Oil Prices Jump And Why It Matters

SPEAKER_01 0:00

The price of oil is nearly doubled this year, and that alone should worry most people because it feeds into basically everything you buy. The oil price is not even the number that's hurting you most.

SPEAKER_00 0:11

Diesel price is over $200 a barrel in many places. Oman crude, which is where you get into which oil price actually printed the all-time record for any uh widely quoted uh marker price in history. I think it was $156 a barrel.

SPEAKER_01 0:28

And my guest today called negative oil prices a month before it happened.

SPEAKER_00 0:32

He's fabulous stock, by the way.

SPEAKER_01 0:34

The price of oil is nearly doubled this year, and that alone should worry most people because it feeds into basically everything you buy, everything you do. But it actually gets worse because the oil price is not even the number that's hurting you most. And my guest today called negative oil prices a month before it happened. He spent 36 years inside the oil market, who's three times the number one analyst, oil analyst that is on Wall Street Deutsche, and later lead oil analyst at Mitsuo, and now runs his own research firm. And he says the real squeeze, and I think the real pain, if I'm reading this right, is actually in diesel. Because we're looking at diesel right now, it's over like $6 a gallon. I can't remember what it was this morning, about two pounds a liter in the UK. And Paul seems to think it's going to stay high for a while. And I really want to know why and what we can actually do about this. So this is Paul Sankey. Thank you very much for joining us.

SPEAKER_00 1:33

Hi, Felix. Thanks for having me.

SPEAKER_01 1:36

Now, what's the what's the oil price really telling me right now? What what do you read into that?

Which Oil Price Is Real

SPEAKER_00 1:45

Well, yeah, I mean, the the question actually becomes which oil price? And you know, this is one of the references you've made, really, which is to say that the diesel price is over $200 a barrel in many places, and certainly has been this year. Jet fuel is a derivative of distillate, so that's also been enormously highly priced. And then actually, as you know, we've seen relatively muted to those levels, crude prices, say closer to $100 a barrel. Um, I think we just about got to $120 at the peak of the panic. Although, actually, interestingly, Oman crude, which is where you get into which oil price actually printed the all-time record for any uh widely quoted uh marker price in history, I think it was $156 a barrel at the peak panic. So clearly what you've got there is an issue with the various different types of crude oil. So, for example, Canadian crude right now is as much as $35 cheaper than Brent crude oil, which is what everyone looks at. But the bottom line is that the products of oil are far more highly priced than they normally are relative to crude. And what that's telling you is that there's a shortage of refining capacity. And the there's a two very important reasons for that.

Refining Capacity Becomes The Bottleneck

SPEAKER_00 3:02

Uh, the the the the the longer-running one is the Russia-Ukraine war, but there was a major shift during the course of that war towards much more advanced drones on the parts of the Ukrainians. Uh, and the attack at, you know, sometimes as much as 1,200 kilometers away, there the Ukrainians' ability to hit Russian energy infrastructure and particularly Russian refining became a very big story this year. They've also proven themselves capable of hitting tankers, which is another whole story. And then, of course, you had the Hormuz disaster, which uh effectively shut in about six million barrels a day of refining capacity behind Hormuz, and then of course starved the global refining system of, particularly Asian refining system of crude oil. Now, what we've addressed at times getting more than previous to the crisis levels of crude oil out of the Hormuz, we've not been able to do that with either liquid natural gas or diesel jet fuel. And just to finish, an example would be that the Q8 refinery was supplying 60% of uh of Heath Rose jet fuel to give you an idea of the dependence there. And you know, that has been simply cut off. And as a result, we've seen this extraordinary value to refining and the ability to refine because we've lost so much refining capacity globally.

SPEAKER_01 4:25

Now, Winston here has watched this entire podcast and thought, well, wouldn't it be wonderful if you and I could also track the same kind of data that the oil traders are tracking? So he's built it into his Winston app, and you can see it right here, the energy dashboard. And one of the key numbers though that I would watch out for is the diesel over crude number, because that really tells you this massive differential that we've got here. And once that starts coming down again, inflation might come down, the market might potentially rally some more. So if you want to get access to that, there's a link down below in the description to a free free trial to that. Oh dear, the screen's gone dark. Uh, there it is again. And um just play with it. It's a free trial, uh, zero risk. If you don't like it, just cancel it. If you go for you forget to cancel it, just tell us and we'll do it for you, and of course, we'll refund you. And let's continue.

