Are you just as optimistic about another commodity boom for next year?
I think I am. I think certainly in the second half of
the year, we see Brent moving about 100 dollars a barrel.
It could be somewhat sideways really for the next couple of quarters, given where
we see supply and demand. But, you know, you've really got a
number of factors at play here. First of all, the China reopening, and I
think that's moving a bit quicker than we've expected following the unrest that
we've seen in China. Secondly, on the supply side, we've got
the EU embargo coming on December the 5th on crude.
And then on products on February the 5th.
And then, of course, the price caps as well.
That's going to have a very significant impact potentially on Russian shipments
also coming on December 5th. A big week ahead.
I mean, there's talk that they shifted this open plus meeting to virtual
because they're not going to do anything.
Is it also warns that they maybe take a pause or given that those price caps on
Russian oil, that takes effect on Monday as well?
Exactly. So, I mean, I think they're going to war
and see what the G-7 really comes out with.
There's just so much uncertainty around really how much physical disruption
we'll see to Russian crude supplies. I think the fact that they're doing this
online suggests that they're really going to rule over current policy.
And then look at things again in the new year once they get a bit more data on
supply. Neal, David here.
So what is done? Your assumption on that?
Well, let's let's run through, I guess, one, two scenarios.
What is your assumption on Russian caps and Russian crude?
That's one part, because that affects then what opaque plus might do at the
meeting after just this one. That's coming up.
Yeah. So, you know, despite everything that's
happened in Ukraine, Russian crude production this year is actually being
flat. So we haven't seen any supply
disruption. We have seen reduced exports to Europe.
And Russia's currently exporting about 2 million barrels a day into Europe.
So, you know, if you shot that off completely, the worst case would be a 2
million barrel reduction. But of course, Russia is going to
reroute that crude to other markets, but it's gonna be difficult because shipping
it to Asia will take six, 45, 60 days to ship it out to India, China compared
with about 10 days into Europe. So it's going to take a lot more tankers
really to move that oil. And as a result, you're going to see
some disruption. If you look at the Russian budget, which
came out there assuming about half a million barrels a day reduce crude
output next year. The IEA has it penciled in around one
point two to one point four million barrels a day.
We think a roughly a million barrels a day is what our expectation in terms of
the loss of Russian crude output. But it is highly uncertain, just given
the unprecedented nature of of these sanctions.
MCNEIL Well, sorry I couldn't hear you cause my producer was talking to me, and
so I think your final thought there was, you know, what what what Russia might
then do that we'll all pick classes that they need to offset that whatever
effectively that that loss of supply will be.
I think they could do you if we saw, let's say, you know, demand coming in as
expected next year, you know, one and a half million barrels of
growth. And if we saw one million barrels day
coming off Russia, that's a two and a half million barrels a gap in the
market. Now, some of that will be filled with
increased non OPEC's supply. But, you know, we've seen a 20 percent
reduction in U.S. crude production estimates in terms of
growth this year. So oil production outside of OPEC is
certainly not growing as great clay. And so I think then I think they might
be forced to act. But I think they would wait and see
exactly what the impact roles first. China reopening, you're saying, could
happen sooner than expected. How much pent up demand is there for for
oil from China? I think it's significant.
There's very little. Certainly air travel happening
domestically in China. You're seeing road mobility down
significantly. So I think in terms of gasoline, jet
fuel demand, you know, you could be looking at close to 700000 barrels a day
growth next year. We've actually seen negative oil demand
from China this year, which is almost you know, we haven't seen that in 20
years. So this is a really big drop in demand.
We've seen this year. But of course, trying to get it going
next year, that's really going to turn things around.
Do you think then there's concerns about oversupply in the market?
Is that still justified here? And can we actually rule out that it
might not cut production? Well, the equal pay is going to roll
over. I think, you know, they're targeting a
range, I think between 80, 100 dollars a barrel.
So I think if if things go too far ahead of all four of one hundred dollars a
barrel, then I think they would make some adjustments.
But, you know, I think OPEC really are quite happy with where pricing is right
now. But, you know, there is the downside
risk of recession potentially. You know, Russia being able to move much
more oil than people think. And so I think, you know, that's
something that we'll have to watch very carefully.
Neal, just to pivot, still staying in energy, obviously, here we are up
against winter quite literally in a few weeks.
How well stock do you think is Europe right now?
Just looking at this whole central way, it could change, obviously, with the
weather on gas. So, you know, we've seen obviously
Europe do a tremendous job in terms of filling gas inventories coming into this
winter, which has seen prices soften. And we've now got a real cold front
sweeping through north north China. It is certainly a temperature dropping
in Hong Kong. And so we're starting to see certainly
heating demand for gas turnout. And, you know, gas inventories are
starting to be drained. Certainly in Europe on this cold weather
that we're also seeing there. I think as we go into next year, you
know, really there is a risk that we are going to see another big spike in
prices. A lot depends on where we exit in March
in terms of inventories. You know, Nord Stream was just shot down
in September. There's very little new LNG capacity
coming online. And so I think you're going to see a
potential another squeeze if we if we see a cold winter ahead.
Of course, a lot depends on the Russia Ukraine war and whether or not that
continues throughout next year. But the setup for next year is also, I
think, looking very, very tight. Well, Nielsen's you mentioned it.
I mean, this is the very cold front in northwest China.
I was looking at the weather projections for, say, Sinjar.
I mean, we're 10 degrees below where we need where we usually are for this time
of the year. Is there anything we need to watch as
far as China's stockpiles are concerned ahead of the winter?
Yes. So, you know, China, like a lot of other
countries, replenished gas inventories coming into the winter.
But gas inventories tend to be actually quite low in China, about 70 percent of
demand. China has banned the REE exports of LNG
cargoes. So it's going to be competing more with
Europe for LNG and a reopening in China. I think that increasing gas demand means
more competition between China and Europe for what is, you know, pretty
tight gas market. So I think that certainly could push
prices higher.