Re: Oil-Convo with Javier Blas, Bloomberg’s Chief Energy Correspondent.
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Re: Oil-Convo with Javier Blas, Bloomberg’s Chief Energy Correspondent.
Had a nice long chat today despite our London/Los Angeles time difference. Here are a couple salient points.
Key question on my mind has been the topic of OPEC SPARE CAPACITY. I mentioned that Cap One’s out-of-consensus view that GCC countries (especially KSA) were heavily investing in spare seemed at odds with this tidbit that Javier reported on:
Having known AbS for 20 years, Javier thinks that KSA oil policy under AbS will err on the cautious side. He thinks that expansion of spare capacity IS happening but “will be slow.”
It makes sense that KSA doesn’t trust the US after the “Trump rug pull” (my words, not Javier’s) in 2018 in terms of granting waivers on Iranian bbls after coaxing KSA to flood the market after US sanctions on Iran.
Yet despite that “rug pull,” Javier agrees with me that KSA’s relationship with the US under Biden is even worse. I highlighted various reasons here (not even including the ESG pivot).
Seems like the Biden Admin would have to go out of its way to kiss MbS’ ass if it’s going to have any hope of concessions regarding oil, imho.
Despite this, Javier thinks that OPEC will NOT run out of spare capacity, noting that “they’ve always been able to pump more somehow.” I agreed on this last point and pointed out the resiliency post-Abqaiq attack in 2019.
Like Cap One, Javier notes that Q2’22 could be “a bit oversupplied” as a result of the cumulative 400kbpd increases as stipulated by the last DoC.
That said, Javier notes that KSA will reach 10.2 mmbpd by Feb’22 — just shy of its all-time average annual output of 10.3 mmbpd. He thinks that if they have to keep that level of output on for an extended period that “it could be a strain.”
At this point, I questioned Ghawar’s almost mythical longevity, and while no one except KSA has true transparency on this topic, Javier noted that even though Ghawar can no longer produce 6 mmbpd, many of the smaller fields have picked up that slack.
Javier mentioned that the UAE/Abu Dhabi has a decent amount of spare (3.7 mmbpd) relative to its current production (2.8 mmbpd). Totally explains the recent spat around its quotas.
We turned our discussion to China and the potential ramifications of its recent power shortages (not to mention the fallout from Evergrande). Javier thinks that it’s inevitable that industrial production will slow down.
I posited that this would disproportionately impact “capex commodities” like steel/cement as opposed to “opex commodities” like oil. Javier concurred but countered that petrochemical demand of oil would be susceptible to slowing industrial output. Makes sense.
Finally, I ended by asking Javier his opinion on the probability of the Biden Admin doing something drastic (and stupid) like banning crude exports. I wrote about that here.
Javier agrees with me that such a ban would do precisely NOTHING for gasoline prices while seriously crippling the domestic shale industry and blowing out the WTI/Brent spread (which I mentioned as an indicator to watch).
It gave me chills when he mentioned that everyone from the DOE to the Office of Fossil Energy in the Biden Admin is a climate/ESG activist with little knowledge experience in O&G. Even the Obama Admin didn’t have this knowledge gap.
Javier acknowledged that while the Energy Secretary walked back her comments after floating the idea of banning exports, no one really knows whether she and others within the Biden Admin really consider it to be a viable tool. POLICY ERROR OUT OF IGNORANCE IS WHAT I WORRY ABOUT.
Javier agreed and noted that these noises are coming out of the Admin when WTI is “just in the 80’s” — BEFORE THE WINTER. What will the Admin do if a cold winter spikes oil to $100 and natgas to $10?
With that, we agreed to stay in touch with each other on all matters O&G. Thanks for tuning in. “Crucibles of Pain” FTW🤘