Demand, Mideast Conflicts Impacting Oil Markets

See that risk premium come way off the barrel of Brent there. We’re 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, Red Sea is still not stable and safe, ongoing war in Ukraine, sanctions on Iran. So really the geopolitical developments and pressure on oil markets are still there, cannot be ignored. But there is a difference between them making a huge impact on prices or having a dampened effect. And that dampened effect today is coming from several factors that are still at work in the market, primarily the spare capacity of OPEC Plus, which has added a lot of safety cushion. And usually you look at safe spare capacity when we are also assessing the geopolitical risk premium. So the higher that capacity, the lower the geopolitical risk premium. There is also demand. I mean, a few weeks ago everybody was talking about central banks perhaps reaching the time where they would start cutting interest rate. But we are seeing maybe a set back in that story because of inflation remaining persistence and that is making people more focused on the macroeconomic outlook. China positive sign, that’s great. Uncertainty remains about the outlook of China and then 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. Now we’re, you know about 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 arms. So companies with established trading arms would be 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. It’s and we are expecting because we saw 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 80s, mid 80s to high 80s. Then I’m not expecting a big drama, but maybe a softening compared to previous periods given the trend in prices. Carol, when it comes to OPEC Plus, we obviously have the June meeting coming up and I guess we’re anticipating that they’ll prolong those supply curves. Is there any chance that OPEC Plus will decide to actually increase them? Look, a lot can happen between now and June and OPEC Plus 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 94 brand. 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 OPEC is the most bullish in terms of its forecast for demand growth this year. I mean, there is more than a million barrels a day difference between OPEC and other estimates, primarily the International Energy Agency. So I don’t see further cuts, but there is a quite 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 OPEC is forecasting, can turn the market into a surplus and put downward pressure on prices. Carol, the natural gas market in the US has been extraordinarily weak, not so much Europe, although we have seen a lot of volatility in Europe and in Dutch futures and so on. What do you anticipate the outlook is for natural gas given the backdrop of oil It they don’t seem to sort of pair up at all, do they, these two markets? And it’s amazing what has been happening to gas 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 in 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 China is a massive buyer of LNG in particular and that could affect gas prices. But so far, they are not as excited fighting as oil prices and they seem to have gone into different territory because also if you look at the European market, storage is full demand destruction because of high prices, a lot of supply that has come. And as I said, Asia is not really booming. So that’s how we see this kind of disconnect because gas markets have evolved and they have come a long way from let’s 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 insight at least when it comes to supply. But 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? Sorry, say that again. I I missed the last one. The last one, the La Nina weather pattern, is it 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 is going to go to cause in terms of production. But again, I’m not terribly worried because as I said, I mean there’s safety cushion in the market and that could that could dampen it depends. It’s never one single factor in all markets. I’d be mistake to zoom in on a single factor that several forces at work and we 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 these we have to take consideration to assess the impact. But usually weather disruptions can cause supply disruption. But again, it’s not a major drama depending on how much actually disruption they can cause.