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Risto O'Price

lines on the record: 30
first: 2024-02-21
most recent: 2024-02-21
sittings or episodes: 1
sources: podcast

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“Is at the margin making monetary policymakers a little bit more cautious in starting to launch their easing campaign. ECB President Lagarde, for instance, did mention that geopolitical escalations and the disruptions in the Red Sea are the key upside price risks to price stability in Europe.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“I think that both monetary and energy policymakers globally have been pretty successful so far in fighting both energy and broader consumer price inflation through aggressive rate hikes on the monetary policy front, but also by intervening in energy markets and releasing a lot of oil, for instance, to the strategic petroleum reserve, or in the case of Russia, by designing sanctions such as the price cap that allowed to keep a lot of Russian oil on the market rather than restricting supply. Looking forward, Inner Central Case where oil prices are range bound, we don't think that a surge in commodity prices will prevent central bankers from reaching their target, but we really think that upside risk to commodity prices remains the key threat to bringing inflation to the target and to the soft landing. And I think that the somewhat stronger inflation data that you're seeing over the last month and also the impact of red sea disruptions on, for instance, diesel prices or gasoline prices in Europe.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“And so as we sit here today, inflation is once again back in focus. I don't know if it ever went out of focus, but it's certainly back in focus. You've gotten another ballot of somewhat hot inflation data. If we think about your commodity outlook, Dawn, how does that fit into the broader inflation view and the goal of central bankers around the world to reign in this inflation and begin to start cutting rates?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“See additional upside for gold prices, really three reasons. Number one, lower US interest rates should support gold prices. But in fact, if you look at the price of gold and compare it to what you expect based on interest rates, gold is already pretty expensive. And I think that relates to the second reason, which is that structurally, we think that gold demand has risen and will rise further in an environment where geopolitical uncertainty is elevated and where EM or emerging market central banks and EM consumers invest in gold as an alternative asset. And then finally, third, if you see additional geopolitical escalation, gold is very likely to benefit from that.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Think policymakers remain very focused on the security of energy supply, especially in China. I think Chinese policymakers' goal to reduce imports of both oil and gas helps to explain a lot of developments we're seeing in China. A massive jump in EV sales, a big jump in coal consumption, and therefore also emissions related to coal, and also a big push in renewable supply and in green metals. And I think that the focus on energy supply security is also going to lead countries such as China, but also India, to boost their level of strategic reserves, which all things equal is pretty bullish while you buy all these additional reserves. And I think that the focus on security of energy supply is also going to shift more and more to critical minerals and green metals. Policymakers in both Japan and Germany are planning to create SPRs or strategic petroleum reserves of tomorrow, which not”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“We saw during the peak of the energy crisis, but we're quite focused on the risk of higher gas prices next winter. That said, moving beyond the winter of 24-25, we think that this massive wave of supply from LNG from the US and Qatar is going to push global gas markets in oversupply and end the European energy crisis.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“We think the energy crisis is not quite over the cute phase is clearly over. And we see one more winter at risk for European gas prices and the European economies. If you look at the last two winters, all of the adjustments in the European gas market have happened on the demand side. In other words, all the Russian supply that was lost was not replaced by additional supply. The market balanced because of weaker demand from consumers related to very warm winters, lower demand from the power sector, and also lower demand from the industrial sector because Europe has undergone a pretty severe industrial contraction. Our view is that some of these demand losses could be temporary. Who knows? Maybe we get a cold winter next year. We're also seeing in the high frequency European manufacturing survey data that there are green shoots for an industrial recovery. So we think we should not be complacent and we see a potential renewed move higher in European gas prices next winter, not to the scale.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Okay, interesting. So let's pivot back to the energy markets for a moment and go across the pond. 12 to 18 months ago, Don, we were all talking about a European energy crisis off the back of the Russia-Ukraine conflict. And now we have a whole other set of disruptions, as we've been talking about in the Middle East and beyond. But natural gas prices in Europe have actually declined sharply in recent weeks. So is the European energy crisis over or is it just beginning?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“We pulled our investors at the macro Hong Kong conference last month, when we asked them what is the commodity that's going to benefit the most from the energy transition, copper was the number one answer. But then when you actually ask investors, are you investing at a large scale in copper? The answer is often no. And so that's why we think there's still a lot of room for upside.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, we think that commodities are mostly spot assets, are mostly pricing supply and demand fundamentals over the next couple of quarters. And so that's why we think that copper prices do not fully incorporate the bullish demand outlook we have. And on top of that, and it's a big difference with crude oil markets, the supply side looks really, really quite tight. With very big mining supply downgrades that we have seen over the last couple of months.