot be supplied. We think this month it's, that's about two and a half million barrels a day demand that's got to be essentially priced to destruction. That quantity will probably shrink over time because, you know, you will get more oil coming into the market from Brazil, Guyana, Canada, the United States, places like that. But yeah, I think, you know, if, if anything, this is going to force countries to look again at desired stock levels. So, you know, how much oil do you think you will need to keep in tank? Presumably you're not. Yet, you haven't planned for this, right? No one planned for this.

B (44:17)

No one planned for this. But it looks, I mean it's, it was telegraphed in the short term and as, Yeah, I mean it's sort of the, it's fascinating. Sort of the com well, here I am sort of armchair quarterbacking, but kind of, you know, the last 30 years has been filled with what happens if. And it's certainly been discounted as a reality.

A (44:37)

Yeah, yeah, I think, absolutely. I mean to come back to that point about why all the hedge funds have lost money, people thought this was not something that would be done had the full economic implications of it been factored in. And so they had discounted that on a, on a kind of strategic planning basis and on a trading basis. And you know, so yeah, I, I, I think people will be rethinking and, and when, when, when desired stock levels increase, you know, I think probably price discovery, price signal is blunted by that. Obviously if you have large inventories that blunts the price price signal, markets would conceivably become less efficient rather than more efficient. So there are all these kind of slightly philosophical second order effects as well.

B (45:35)

Paul, I have two seconds ago, I want to sort of crow about the last time you and I had a glass of wine together was at, in, in lovely Lake Louise at the Canadian National Oil Conference. And you know, one thing this has definitely done is make Canadian oil great again. Right, yeah, that, that included some overhyped expectations about how quickly Venezuela could be turned on and you know, and again, this probably be a different situation if Venezuela had been, you know, this was done 10 years later. But all that aside, I think it's worthwhile just, yeah, long term consequences. So one of course is strategic petroleum reserves. And as you say, that makes markets less efficient. It's more government intervention. It's all back to this further sort of the response in general to all this uncertainty, the temptation is of course, government intervention, sometimes that's absolutely necessary. But all of that and including, and this is what the horror is obviously within the market about. If the US treasury is indeed trying to dampen oil futures, it may have the capacity to do so. But whether it's wise or not, all of that suddenly means the capacity to markets to respond to these prices generate price signals and markets to respond is going to be diminished. That certainly seems a factor and perhaps if you're in the business of, I know, building strategic petroleum reserves, you might have a good future ahead of you. What, you know, it also would seem to me that absent a, there are a couple of pathways to obviously lower oil. That's much talked about, obviously if Iran suddenly becomes a friendly regime to its neighbours is one. But it would seem to me that actually the, the long, you know, putting duration of this war aside, it would seem to me that we're in sort of a structural shift up in the price of oil and that the sort of the good old days of it, you know, I don't know, it would seem that that's definitely on the horizon. And then further obviously is that decoupling element of the acceleration of Europe and China towards the electron as fuel.

A (47:36)

Yeah, I think that is, it's very likely that that will happen. The only trouble is of course for parts of the world where gas was a transition fuel, where, and certainly I'm saying in the UK it's absolutely central to our energy mix, this is also a gas supply shock. So gas prices have actually risen I think faster than any other part of this market. And so you, that will feed through to things like UK electricity prices but also in places like Taiwan which is heavily dependent on LNG imports from Qatar and things like that. But I think you're right. I think and to go back to what I was saying earlier about oil shocks, we have known in 1979 after the Iranian revolution, drop in oil production from Iran, you did see this enormous shift away from, from, from gasoline. You know, it was the kind of the death knell of the massive car. You also had the removal of fuel oil from the power generation stack. So it's, it's, I think it's, it is highly likely that we are looking at a kind of, you know, if, if this, if this persists for you know, longer than a month and memories tend to be quite short in the market and people would gravitate towards the cheapest, easiest solution again quite rapidly were it to be a short lived crisis. If it's not, then yeah, I think absolutely we're likely to see levels of demand destruction that may not come back into the market.

B (49:17)

Well, I guess what I want to know, and I've really enjoyed the discussion and it's been fascinating and useful, I want to know how hard Iran is trying to hit, hit the really important infrastructure of oil exports from the Gulf states.

A (49:32)

Yeah, and that's a key question.

B (49:34)

And, and I, and I, I want to know the minute that China starts using its spr, if it does.

A (49:39)

Well I will keep you, I'll keep you up to speed the moment I

B (49:43)

know Paul, we, we'll put a, put a post out and then I'm going to go back to, you know, monitoring the situation on X and looking at more, more maps people have drawn of different pipeline opportunities. As though the, as though the, the dead zone in the Arabian Peninsula is, is but a mere trifle of, you know, a couple of hundred yards wide type thing. But. Well, you know, Tom, it's always a pleasure to, to have you on. People should follow you on LinkedIn, people should listen to you, listen to your work and, and we've just scratched the surface on, on the detailed knowledge and thoughts you have behind all this. So I encourage people to do that and, and hopefully we can have you back on again. Well, hopefully it's all over quickly but if not, we'll have you back on again and do an update on what's going on, both the production side but also crucially that demand side and unlocking some of the opacity in Asia for us.

A (50:38)

That would be great. Yeah. As you say, it would be lovely to talk about happier topics but either way I'd be delighted to come back

B (50:45)

teapot refiners and so forth. But well, thanks for coming back on Tom.

A (50:52)

Pleasure.

B (50:59)

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