Time now for our Wall Street week daily segment, the host of Wall Street Week
David Westin. Joining us as he does every day at this
time and last time I spoke to you, David, was on Friday.
We were heading into a weekend where everybody was watching that OPEC plus
meeting and expecting the potential for a surprise.
Yeah, exactly. And there was something a surprise,
wasn't there? A practical matter.
It's possibly big news for oil. And when it comes to oil, there's one
such person we always turn to is Dan Yergin, S&P global vice chairman, author
of The New Map and Energy Climate and the Clash of Nations.
So, Dan, welcome. Now, there was a surprise, particularly
because they made a decision, but it looked to me like mainly Saudi Arabia
was making a decision and leaving the other ones behind.
Killing off the hook. Why did they do this and why did Saudi
Arabia go on its own? I think that it could really couldn't
put pull together a coalition or an agreement what to do.
And I think Saudi Arabia sees itself now as the central bank of oil, and that
it's as the oil minister said, that if you're prime minister, they would do
anything to stabilize the market. So we thought a million barrels a day
cut in July would be a bridge to the second half of the year, with the
general expectation is that the fundamentals in the market will tighten.
And so this was to prevent the price from slipping further.
So, Dan, you understand it so well. I don't if they thought it was going to
tighten the second half year anyway. Why does one month of it increase it or
cut in production, I should say, from Saudi or make that big a difference?
I think because the demand has not been what people thought.
There's been disappointment over China, glum news about Europe and uncertainty
about the United States. And so if they don't want to get in a
situation with the price fights further and you have a tougher time climbing out
of it, the petroleum and as energy minister is very experienced.
You've seen that before. So this unilateral cut is to show, well,
they're going to keep the market stable and then look to the second quarter,
second half of the year for a better market.
Dan, I am curious as to how much of an accurate read we're getting right now on
the supply picture. There's been a big focus, obviously, on
what Saudi Arabia is doing and the other sort of major producers.
But Russia is still the elephant in the room and there's still a lot of
distortion as to exactly what they're producing, a more importantly, where
it's being sold. But certainly Russia, the big
uncertainty is rushing production and it has not come down as they said it would.
And that's one of the issues left on the table as
well. What is Russia's quota under OPEC?
Plus. But at this point, right.
The game Russia is playing is what's good for Russia's war effort.
And that's to get as much oil out and get revenues, even though those revenues
are less than they would otherwise be because of the price cap that the West
has put on Russian oil. They are certainly doing everything they
can to get around it. And what a rearrangement of the oil
market two years ago.
And, you know, no oil from Russia. Today, it rhymes with China is the
largest buyer of Russian oil. Two years ago, Europe was the largest
buyer. It's buying hardly anything.
Well, do you have any sense here of what the relationship is right now between
the Saudis and the Russians, particularly when it comes to the energy
space? I think it's somewhat frayed because
different focuses. I mean, originally, OPEC plus was really
a Saudi Russian led organization. It's now really a Saudi led
organization. Russia is there, but it's not.
It's kind of standing aside. So I think they they both have an
interest in trying to maintain OPEC's plus.
But I think Russia's ISE or elsewhere right now.
Dan, do you think Saudi Arabia's disappointed today and the reaction in
the markets? Because initially at least it was a
fairly modest reaction. Yeah, I think, you know, it went up and,
you know, it went up and then it's come down.
The Saudi ministry described it as a lollipop to the market.
But, you know, we're now in June and this is a cut that will take place in
July. So, in fact, it will affect
expectations, but it doesn't go into effect.
But I think they would have looked for something stronger, because that's a
pretty strong statement for Saudi Arabia to say we're unilaterally going to cut
production by these barrels day. Dad oversimplified to some extent.
We've watched a duet here between shale back in there, I'd say, to what Saudi
Arabia is doing. What will be the reaction in ISIS
production? I know we now have some some new
permitting provisions, right? Right.
New property provisions. And certainly, you know, one of the less
focused on areas of the debt ceiling bill was some improvement on this
pandemic. This permitting pandemic that we have in
the United States not being able to get things permitted.
But I think we're seeing that that the shale is not growing as much as it would
have been thought a few months ago. I think there's still caution
and the kind of weakness, relative weakness you've seen in the market.
So people are holding back and the shale producers are still very focused on
returning money to investors, which is their new social contract, which they
need to do to maintain their position in the financial markets.
So you're not getting that big boost that you would get that you might have
expected. It may change later in the year if we.
You see oil prices in the high 80s. If the fundamentals really come to
together in the way people generally expect them to do right now, but so
much, you know, it really hinges on the global economy and in particular that
the fact that China did rebound out of China is not like what we got after
2008. It's not been, you know, a Dani Burger,
as people thought, coming out of Covid. Were you surprised by that then?
I think so. Somewhat.
I think somewhat surprised by it, because you thought there's pent up
demand, pent up energy, you know, human energy.
People want to get back to work, but it's just it's not as strong.
And, you know, you'll see some things that are very positive, like mountain of
jet travel in China. But on the other hand, you look at
manufacturing, it is kind of lackluster. Do you think that what the Biden
administration did in the past with regards to the Strategic Petroleum
Reserve, something that, of course, they're now trying to sort of fill back
up? Did that actually have a meaningful
impact not only on prices, but more importantly on some of the decisions
that OPEC's plus has been making? Well, I certainly had an impact on
prices. This was unprecedented in terms of the
size. And I think that the OPEC plus was
watching it very carefully and continuing to watch it.
And, you know, it was really about. It was real concern about price.
And remember, that began the first release was three months before the
Ukraine war, when a lot of, you know, there was a lot of focus on actually
what was going happen to gasoline prices in the going into the 2022 midterm
elections. So, Dan, as we've talked about, Saudi
Arabia's making a calculation there, try to support the oil price for the time
being to get to the second of a year right now.
Looks like that was not necessarily a good deal.
If you look at how many fewer barrels over it is compared to the move on the
price, where does Saudi Arabia need the price to get to to make this a good deal
for them? Well, you know, it always gets cited.
You know, these days that the price they need is around 80 dollars.
You know, I've seen over the years, whatever the stated price that they need
varies with where the price is at any given time.
But certainly they have very ambitious economic program under a Vision 2030,
spending a lot of money. And they need revenues.
And so when you when Saudi Arabia's act as a central bank of oil, it's trying to
take a longer mid-term, not a long term or mid-term effort to assure that the
kingdom has the revenues that it needs for its programs.
And it does not want these prices below 80 dollars are very disturbing to it.