MARIA: WELCOME BACK.
CRUDE OIL UNDER PRESSURE THIS
MORNING, OVER SUPPLY CONCERNS.
LAST WEEK AT THE WORLD ECONOMIC
FORUM IN DAVOS I SPOKE WITH BP'S
CEO, BOB DUDLEY, AND ASKED HIM
WHAT HE THOUGHT ABOUT THE PRICES
AND PRODUCTION DYNAMIC TODAY.
WE'VE GOT INVESTORS OUT THERE A
LITTLE PERPLEXED AT WHAT'S GONE
ON WITH OIL PRICES OVER THE LAST
12 MONTHS.
IS THE MARKET GETTING IT RIGHT?
WHAT'S YOUR SENSE?
>> I THINK THE MARKET -- I DON'T
THINK THE VOLATILITY IN THE LAST
SIX MONTHS IS HARD TO EXPLAIN,
REALLY.
JUNE THE OPEC GROUPS GOT
TOGETHER AND SAID SANCTIONS ON
IRAN, IT'S GOING TO SHOOT THE
OIL PRICE UP.
SO THEY AGREED TO INCREASE
PRODUCTION.
AND THEN THERE WERE WAIVERS
GRANTED AND THAT DROPPED THE
PRICE AND NOW TOO MUCH, THEY'VE
OVERSHOT AND MAY HAVE INCREASED
PRODUCTION A LITTLE BIT.
I THINK IT'S THE MARKET WORKING
PRETTY CLEARLY.
I THINK IT'S BEEN MAYBE
SURPRISING POLITICAL SIGNALS
THAT HAVE MADE IT MOVE SO FAST.
BUT I THINK THE MARKET'S COMING
INTO BALANCE THE FIRST QUARTER
OF THE YEAR.
MARIA: JOINING US RIGHT NOW IS
STEVEN SHORK.
THANK YOU FOR BEING HERE.
WHAT'S YOUR TAKE IN TERMS OF THE
SUPPLY OUT THERE, THE U.S. IS
NOW THE LARGEST SUPPLIER, RIGHT?
>> ABSOLUTELY.
AND IT'S YOU BY A LONG SHOT
THERE, MARIA.
WE'RE PROBABLY TODAY PRODUCING
IN EXCESS OF 12 MILLION BARRELS
A DAY.
TO A GREAT EXTENT, THIS OFFSET
SOME OF THE INITIAL EFFORTS MADE
BY OPEC TO BRING SOME OF THESE
BARRELS OFF OF THE MARKET.
NOW, OF COURSE WE'VE HAD A NICE
LITTLE REBOUND IN OIL PRICES IN
JANUARY AND LAST TIME I WAS HERE
WE EXPECTED THAT.
BUT WE ALSO EXPECTED THAT UPWARD
MOMENTUM TO STALL.
WE HAVE TO KEEP IN MIND THAT THE
PRICE-WISE HERE IN JANUARY IS
REALLY NOT A FUNCTION OF
IMPROVING ECONOMIC OUTLOOK OR
DEMAND.
IT'S MORE OF A FUNCTION OF HO HW
WEAK OIL PRICES WERE IN DECEMBER
AS PRETTY MUCH ALL GLOBAL
MARKETS SOLD OFF AND CRUDE OIL
WAS NOT IMMUNE TO THAT AND SOLD
OFF IN SYMPATHY.
THE REBOUND IN OIL PRICES IS
MORE A FUNCTION OF HOW WEAK THEY
WERE IN DECEMBER.
MARIA: IT'S REALLY A
BOUNCEBACK, THEN, MITCH?
>> YEAH.
>> I'M SORRY.
>> STEVEN, WE TALKED ABOUT IN
THE PAST THE FACT THAT IF WE
HAVE TOO MUCH SUPPLY WE MAY SEE
THE FRACKERS BACKING OFF A
LITTLE BILL.
STORY IF THE WALL STREET JOURNAL
ABOUT THE NATURAL GAS
EXPLORATION COMPANIES SORT OF
BACKING OFF.
