Demand, Mideast Conflicts Impacting Oil Markets

Demand, Mideast Conflicts Impacting Oil Markets

See that risk premium come way off the
barrel of friends there were down from
91 to 86 the other day.
But we’re back up now, ticking higher
inch by inch.
What is this oil market telling us?
Good morning.
First of all, definitely.
I mean, geopolitics is on everybody’s
mind when talking about oil markets,
because even though the tensions now
have eased a bit in the Middle East,
they have not dissipated.
You still have ongoing war in Gaza.
The Red Sea is still not stable, stable
and safe.
Ongoing war in Ukraine, sanctions on
Iran.
So really, the geopolitical developments
and pressure on oil markets are still
that cannot be ignored.
But there is a difference between them
making a huge impact on prices or having
a dampening effect.
And that dampening effect today is
coming from several factors that are
still at work in the market, primarily
the spare capacity of Opec+, which has
added a lot of safety cushion.
And usually you look at spare capacity
when you are also assessing the
geopolitical risk premium.
So the higher that capacity, the lower
the geopolitical risk premium.
There’s also demand.
I mean, a few weeks ago everybody was
talking about central banks perhaps
reaching the time where they would start
cutting interest rates.
But you are seeing maybe a setback in
that story because of inflation
remaining persistence, and that is
making people more focused on the
macroeconomic outlook.
China positive sign.
But great uncertainty remains about the
outlook of China and non-OPEC supply
remains strong.
So on balance, this is what I think the
cocktail of these forces is giving us,
the oil prices that we are seeing today.
Yeah, it’s fascinating.
And then, Carol, we’ve been talking
about big tech earnings and how we’re
about to hit peak earnings season.
But what about the energy companies?
Are they benefiting from these higher
oil prices or is the volatility also
hurting them?
Well, volatility definitely benefits
trading.
So companies with established trading
hours would be I would welcome
volatility.
But overall, if I look at oil prices,
because that’s what really drives the
profitability and the earnings of major
energy companies around the world, as
well as gas prices, depending on how
established their gas business is.
And we are expecting because we saw a
softening in prices in the first quarter
of this year, relatively speaking, to
previous periods that probably earnings
of major oil companies are likely to
take a hit.
But it’s not going to be a drama.
I mean, prices are still above in the
high eighties, mid eighties to high
eighties.
Then I’m not expecting a big drama, but
that may be a softening compared to
previous periods given the trend in
prices.
Carol, when it comes to Opec+, we
obviously have the June meeting coming
up, and I guess we’re anticipating that
they will prolong those supply curbs.
Is there any chance that Opec+ will
decide to actually increase them?
Look, a lot can happen between now and
June, and Opec+ is focused on the demand
outlook.
Maybe a few weeks ago when prices hit,
you know, started climbing consistently
and they hit 90 and above 90 for Brent.
And there were more talks about actually
the possibility of starting unwinding
the cuts and starting with the voluntary
cuts to start gradually putting more
barrels in the market.
But it all depends on the demand
outlook, how strong the demand is going
to be, bearing in mind that OPIC is the
most bullish in terms of its forecast
for demand growth this year.
There is more than a million barrels a
day difference between OPIC and other
estimates, primarily the International
Energy Agency.
So I don’t see further cutting.
But there is a quote, two questions here
either starting to unwind the voluntary
cuts gradually or sustaining those cuts.
And mind you, many forecasting agencies
have incorporated an extension of those
cuts for the second half of this year.
And that by itself would justify a
slight deficit in the market, putting
more barrels in the market under
existing conditions, and especially if
demand does not turn to be as bullish as
OPIC is forecasting, can tell the market
into a surplus and put downward pressure
on prices.
Carol, the natural gas market in the
U.S.
has been extraordinarily weak.
Not so much Europe, although we have
seen a lot of volatility in European and
Dutch futures and so on.
What do you anticipate the outlook is
for natural gas given the backdrop of
oil?
They don’t seem to sort of pair up at
all, do they, these two markets?
I mean, it’s amazing what has been
happening to guys, because don’t forget
that just less than two years ago, I
mean, we saw prices skyrocketing,
especially in Europe and everywhere
else, upward pressure on prices.
And today all that seems to be long gone
in the memory of many.
But gas prices, yes, you’re right that
they are developing a mind on their own
because of the development of LNG, more
trade happening, and also the markets
that used to be disconnected in the
past, let’s say Asia and Europe and
North America now are influencing each
other.
So that’s why we also keep an eye on
what’s happening in Asia, what is
happening with the demand in China,
because China is a massive buyer of LNG
in particular, and that could affect gas
prices.
But so far they are not as exciting as
oil prices.
They seem to have gone into different
territory because also if you look at
the European markets, storage is full
demand destruction because of high
prices, a lot of supply that has to
come.
And as I said, Asia is not really
booming.
So this always see this kind of
disconnect because gas markets have
evolved and they have come a long way
from that, say 20 years ago when they
were closely following oil markets.
Yeah, we’re just having a look at the
stockpiles there.
It seems that there is no
change in sight, at least when it comes
to supply.
But there there’s a La Nina coming,
Carol.
What is the market saying about the
potential impact of a La Nina following
the El Nino we’ve just had?
I’m sorry.
Say that again.
I missed the last one.
The La Nino weather pattern is likely to
have an impact.
The La Nina weather pattern that we’re
about to see.
Yeah, I mean, absolutely.
It depends on how much disruption that
it’s going to go to cause in terms of
production.
But again, I’m not terribly worried
because, as I said, there is safety
cushion in the market and that could
that could done.
But it depends.
It’s never one single factor in all
markets.
I’d be a mistake to zoom in on a single
fact that there are several forces at
work and you have to see is the market
really in tight situation?
Is there sufficient spare capacity?
Is the demand booming?
Is the supply struggling?
So all of these you have to think
consideration to assess the impact.
But usually weather disruptions can
cause supply disruption.
But again, it’s not a major jump
depending on how much actually
disruption they can cause.

Carole Nakhle, Crystal Energy CEO, discusses rising oil prices as Mideast tensions rise. She speaks with Vonnie Quinn on Bloomberg Daybreak: Middle East & Africa.
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