Why Diesel Hits You First

SPEAKER_01 5:19

So, why does why does diesel matter more than than then, say, crude oil prices?

SPEAKER_00 5:26

Well, we don't use crude. So, you know, there's actually almost no use of crude, certainly not in your life. There's a couple of uh you know strange exceptions. The Saudis burn crude during the summer uh for peak electricity demand reasons. The Japanese historically had burned crude, but pretty much no longer do. But the reality is that the everyday use of the vast majority, 99.99% of people, is going to be either gasoline for their car, uh diesel distillate would be for a truck for their Amazon package, which would also come on a ship that used diesel. And then, of course, they mentioned uh jet fuel is a derivative. So if the if you've rushed delivered your package, I'm sure you do, Felix, then it would have come by an airplane, and that's also diesel. And as we all know, essentially there's no economic ability to replace diesel, particularly in jet planes, but certainly also in ships. Anything where you want the energy density of oil over a very long distance, because at some point electricity has to be reconnected, and therefore the distances that you can take electricity at a much lower density and much heavier weight, it simply doesn't work for a lot of our transport uses. And as a result, we remain very dependent on oil.

SPEAKER_01 6:39

So we can't replace diesel. So how does the what we threw from the beginning? How does this knock-on effect work? You shut down the Strait of Hamous because it's a war going on. So oil doesn't come out of Saudi and Kuwait and Iraq and Iran and all these places. Um but at the same time, you are now talking about a refining issue, which means that the factories essentially that would normally receive the crude and process it into something usable, those are shut down as a result of the Russian war. Is that what you're saying? Or that just takes some of the world's capacity out?

SPEAKER_00 7:12

Yeah, exactly. So basically, we wouldn't we would think of it as a processing unit. Basically, what a refinery does is you boil oil, literally, at pressure. So it's extremely dangerous and highly explosive. And you do it at a massive scale. So, you know, the the biggest refineries in the world now are 600,000 barrels a day. Uh, you get up to a million barrels a day at Jamnagar in India. Um, you know, so you have these enormous facilities, and um basically what they do is exactly as I said, they literally boil the oil, so they they they they turn it into a gas, and as it boils, different fractions come off at different temperatures. So you have gas at the top, and you have asphalt that goes on roads at the bottom, and then you have what we call middle distillates, and they're called middle distillates precisely because they come out of the middle of the refining tower and then get further processed into more complex products such as jet fuel. But the the bottom line is that if you would you know put WTI in a kettle, you would uh and boil it, you would get gasoline and then a massive explosion. So don't do that.

SPEAKER_01 8:18

We're not suggesting people do this by the way. Don't try this at home, children. Um diesel prices are high. Let me boil my own.

SPEAKER_00 8:26

Under any circumstances, do not do that on the home. Now, if you took Canadian heavy oil, which has the consistency of peanut butter, you would get a very black kettle. It would not, you would really not achieve very little. And so there's also an issue of the complexity of refining, the ability to take a Venezuelan or a Canadian very heavy oil, as opposed to a North Sea light uh or a medium which comes out of the Gulf of Hormoose or the Strait of Hormuz, is all another whole complex complex complexity.

How Refineries Actually Make Fuel

SPEAKER_00 8:56

But basically, what you've done over time is you've shut down refineries because they were uneconomic or too uh expensive to run in the case of California. You also shut them down because of bankruptcy and COVID, and actually oil demand held up and actually hit all-time record highs, believe it or not, in February of 2026, world oil demand hit 108 million barrels a day. That's 1,300 barrels a second of consumption of oil. And at the same time, you know, with the cold winter that was, but at the same time, you had these enormous refining um issues that we've talked about in Russia, Ukraine, and in uh, you know, Kuwait, Bahrain are the two big ones, but Saudi and the UAE as well.

SPEAKER_01 9:38

Okay. So we've got high oil prices, we've got a lack of capacity to process oil from somewhere else in the world. Um, presumably it takes far too long to build a new refinery, open one up, and no one's done it because they haven't made money for a while. So what happens next? Say, you know, there is some sort of semi-piece and the strait opens up a bit more like it sort of has, right? The last few weeks, we saw a bit more oil flow. Why are we not seeing prices come down then? Because I mean, I looked at diesel prices this morning, what was it, $6.25 or whatever it is, uh, you know, in the US, which is pretty extraordinary, it's about $2.50 more than it was at the beginning of the year. So why why is that not coming down?