IS THAT SOMETHING THAT THEY'RE
WORRIED ABOUT EXCESS SUPPLY AND
MAYBE WORKERS FALLING OUT OF THE
WORKFORCE?
>> ABSOLUTELY.
E.
&.
E.
E AND P IS A MAJOR CONTRIBUTE
THE OTHER THE JOBS.
OIL, I'M NOT WORRIED ABOUT ANY
SORT OF SIGNIFICANT PULLBACK IN
PRODUCTION.
OIL PRICES FOR THE BETTER PART
OF LAST SUMMER WERE IN A $65, TO
$75 RANGE.
WE SAW A SIGNIFICANT AMOUNT OF
HEDGING FOR 2019 PRODUCTION.
ALL THAT FORWARD PRODUCTION WAS
SOLD.
SO YOU'RE GOING TO HAVE TO HAVE
ACTUAL PRODUCTION NOW TO OFFSET
THOSE PAPER SHORTS AT THAT
POINT.
BUT THIS BRINGS US TO NATURAL
GAS.
THAT'S A MAJOR PROBLEM BECAUSE A
LOT OF THIS OIL IS PRODUCED IN
WEST TEXAS.
WE BRING UP A LOT OF NATURAL GAS
WITH THAT CRUDE OIL.
IT'S CALLED ASSOCIATED GAS.
WE ALREADY HAVE A SITUATION
WHERE WE'RE OVER-PRODUCING IN
NATURAL GAS AND BECAUSE CRUDE
OIL PRODUCTION WILL REMAIN SO
STRONG, THAT WILL ACTUALLY BOOST
NATURAL GAS PRODUCTION EVEN
FURTHER.
SO ON ONE MARKET, ON THE CRUDE
OIL SIDE I DON'T EXPECT A
SIGNIFICANT PULLBACK IN
PRODUCTION.
BUT THE NATURAL GAS MARKET IS
ABSOLUTELY CHALLENGED AND SO ARE
THOSE JOBS IN THE NEW YEAR.
MARIA: I WANT TO ASK YOU YOUR
REACTION TO WHAT IHS VICE
CHAIRMAN SAID IN DAVOS WHEN I
ASKED HIM WHAT THE BIG ISSUES
ARE FOR OIL.
LISTEN TO THIS.
WHAT ARE THE BIG ISSUES AROUND
OIL FROM YOUR STANDPOINT?
>> IC
>> I THINK THERE ARE TWO WRAPPED
AROUND THE OIL PRICE.
ONE IS CHINA, NOT DEMAND IN
CHINA BUT WHAT HAPPENS IN THE
TRADE TALKS IS ONE THING AND THE
SLOWING GROWTH AND THE OTHER IS
THE RATE IN WHICH U.S. SHALE
GROWS AND HOW THE REST OF THE
WORLD RESPONDS.
WE SEE FEBRUARY IS EXPECTED TO
BE SLOWER GROWTH, INVESTMENT WAS
DOWN A LITTLE BIT.
WE THINK THIS YEAR WE'RE GOING
TO ADD ANOTHER MILLION
AND-A-HALF BARRELS FROM THE
UNITED STATES.
MARIA: CHINA AND SHALE THE TWO
BIGGEST ISSUES, WHAT DO YOU
THINK ABOUT THAT?
>> CHINA WAS CERTAINLY A CONCERN
WITH THE SELLOFF BACK AT THE END
OF THE FOURTH QUARTER AND IT
CERTAINLY IS A CONCERN AS WE GO
INTO THIS QUARTER.
LET'S KEEP IN MIND, THOUGH, THIS
QUARTER DEMAND IS ALWAYS WEAK.
WE HAVE THE POST HOLIDAY LULL IN
COMMERCIAL AND INDUSTRIAL
DEMAND.
WINTER ROADS AFFECTS GASOLINE
DEMAND.
WE GO INTO THE REFINERY
TURNAROUND SEASON, SO REFINERIES
ARE BUYING FEWER BARRELS OF
CRUDE OIL.
