Ed Morse on Global Oil Risks

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00:00So the oil market looks like demand and supply are out of balance, even with what's going on

00:04with Iran and sanctions on Iran and the Russia-Ukraine battle. The question is how big that

00:10surplus might be and how much risk there is in the world to put the longs in the market to stop

00:17it from falling. But we've had, you know, three years of lower and lower oil prices. And part of

00:24that is certainly cyclical. And it relates to challenges on the demand side, as well as a big

00:31surplus on the supply side. To zero in on Venezuela specifically, when Trump has been asked about

00:36various things like, will you let opposition leaders back in? He says, I don't know. I haven't

00:39thought about that. But what I have thought about is reviving oil in Venezuela. Analysts have pinned

00:44the project at something like $100 billion. Ed, what does the trajectory and timeline look like

00:49for getting Venezuela at peak production? So the timeline and the projection or projection is

00:55really long. The timeline has to do with what the very things that Bob McNally said. This is a world

01:02of oversupply and it's a world of risk. And we're seeing not just the third consecutive year of oil

01:09prices going down, but the third consecutive year of less investment going into oil because there is

01:15more than enough of it to meet projected supply, at least theoretically. And the problems, you know,

01:22long have long been long by that. I mean, a good three years have been Russia, Ukraine and the

01:29distortions to supply chains and the distortion to trade and the sanctions imposed on Russia and the

01:35sanctions imposed on Iran. But we see plentiful supply coming out of available for those countries

01:41if they decide to put oil in the market and they want to. And we see, you know, strength in the U.S.

01:47And people kind of look now at the U.S. and say, well, we're seeing less capital going into the U.S.

01:54oil patch. And there are even some people projecting that we're going to have less crude oil production in

02:01the U.S. in 26 than in 2025. But if you look at overall liquids projection from coming out of the U.S.,

02:08natural gas liquids are part of that. Biofuels are part of that. The U.S. is a 23 million barrel a day producer

02:16of liquids. It's not a 13.7 or 8 million barrel a day producer of crude only. And on the NGL side, we're 8 million

02:26barrels a day producer of NGLs. The world projects that the NGL production is going to continue to grow at about a million

02:33barrels a day per year. That's about equal to oil demand. NGLs can be used for transportation fuel.

02:39They can be used for power gen. They can be used as an industrial fuel. So there's a lot of substitution

02:44effects there. And the U.S. is the leading natural gas liquids producer as well. So we're going to see

02:49liquids production growth come what may in a world that's not going to likely see much in the way of more

02:56than a million barrels a day of demand growth. By the way, you've been to Venezuela dozens and dozens

03:02of times, most recently just three years ago. Right. So how does their infrastructure look? Because

03:09as some people say it could take a hundred billion dollars of investment over 10 years. Others say,

03:15no, 15 to 20. The infrastructure is still there. It's just degraded. Now, that's two different kinds

03:20of things. So the infrastructure to get production growing from 900,000 barrels a day more or less

03:28to a million, three or four is about 20 billion dollars. The infrastructure needed to get back

03:35to a 3.2 to 3.5 million barrel a day producer is in the hundred billion dollar range. And the question

03:42is, who is going to take the risk of that investment in a world where oil prices are soggy, when there are a

03:47lot of other kinds of opportunities to invest in oil? And when prices go up, we're going to see

03:54capital going back into the U.S. oil patch because it's the easiest oil patch to get more oil from

04:01quickly. And there are other places in the world like that. Argentina is now booming because its

04:06shale play is similar to the U.S. shale play. Brazil is booming because it's become a safe harbor

04:11for investment. And even though most of it is offshore, it is not that hard to develop. The same

04:19is true of Guyana. The same is true of lots of places in West Africa. So Brazil, excuse me, Venezuela

04:24is going to have to compete for the capital in other places that are less risky. And the question is,

04:31what are the guarantees that are going to be there? President Trump has indicated and his team of people

04:36have indicated that this is a choice for the Venezuelan government to make. What are they going

04:41to do to make it a more attractive place to invest in oil? Even so, we've seen some like the likes of

04:46Oleg Deripaska, a Russian oligarch who himself has faced U.S. sanctions, saying that Washington now has a

04:52more controlling hand in this oil market and could keep prices below $50 if they wanted to. Does this change

04:57the U.S.'s position in overall international oil markets or even as it comes to their influence over OPEC plus?

05:04So we have to remember that the basics are not the U.S. government. The basics are the price of

05:09oil. The price of oil is what determines who's going to invest and where they're going to invest

05:13and where they're going to invest is a function of how rapidly can you invest it and how safe is

05:18the investment. So the U.S. stands out as a very attractive place with respect to a world with very

05:24volatile prices. But the U.S., even with all of the energy dominance themes that Trump has in many

05:30ways rightfully focused on, the U.S. is not that energy dominant that Washington can, as Washington,

05:36as a government, actually control the world market.

05:39Can I ask a question about energy dominance not related to the U.S., which is interesting and we

05:44could and you talked about that on surveillance. But in terms of what's going on in Europe,

05:48why are they so beholden to the interests of still Vladimir Putin? They still directly or indirectly

05:54pay Russia for energy. Why can't they, with this glut of oil and all the LNG we could ship them,

06:02be independent?

06:04Well, Europe basically is independent. So, you know, the European countries who depend upon

06:09fossil fuels out of Russia are very few and the amounts are very limited. They include the Czech

06:16Republic. They include Slovakia. They include Croatia. But the main countries are not importing either

06:22oil or gas. The oil market is kind of easy. It's more fungible. And yes, Russia is a close neighbor.

06:30It goes through India and then they buy it there.

06:32Well, the Europeans buy product. The product market is a world unto itself. It's very hard to disguise

06:38what's Russian and what's not in terms of the product market. But if you look at their main

06:42dependence, the main dependence was not on seaborne crude oil. Their main dependence was on Russian

06:48pipeline gas. That is a real dependency. And they're not long, any longer dependent on Russian

06:54gas. They're dependent on other people's gas. And a lot of the gas that they've come to replace

06:59the Russian gas is American gas, which happened to be, you know, bubbling up at the very moment

07:04when those sanctions were put on Russia. So Europe's problem when it comes to energy is that they are

07:11nowhere near self-sufficient. Yeah, there are a couple of countries. Norway now stands out as having a

07:17surplus on the fossil fuel side. But Europe has been an importer of fossil fuels for as long as fossil

07:24fuels have been, you know, predominant in the oil market starting from around, you know, 1910. So

07:32for a long time. And Europe's position is one of massive vulnerabilities as compared to other places.

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