SPEAKER_00 10:17

Well, we didn't talk about tankers, but uh the simple answer is actually that the Russia-Ukraine situation hasn't been resolved. And although there was a lull in attacks Russia-Ukraine, Ukraine had started bombing refineries again in the past week or so, number one. Number two is that the shipping in in the uh Strait of Guarmuz is still highly dangerous. I mean, under this extraordinarily expensive escorting operation that the US have been undertaking, the the CENTCCOM official numbers said that uh we're getting 95% of tankers through the strait. But if you think about it, that means 5% of tankers aren't making it. You know, that's a terrible risk when you've got, you know, and you know, these are these are 250 plus type million dollar tankers that you're talking about. You know, you can't lose 5% of them a day. So the reality is it's turned into a shuttling uh ship-to-ship transfer, is what we call it, where they they they run smaller ships through the through in big in big fleets essentially through the strait and hope that they've got hit. The Iranians don't have any radar, more or less, so they're firing just randomly into the night and hitting stuff with heat-seating missiles, and it's just a total mess, to be honest with you. The very latest, obviously, is we've had an enormous political shift here in the US.

Tanker Risk Keeps Prices Elevated

SPEAKER_00 11:32

President Trump suddenly seems to have become really quite conciliatory, certainly by his standards and certainly pre-election standards. There was fears of a major attack that would be undertaken by Israel in the US post-midterms. That seems to be dissipating, and oil is coming down as a result of that. And finally, we're hearing from the Iranians they may accept nuclear negotiators. And as you can see with the risk that's involved here, the price of oil comes down hard as soon as there's you know any kind of a movement towards some kind of normalcy, uh, because the you know the scale of the interruption remains so high, Felix.

SPEAKER_01 12:06

Okay. So oil prices are volatile, but the people at the pump don't really feel it, or the diesel, or that you're tracking, or you're you know you're flying. Um, and that's also why we're not seeing inflation numbers really coming down, right? Because the I I think the way I'm reading is you're saying even if we get peace in the Middle East and everything is wonderful, we're still going to be stuck with these high transport costs, essentially, high diesel prices, high flight prices for a while.

SPEAKER_00 12:34

That's a difficult one because you know, early in the crisis, on their first earnings call after the crisis, Valero, who's clearly one of the best refiners in the world, independent refining company, a fabulous stock, by the way, uh just mean a huge success story over time. Uh and the key thing you look with refining is always just do they operate safely. You know, do they actually run the refineries? And that's a key thing that these guys do at a massive scale. But they said it would take three days to recover for every one day of outage. And so, you know, if we just stick with that rule, which was, you know, more or less off the cuff, it's going to take until 2028 to recover global oil inventories to where they should be. One of the ironies of the situation here is the US is a major oil and gas exporter. So this is very different this time that you have the US in the position of major oil and gas exporter. In the 70s, when we had similar crises, US was a massive importer, and it was hugely negative for things like the dollar when these things happened. As you've seen in these crises, the dollar has actually strengthened both Russia, Ukraine, and Hormuz, which is a totally different um setup than previously. And you know, the bottom line is that um it'll take a while to just to recover back to normal because inventories are so low, is the short answer, Phoenix.

SPEAKER_01 13:50

Okay, so it'll it'll take us maybe into 2028. But yeah, I think, yeah, interesting. You mentioned the um US being a major exporter of oil and gas nowadays, being a bigger than Saudi Arabia. And, you know, are they therefore the the actual winner out of this scenario in the US oil companies?

SPEAKER_00 14:08

Frankly, yes, somewhat. I mean, you know, one thing is it's not outright negative for the US because it's a transfer of wealth within the US. This is a point we'd be making. Now it's bad for farmers, you know, it's bad for I debate how bad it is actually for consumers, because as you referenced earlier, without specifying the gasoline price, diesel price in Europe is pretty much double what it is in the US. So here people complain bitterly about $4 a gallon. In the UK, it's $8 a gallon on a normal day, and you know, it gets up to $10 a gallon. So you have just a fundamentally much higher price in Europe, and that becomes much more painful. But of course, people use oil much more efficiently in Europe. You know, they drive less, they they have smaller cars. But the reality of the actual income effect of high gasoline prices in the US, I think, is relatively minor compared to the actual economic benefit of the strength of the oil industry that they get. And the the money is being transferred kind of from the farm states to Texas, but it's not leaving the US. You know, it's all part of the great US economy, and that's why I think this hasn't been as damaging.