THAT CERTAINLY IS A CONCERN.
I AGREE THAT U.S. PRODUCTION IS
AS I SAID BEFORE, BECAUSE OF THE
HEDGES, IS GOING TO REMAIN
EXTREMELY ROBUST THROUGH THIS
YEAR.
KEEP IN MIND, OPEC IS BRINGING
BARRELS OFF OF THE MARKET.
ONCE WE GET THROUGH THE WINTER
AND THAT PRODUCTION, RUSSIAN
PRODUCTION IN SIBERIA, THAT
PRODUCTION WILL HOLD OFF.
THAT SHOULD OFFSET THE FALL OR
THE CONCERNS OF DEMAND.
>> I WANTED TO TIE THE VENEZUELA
SITUATION WITH CHINA AND RUSSIA
BECAUSE RUSSIA INVESTED
$5 BILLION INTO THE STATE OIL
COMPANY.
SO WITH THIS IMPENDING SOME
WOULD SAY COLLAPSE OF THE MADURO
GOVERNMENT, WHAT DOES THAT MEAN
FOR RUSSIAN INVESTMENTS AND
VENEZUELAN OIL?
>> ABSOLUTELY A PROBLEM.
IT'S NOT JUST RUSSIA.
THEY'RE BOTH IDEA LOGICAL, IN
BED WITH ONE ANOTHER, SO IS
BEIJING.
MADURO IS A WANT TO BE CASTRO.
THEY HAVE SIGNIFICANT AMOUNT OF
INVESTMENT IN THAT COUNTRY.
BUT, LOOK, THE UNITED STATES
ALONG WITH EUROPE, ALONG WITH
THE MAJORITY OF SOUTH AMERICAN
COUNTRIES ARE SAYING MADURO HAS
TO LEAVE.
CERTAINLY THIS HAS BEEN A LONG
SLOG WATCHING THE VENEZUELAN
ECONOMY CIRCLE THE BOWL TORE THE
LAST FIVE YEARS.
I THINK WE'RE IN THE END GAME.
WE'RE AT A SITUATION NOW HERE
THAT WITH THE UNITED STATES
CUTTING BACK DEPENDENCE ON
VENEZUELAN OIL, BUT HAVE YOU A
FEW COMPANIES OUT THERE, CITGO
OF COURSE WHICH IS WHOLLY OWNED
BY THE STATE OWNED COMPANY OF
VENEZUELA, YOU HAVE VALERO WHICH
HAS A SIGNIFICANT -- SOME OF THE
REFINERIES, MORE THAN 90% OF
THEIR IMPORTS COME FROM
VENEZUELA.
THE SAME WITH PVF AND CHEVRON.
WHILE THE MAJORITY OF U.S. HAS
CUT BACK DEPENDENCE, YOU STILL
HAVE A FEW COMPANIES OUT THERE
THAT ARE EXTREMELY VULNERABLE TO
THE SITUATION IN VENEZUELA.
NET-NET, I DO THINK IT IS
BEARISH FOR THE MARKETS.
THE MARKET HAS HAD THE
OPPORTUNITY FOR THE LAST TWO
YEARS TO PRICE IN THE LOSS OF
THIS OIL.
IT IS PRICED IN.
AND WHAT'S INTERESTING, THIS
PRODUCTION OF U.S. SHALE IS A
LIGHTER OIL.
IT'S AN EASIER OIL TO REFINE.
IT GETS A LOT OF GASOLINE OUT OF
THAT OIL.
SO WE HAVE A SITUATION WE HAVE
TOO MUCH GASOLINE IN THE UNITED
STATES, WE HAVE A GLUT.
CERTAIN HE KEY MARKETS IN THE
GULF COAST AND NEW YORK HARBOR
ARE AT RECORD HIGHS.
NET-NET, LOOKS LIKE VENT IS A
BEARISH SCENARIO FOR OIL.
MARIA: STEVEN, GREAT ANALYSIS
FROM YOU.