The energy market is in uncharted territory as the uncertainty thickens around the Middle East.
Brent crude just posted a 71% quarterly surge marking its biggest jump since the 1990 Gulf War.
Meanwhile, U.S. gasoline prices crossed the $4 a gallon threshold.
And at the beginning of the week, a Kuwaiti tanker was struck by a drone off Dubai at President Trump's, signaling he may end the war without fully reopening the Strait of Hormuz.
But this morning, Donald Trump was on social asking, also saying that Iran asked for a ceasefire and that the U.S. will consider one when the Strait of Hormuz is open.
Well, joining me today to weigh in is Janiv Shah, Vice President at Rystad Energy.
Good morning and good afternoon to you in London, Genevieve.
Thank you so much for joining us.
Well, first and foremost, what do you make of the back and forth and the fact that WTI, as well as Brent, does remain elevated above the $100 barrel level?
Well, good morning, firstly, thank you for having me on.
I think the market is moving in a lot of volatility these days, especially these weeks because of the essentially flip and flop of the way this war is evolving in the next phase.
We have had the Houthi involvement over the weekend, essentially bringing a lot more upside potential and support into the global market because of the disruption risk that could happen through the Red Sea, not just through what's happened across the Strait of Hormuzan into the Persian Gulf.
But with the latest words from the US president, it does look like the two to three week time period could come to fruition.
It might also be delayed by ever so slightly by a touch.
But nevertheless, that signals a warranting for a slight de-escalation potential.
But of course, all eyes are on what happens within the Iranian space and wider Middle Eastern side, because infrastructure is still being attacked.
And if that escalates, we do see upside potential to prices.
Yeah, and speaking of which, of course Europe is already urging fuel conservation and we know that certain nation states in Asia are also declaring a state of emergency, while here in the U.S. gasoline just crossed $4 a gallon.
So at what exact crude price do we see material demand destruction that actually forces some economies into a recession?
Well, that's a good question.
I think a lot of that depends along the timeline of this.
This has to be a fairly elevated state for a period of time before we see those recessionary risks or discussion points starting to appear in a more prevalent fashion.
But I think a lot of the demand destruction has already been baked in, and every day this continues in the form of a global disruption on flows that is an escalation or a compounding effect. on how long this could last for thereafter.
So, our demand destruction basis already is, we're looking at a potential reduction from our current base case, but there is still downside risk thereafter because prices are high, jet consumption is looking like it's got a bit of downside, as well as all other transport fuels.
So, we're of a heavily, let's say, moving, fast-moving pace scenario that we're sitting right now.
Yes, as we've seen, flight cancellations are rife and the demand basis for a few Asian countries has also signalled four-day workweeks, even work from home, so that it could spread further.
Yeah.
And Jenny back in 2022 U.S. shale was the ultimate shock absorber and today production has dropped to around 13.2 million.
So with American drillers pulling back during this global supply crisis how effective is the strategic petroleum reserve in this environment.
Well, that's just been one of the few stopgap measures that the global environment has decided to rely upon, and the other ones there are relying on, you know, from sanctioned barrels for Russia being able to be discharged in Indian and global ports as of the waivers.
So moving into the next phase, the U.S. supply is fairly low in terms of its growth because there's not a lot of drilled and uncompleted wells, duct counts are low, as well as other investment bases.
So that's something that the hedging system is likely to capitalize upon in the current space where Brent and TI are both 99 plus or thereabout dollars, where flat price pre-war was around 60 or 55 dollars for the foreseeable year essentially until the end of December.
So what happens next is, yes, a lot of draw in stocks from IEA releases from member countries, but that also does signal that the buffer, the system shock absorber in the global sense is also reducing, which then puts a little bit of potential volatility or the upside on price pressure if this does continue for an extended period of time.
And very quickly, we are kicking off a new trading month as well as a new quarter.
So if an everyday investor wants to potentially deploy capital into the energy sector, do they actually buy the big majors, the refiners, capturing some of these premiums, or should they avoid chasing this rally?
I think that's down to the individual, down to the company who's the one in question here.
Unfortunately, I'm not able to share a little bit more around that.
But in terms of where we do see the market is a little bit more support of where we are currently in the pricing sense, compared to, let's say, yesterday or even last week's forecast where Q2 prices could go.
And finally, before I let you go, we have less than 60 seconds here, but not all crude is created equal and refineries are built for specific high sulfur Middle Eastern blends and cannot just swap their regular U.S. shale.
So you focus on downstream analysis.
So tell us what's actually happening right now.
Well, refiners are not optimized in their crude slates or in their crude diet because there's a lot less medium sour availability.
So as such, they're having to dumbbell the light, sweet and the medium or heavy sours that are available globally, which again, for the heavy sours are fairly inaccessible to a large degree, which means a lot of the yield from the refining slates is actually pushed more on the lighter end.
So we're seeing a lot more gasoline, maybe naphtha and LPG produced. as opposed to the valuable components on the fuel oil or even jet fuel, which is putting a lot more pressure and strain in certain markets and a lot more market dislocation on the relative spread between products, which again is a compounding effect versus what is not able to be exported out of Asia for export bands and also not able to be exported out of the Middle East because of the blockade of the strait.
So very many factors to consider on that one.
Well, Janiv, always great talking to you.
Thank you so much for joining us today and thank you so much for sharing all of your insights.