Low Inventories And A Long Recovery

SPEAKER_01 15:13

Now, there has been something that's been floated um over the last few weeks and months, which is a diesel export ban by the US, which is sort of a politician's answer to two things, I guess. Um I think you called it a very bad idea. Can you explain your um sort of thought process behind that?

SPEAKER_00 15:30

Well, I mean, if you look over the last 20 years, US the US pulled out of coyote, right? I mean, under Bush, they were like, you know, we're not interested in global climate agreements. And over the period, US uh CO2 emissions fell faster than almost any other country in the industrialized world. And the reason for that was the free market went out and provided a ton of cheap natural gas. Natural gas so cheap, based on free market activity, um, you know, just pure capitalists uh invest and try and make money from producing oil and gas in a free market private enterprise environment in the US where you have property rights and mineral rights. Um, and the industry basically substituted coal in the US with very cheap natural gas at an absolutely sustained rate, which is a very long way of answering you. But it's to say that when the government gets involved in these markets, they're horrible at this stuff. They just mess it up. And if you look at what's happened in Europe, it's been an absolute debacle. The UK, I just have my head in my hands. I'm like, what are these people doing? You know, this nonsense that gets taught. You know, the UK's biggest power plant, Drags, was built on a high-quality Sheffield coal mine, right? It's deliberately there because there's a coal mine underneath it, Selby. Actually, it might be Yorkshire. Apologies to English people who live around there. Um, but basically, it's deliberately designed to run coal. It currently runs uh wood pellets imported from the US because the wood pellets are renewable. But obviously, on a CO2 basis, that's absolute garbage. It's more CO2. Secondly, the wood pellets are not renewable insofar as they're just cutting down forests in the US. And thirdly, you use oil to transport the wood pellets. I mean, it's this kind of garbage uh and other stuff where you shut down nuclear in Germany. You're just like, you what? You know, it's it's like the one thing we've discovered that solves our energy problems is nuclear energy. But but it what it does mean in the US is you have a free market, and especially under the Republicans, there's no way they should be interfering as directly as they were proposing, particularly not in free trade. That's anti-Republican, it's un-American, and we were very vocal about opposing it.

The Diesel Export Ban Debate

SPEAKER_01 17:41

If you zoom out and you go back a few years, everyone's talking about the end of oil. Um, and here we are, and we're all talking about oil as being the most important thing to shape economies and you know, recessions and inflation, and um, you know, big financial markets move up and down every day because of oil. What the heck happens at the end of oil?

SPEAKER_00 18:01

And we would have a much more rapid transition to the biggest single threat, to the single biggest sector of the global oil market is US gasoline. That's 10 million, well, it's 8 million barrels a day just in US gasoline, where the US population is 333 million on 8 billion globally. One in 10 barrels alone is US gasoline. And the US itself is 18 million barrels a day, so it's basically one in five million barrels, one in five of all barrels consumed as US. If you'd had a better penetration of EVs here, the situation that would have been a big part of the end of the oil age. And for a lot of different reasons, it just has not really happened. We had a significant growth in Tesla sales. Obviously, most of the other automakers could not make an EV to get out of their own way. Yeah. And ultimately, Elon kind of went a bit nuts with Trump and stuff, so he lost his core, you know, supporters, and then ultimately Trump ironically took away the subsidy for EVs, and the whole thing's turned into a bit of a disaster, quite frankly. And everybody loves driving big gasoline vehicles in the US, and that's the way it's going to be. So I think one of the mega themes of the future will actually be a dichotomy where the US remains very oil intense and the rest of the world electrifies much more rapidly. And I think that's very much been accelerated by all moves. The people now have a further incentive to want to drive an electric car. So the vehicle, the car, and particularly the car in the US, is an absolutely key element of it. On everything else, there's been remarkable efficiency. So if you look at it, in 2000, the US was using four million barrels a day of diesel. That's the same level today. Now, on the one hand, that's flat, so we didn't substitute the oil. On the other hand, the US economy's grown 70% in that time. So your oil efficiency grew 70% since 2000. So there has been a sort of end to the oil age, but you have to keep in mind the scale of global population growth and the scale of global, particularly the scale of global GDP growth. And the fact that we've actually become much more oil efficient doesn't change the fact that just the sheer weight of the global economy and the importance of oil that you've referenced in how you run it means we're at literally 100 million normalized, we would be probably at 105 million barrels a day of demand right now. I didn't think we'd ever see 100 million barrels a day in my lifetime because we thought you wouldn't be able to supply enough oil. But the reality is the US revolution supplied a lot of additional incremental cheap oil, and that's why we've been able to make the market allow the market to get so much bigger.

