Following a weaker than expected non-farm payrolls report, we're keeping an eye on oil markets as well as equities.
Now we are looking at WTI and Brent back higher after a very brief reprieve overnight.
US crude soaring to its highest price since 2024 on Thursday, marking its biggest one day jump since 2020.
But this morning we are looking at a rally of WTI by over 8%.
Now the escalating conflict between the US, Israel, and Iran threatens one of the world's most critical energy choke points.
Container shipping giants Mark and Lloyd have officially suspended key shipping routes through the Middle East as the fallout from the war in the region continues to disrupt global trade flows, and the US Treasury announcing it is giving India a 30 day waiver to buy Russian oil that is currently stranded at sea.
Treasury Secretary Besson calls it.
Temporary stopgap measure to keep oil flowing amid a supply crunch triggered by tensions with Iran and the Middle East.
Well joining me to weigh in on all these moving parts is Bob McNally, founder and president of Energy Group.
So Bob, good morning.
Happy Friday.
There are a lot of moving parts, but we know that WTI as well as Brent is rallying.
So first and foremost, what do you make of the situation in the Middle East?
Good to be with you, Remy.
So, uh, it's a pretty serious and worsening situation, I think.
Going into this crisis, not only did investors not anticipate that there would actually be a conflict, I think there's been 7 years of sort of conflicts not happening or disruptions not happening and oil price spikes reversing.
So, but I think now the market is coming to terms that we have a serious situation.
And I think, I also think we're shifting from an unwarranted hope that expectation that Hormuz could not be stopped or blocked for very long, a matter of days, and now to where I think we're moving towards anxiety that it's not clear when it will be reopened to traffic.
So I think the market is transitioning from Complacency into anxiety here and we'll continue to do so until we have good reason to believe that the commercial traffic through Hormuz is going to resume. and building on what you just said overnight, Treasury Secretary announced a short-term measure, and this does come on the heels of Trump announcing that intervention to secure the Strait of Hormuz.
But the longer this conflict lasts, the more difficult that is going to be.
And given the intense US pressure to cut off Moscow's more funding.
How does this exemption continue to complicate Washington's broader sanctions strategy?
You know, you always have to strike balances.
I worked for President George W.
Bush in the White House during the liberation of Iraq and 9/11 and so forth, so emergency times.
You're always balancing different national interests.
The president wants to keep Secretary Beet wants to keep the pressure up on Putin.
And also surprised folks by sanctioning Russian oil companies.
And until, you know, February last month, Putin was suffering.
His budget was suffering.
He was losing money on his oil sales.
But now the administration has even a bigger problem.
They have to arrest this rise in oil prices.
And so therefore they've decided to make it a little easier to remove friction.
So that India, which had been pulling back from Russian oil, can buy that oil that's on the market.
Look, I wouldn't overstate how much of an impact this is going to have.
India was probably going to buy that oil anyway.
This is just the United States making it a little bit easier, so I wouldn't overstate it.
I'm pretty sure that when this is all over, the US will be back to putting pressure on Putin to stop that war in Ukraine.
And as you mentioned, Wall Street continues to monitor oil prices, and we all know that shipping companies, as well as multinational corporations are watching what is unfolding.
But earlier this week, Trump mentioned the International Development Finance Corporation to provide reasonably priced insurance to.
And the DFC does traditionally focused on mobilizing capital in developing nations, but what do you think at the end of the day it will actually take to secure the Strait of Hormuz for daily commercial traffic?
And how are you trying to figure out the situation in terms of de-risking here, right?
So Remy, it all boils down to a military question, not insurance.
It's all military and it's not about.
Escorting commercial ships.
The issue is when the United States will be able to degrade Iran's considerable inventory of layered asymmetric munitions and means to threaten shipping.
That means countering the drones, countering the fast attack craft, the small boats they have.
The anti-ship cruise missiles, they have artillery along the coast and some submarines and things.
So it's a military question.
It simply boils down to when will it be safe for commercial traffic to resume.
And barring a political decision to have a ceasefire, that is a military question entirely a military question, and that is what the market needs to see is that that traffic resume.
And speaking of which, I do want to get your take on the impact on the global supply of oil.
So how much cushion does the global oil market currently have before we actually see a severe supply shock?
Well, we already are having a severe supply shock.
There's no cushion big enough to offset the loss of Hormuz through which about 20% of oil consumed flows.
That's 15 million barrels a day of crude and 5 million barrels a day of.
Fine products.
Some of the crude can be redirected away from the strait, but only a few million barrels a day at most.
So that is a disruption that's too big for even strategic stock releases were they to be used to offset.
So the question now is timing, not whether we have a disruption that's major.
We do.
We do not have a buffer.
It's how long will it last.
For example, the Saudis and the UAE, they have what we call spare production capacity, but that's all bottled up in the in the Hormuz Strait.
So we're out of buffers.
We have inventories in commercial inventories, and we have strategic inventories, but those won't hold out too long in terms of preventing an oil price rise as long as that.
Let's call it net 15 or 16 million barrels a day is off the market.
It simply must resume for oil markets to calm down and for financial markets to recover.
Bob, finally, before I let you go, the White House announcing that it is planning to scrap a 2024 mandate that forced oil and gas companies to put up $6.9 billion in new bonds, and a Government Accountability Office report also found that the government was exposed to billions in financial risks if offshore oil and gas companies failed to meet their.
Obligations.
But when we take a step back, we have to remember the fact that we started out 2026 with Venezuela, and now that Venezuelan oil cargoes are surging, this does seem to come at an opportune time.
So what do you make of all of these moving parts and at the end of the day, what does it mean for oil?
Right, you know, Venezuela, indeed that roughly 6000 to 700,000 barrels a day is now no longer flowing to China.
It's flowing to the US and other areas, and we're hopeful that these changes in Venezuela not only are beneficial for the energy industry, but for the people.
Of Venezuela and down the road in many years hopefully Venezuela will become a major producer again, well above 3 million barrels a day, and the world will need that oil in the coming decades.
However, Iran and the Hormuz Strait really dwarf it.
Remi, it is an order of magnitude bigger.
It's the loss of 20 million barrels a day.
Again, maybe we can redirect a few million barrels a day, so.
The world has an authentic energy crisis on its hands.
We've never seen Hormuz closed.
Even during the tanker war of the 1980s, traffic was still going through Hormuz, and the most important question for investors and consumers and businesses right now is when will the strait reopen to commercial traffic, and can it be soon?
That is by far the most important question in markets right now.
Well, Bobby, we will have to leave it there for today, but thank you so much for joining us and thank you so much for sharing all of your insights as well as perspective.
Thank you, Remy.