SPEAKER_01 20:32

That's the whole shale boom in the US.

SPEAKER_00 20:35

Yeah, I mean that was a stunning turnaround. So what they did is they simply combined this existing technology, which was horizontal drilling, with another existing technology, which was fracking, where you blow up the reservoir at the bottom. When they put the the blowing up, the fracking with the horizontal, they now drill five miles lateral, believe it or not, and then and then blow up the reservoir, and that gives you a burst of oil production that can, you know, be really significant. And then you have a high decline rate, but if you keep repeating that, you can they've they've only recovered about 10% of the oil in place in the permium. So you know they can keep doing that almost infinitely. So that all allowed the market to grow bigger, and then as I said, the alternates of which the biggest was really elect is really electricity, has really not penetrated as much as you might have hoped, um, in a lot of different ways. You know, I I personally I think we should use natural gas. I think it uh one of the big mistakes is to mix up fossil fuels because coal we shouldn't be using, natural gas we should, and it's just a more efficient and better way to run things.

SPEAKER_01 21:39

But essentially you're right to sell the power plants in the UK.

SPEAKER_00 21:43

Exactly. The oil agent exactly all shut down the North Sea, which is the other boneheaded thing they did. But you know, the bottom line is that the if you think about the scale of the global economy, we've actually become a lot more oil efficient. It's just that oil is is, as you say, very fundamental to everything we do, and we haven't even mentioned the importance of oil and plastics.

SPEAKER_01 22:03

Yeah, packaging plastics and so on, of course. Yeah, that's massive, massive use there too.

SPEAKER_00 22:07

Well it's one of the ironies of the people throwing, you know, when they throw they throw paint at these beautiful paintings as if that's going to help the environmental agenda. But of course the paint they're throwing is an oil product.

SPEAKER_01 22:18

Just uh yes undoubtedly wearing some sort of polyester outfit which is also an oil product. Yeah. That's quite funny. So now if we step out for a second for people watching this and thinking well can I can I benefit

The End Of Oil And The EV Stall

SPEAKER_01 22:38

from this? How do I understand? How do I read the oil market? Where do I, you know, what do I really look at? What are the things that I really watch? I trade a lot of things, but I never trade oil really. I'm always tempted, but I never really trade oil features or anything else. Every time I um put a trade on an oil company it seems to go the wrong direction for some reason. I guess you should say very volatile, right? So what what do you look at? Like you wake up in the morning, I mean you've done this for 36 years. What are the things you look at?

SPEAKER_00 23:08

Well it's actually I mean on a short term basis it's it's about supply shocks right and so you just have to know where the major supply is you know so essentially there's three standout suppliers which is the US, Russia and Saudi. So anything that happens around those guys they're all in the 10 million tight barrel a day range. So that's 30% of oil supplied from those three countries. It doesn't take long before you get into the nutters you know so basically the Middle Eastern stuff your Iran's your Iraq's they're in the two to four million barrels a day range and then you have you know your UAE 4 million barrels a day etc what you'll actually discover is there's not that many nodes. You know there's only about 20 countries Canada that have Brazil that have significant production and it's not that hard to follow what's going on there, right? And then on the demand side it's also relatively straightforward because not much happens in Europe. And so really what you're looking at is Europe US demand and US supply where you have the best data because you have weekly very good government data that tells you what happened this past week in the US that moves the whole market and that's the key trading moment when we look at that 1030 on a Wednesday weekly DOE data release is big for the global market. No I I I I appreciate it's a it's a very interesting uh take from you because obviously I can I can see how you're going to be one other thing that makes it just so difficult is that the entire market is set at the margin by as little as 100,000 barrels a day literally so you have a hundred call it a hundred million barrels a day market it's the it's the final million barrels a day that sets the price because the inventories are structurally low. If you think about it Australia coming into this crisis it was revealed that they basically had I think 15 days of oil inventory. And if you think about it that's an insanely low amount and you know high global oil inventories are considered to be sort of 60 days you know so you have almost no inventory in in this business. It's just it's incredibly efficient and you know people don't appreciate just how brilliantly the oil companies do what they do you know because they go out into 25,000 feet of water you know 3000 meter type depth to drill five kilometers and eventually you just fill up your car and they spill almost nothing you know contrary to popular opinion almost zero gets spilled literally it's a phenomenal job and people don't understand how difficult it is but if anything goes wrong in that chain when the classic and ultimate example is Hormuz all sorts of stuff goes starts going badly wrong and you know basically as we've agreed in this conversation that we're not out of the woods on this at all. You know it's it's going to take a while to recover all the systems that are out of whack.

How Pros Track Oil Markets

SPEAKER_00 25:51

I mean one last thought now some people are throwing around well because Sweden oil will solve it all um can you explain why that isn't going to happen well it's legally extremely uncertain what on earth is going on there right so basically as you know you have you know as always happens with these sort of tin pot dictatorships there's actually an underlying written constitution you know they're just not really following it that closely but there's a lot of legal stuff in in Venezuela particularly uh national patriarchy or whatever you want to call it of the resource so the the state owns all the oil and gas and you can't really privately develop it within the constitution as it stands they've done various laws that have allowed the big oils to get in there but there's it's it's just an extremely dubious situation when you've removed the head of state you have not had elections and um you don't have great law and order and everything else in Venezuela right now I mean it's not exactly in great condition. Now the theory was what you do is you restructure the debt and then you have elections. So I think they do have a process uh in mind but at the moment these deals are getting signed it's about as high a risk a deal as you could take because you just don't really know which direction the Venezuela is going to go in. If you take the assumption that the US can basically control Venezuela which is going to be more questionable under the Democrats for sure then you know it's it's the the scale of the resource there is arguably the biggest in the world right so by certain measures Venezuela has by far the largest oil reserves globally although it's heavy oil they certainly have the potential to be producing if you let Exxon run Venezuela they could be producing 15 million barrels a day no question. They're producing not one what 1.5 million barrels a day right now to give you an idea so they could be doing 10 times the volume with proper management. They also wrecked what was formerly the number one refinery in the world in scale they had a 1.2 million barrel a day refinery in Venezuela that the Chavez um essentially that the the uh Chavez revolution trashed it uh they basically threw out all the pay-dasive workers and just had guys and girls in red berets come and run the stuff and that's not how you run a refinery it all blew up so the the industry is basically trashed very tragically there and you know I hope they can work it out it's just legally extremely dubious and um that's a problem for major investment. Having said that there's been an announcement today that Exxon's made an agreement which is interesting because Exxon and Conoco are owed a lot of money from nationalization by the Venezuelans. So there's clearly forward motion there and I think you know part of it is obviously because Trump wants people to get in there that they're they're making a lot of effort. But we've certainly heard there's a private equity frenzy to get into Venezuela because the potential there is so huge. And the voiless perfect for the US refining system. So what you've seen is a huge discount in Canadian heavy crudes because the Venezuelan stuff is taking their market. So it's basically the same stuff right that heavy tar-like stuff is that it's that peanut butter stuff yeah it needs to be upgraded basically before you can use it or diluted become say but the bottom line is it will it will be a growing area I'm sure and you know the the the Venezuela Venezuela under Maduro was and under Chavez at the end we're under kleptocracies you know and so getting rid of those guys is a good thing. It's just they there's a long way to go before Venezuela's back in you know proper shape which would be post-elections. Once they are they have a full constitution so if there's a big left wing for example win in Venezuela I'm sure they'll reassert the fact that they don't want foreign companies who knows what will happen but you know there's a lot of uncertainty for the amount of money that you might have to invest. So you won't see massive investment there until it's clearer. But yet the margin it's going to be a growing area for sure.

SPEAKER_01 29:44

Okay. Anything else you're watching in oil markets or global markets at the moment?

Venezuela Supply Hype Reality Check

SPEAKER_00 29:50

Yeah I mean AI I mean we're energy and energy adjacent so we do everything in terms of what's happening globally in energy and you know obviously the AI story is a huge story over here and it's you know very related to natural gas and and power generation and you know Jensen Huang's uh layer cake the bottom layer is energy. So you're seeing tremendous developments here in in gas-fired power generation actually is one of the really most rapidly growing areas but for the shortage of turbines so that's all very interesting and then there's a ton of engineering companies as well you know guys like Eton very controversial stocks now but you know for the past two or three years anyone that was involved in anything to do with you know GEV making turbines CEG constellation making electricity all these plays have been huge winners for the past couple of years and then really got you know be performing poorly this year many of them are going to be absolutely crucial to the continued development of AI which you know we we have very rapid adoption on on a Wall Street so I'm a big big user of AI I just cut my first thousand dollar check to perplexity uh and that's we're talking about for a day you know I'm not talking about but if you think about my budget as opposed to hiring someone you know which would cost me if it was 5000 a horrible a horrible wage in New York would be $50,000 you know ish uh that would cost me $100,000 to hire someone with all the hassle and whether or not they were any good. I have a pretty big potential budget for AI. So there's a big understanding on Wall Street how how you know huge it can be but we haven't really priced it yet you know it's been free so far. And whether or not everyone starts using it I think is a real open question. Finally, you know and I've been sort of really darkly joking about this because sometimes oil and gas is very much out of favor and uninvestable suddenly it's data centers that have become public enemy number one from nowhere. I mean nobody even barely thought about data centers a year ago suddenly it's literally public enemy number one and it's very relevant obviously with the Democrat blue sweep that we've just had the blue NAMI you know as to exactly how we go forward with this stuff because you have if you've seen the graphic of the Texas shift you know we've never seen anything like every single elected statewide official in Texas being a Democrat. It's absolutely mind blowing and there is political capital because there's a real you know grassroots type level or or average person type level concern about data centers and whether or not AI is going to kill them kind of stuff you know it's just it's it's it's a fear of new technology isn't it and also it's just going to drive up energy prices I mean for for most people which is kind of understandable it already has actually in some places but yeah it it implicitly yeah it's it's gonna it's gonna be they're gonna be competing um you know there's gonna be price competition absolutely and the US electricity industry has no track record for the past 20 years of actually growing you know you just had no need to grow historically so the companies are kind of dopey although being America they'll work it out really fast but they they're certainly not really prepared the systems like PJM you know which is the biggest data center market in the world they say 99% of emails go through uh Loudoun County Virginia which is the richest county in the US by the way as soon as you have rich people in the US you have more lawyers and they don't want more data centers you know so it becomes really difficult. And it and you can oppose stuff down to the county level in the US because you know it's a democracy right so you in China you don't have environmental lawyers and um you know uh well yeah I guess you do but you don't have environmental protesters and you certainly don't have the level of difficulty that you do in the US just to build basic infrastructure which you know they're addressed trying to address in Congress but it's still you can still oppose stuff down to the county level uh if you don't want it built it'll probably not allow be allowed to be built that means basically much of it will get built in places like Texas where it's much easier etc so there's going to be a lot of regional differentiation here in terms of how stuff gets developed which is why the Texas change to blue is so important because so much of the stuff was going to get uh put up in Texas. When they put in the Texas moratorium Google announced an eight gigawatt gas fired power plant.

SPEAKER_01 34:11

Now a big nuclear plant is 1.2 gigawatts right so they're doing an eight gigawatt data center in Texas and then the governor Abbott announced a moratorium on the remaining currently unapproved projects which was 473 gigawatts of projects the entire US capacity base they told you earlier is 1200 gigawatts so you're talking about just in Texas just in Texas it would have been about half of all US installed capacity if all those projects went ahead which is pretty easy to say it's not going to happen right so it's gonna be very interesting to watch how this plays out and at the moment interesting the price of computers coming down as well which is challenging the economics so it's it's just a fascinating mega theme to watch and as I said I'm also a very heavy user of AI so that's been a kind of an interesting experience because I feel like I'm working harder battling with AI right um get it right um yeah I I have I have a similar similar similar experience of that every day that's what I what I do every day I battle it with AI uh to get the data right but um Paul

AI Data Centers And Energy Demand

SPEAKER_01 35:20

it's been a very very interesting conversation with you thank you very much for enlightening us and shining the light a little bit on oil and energy markets around the world um where can people find you I think for your viewers we do have our own YouTube channel I'm less um rigorous and and dedicated in the way that you are to to keeping it up to date but we are making an effort to put out something weekly and it's for information purposes we're not trying to make any money from it we just want to get people better educated in energy.

SPEAKER_00 35:47

So my company is Sankey Research I'm Paul Sankey and Sankey Research has a YouTube channel where you can see free videos which are more or less me off the cuff talking about what happened in the past week or 10 days or so in global energy.

SPEAKER_01 36:01

Amazing thank you very much for your time.

SPEAKER_00 36:04

It's a pleasure thanks