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Yes, it is, but it's a very gradual process outside of China. So to put things in perspective, we estimate a hit to global oil demand growth this year because of the rise in the penetration of EVs of 0.3% of global oil demand. So a pretty modest number. And I think one key intuition is that the level of gasoline demand depends on the stock of cars with combustion engines. And yes, EV sales, sort of the flow, arising pretty quickly in places like China, but the stock of EV cars takes 10 or 15 years to really turn over. And so that's why the impact is still pretty modest outside of China. And actually, we think that the rise of EVs is pretty bullish for the commodities complex on net. And again, the intuition, I think, is that the level of oil demand depends on the very slowly increasing stock of ice scars, whereas the demand for copper is related to the flow of EVs. Because for every EV car that you sell,”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“The other question that I had for you on that side of things, Don, is electric vehicles. Obviously, we're hearing so much about electric vehicles, so many people own them these days. Is that making any kind of dent in gasoline demand at this point”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So we think that gasoline prices, which have started to pick up in the US from the low $3 per gallon to now sort of 3.2, 3.3, will edge up a bit further. With a peak in the summer of sort of 3.7 a gallon, in part because we think demand will be solid and also, and this is a bit more technical, because there is really a lack of capacity to process the more expensive summer grades for gasoline.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“That's right. If you, for instance, look at the global refining utilization rate, you're in the top quartile of history, both because of a lack of investment. The median age of a refinery in developed economies is 53 years old, and because on the demand side, we have seen pretty robust global oil demand. And so I think one interesting question is, why is this crude market pretty loose? And why is refining so tight? And I think the key reason is that refining has not benefited from this big jump in short cycle supply and this shale productivity boom we have seen in the US. And so refining is very tight. And so we see pretty elevated refining margins, both on the gasoline side and the diesel side for the years to come.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“We think the outlook there is structurally more bullish and more volatile. We think that the refined products market is structurally more bullish than the crude oil market. While the crude oil market has a lot of spare capacity, mostly in countries like Saudi Arabia and the UAE, the global refinery market is very tight.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Downsite risks, I think to see a meaningful and sustainable drop in brand below 70, you need to see a combination of two factors. One, demand disappoints meaningfully, much softer global economic outlook than we expect or a big downturn in China, plus a shift in the Saudi strategy where they are stopping to limit builds in global inventories and where they're basically giving up. The OPEC put, which we think is around 75 to $70 per barrel. I think you really need both. And one key reason we believe that Saudi Arabia will prevent oil prices from falling below $70 to $75 per barrel is the fact that Saudi Arabia needs a lot of funding for their so-called Vision 2030 project. Vision 2030 is a very ambitious investment plan to build basically the diversified non-oil economy of tomorrow, which is expected to cost”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, in terms of upside price risks, geopolitical supply disruptions, as we discussed, especially in the Middle East, but actually also in Russia, that is the key source of upside price risk. I think a second other risk is that perhaps that Saudi Arabia and its OPEC Plus partners are targeting a higher OER price than what we think. We think that when prices sort of move to the mid to high 80s, that the Saudis will bring some of their barrels back to the market to regain market share. If we're wrong on that assumption and if they're maybe targeting prices in the 90s, that would be a source of moderate upside price risk as well.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so in terms of the demand data, taking a step back, in 2023, macro investors were pretty pessimistic about the Chinese economy, but commodity demand was booming. We saw 8% year-over-year growth in demand for oil because of reopening and also 8% growth for copper because they're really stimulating the green economy. Over the last months, to be fair, we have seen some incremental softening from very elevated levels. And I do think that a disappointment in China oil demand is the biggest downside risk to global oil demand and our oil price. That said, we still feel pretty comfortable with our range-bound outlook where Brent stays in the low to mid-80s because demand in other parts of the world is actually surprising to the upside, including the US, but also, for instance, India, which I think over the long run is going to be the number one source of global oil demand growth while currently it's China.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“Let's turn to the demand side. You said the other big factor here as we think about the overall oil outlook. Obviously global economic growth has held up pretty well, but there's a lot of concerns right now building about the outlook for growth in China. And China, as we all know, is a huge consumer of commodities, oil and other commodities. So how is that factoring into your view? What are you seeing in terms of Chinese demand right now? And then how concerned are you about this relatively muted outlook for Chinese growth?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“I think two big drivers. Number one, as the US shale complex is maturing, as you sort of gradually depleting the most productive pieces of land, I think the market is putting a big premium on the best remaining assets. And so producers are trying to target those. And second, there's a big focus on cost efficiency gains. By building scale and through operational leverage. What is this big rise in consolidation mean for oil prices? I think it could increase the short-term price volatility somewhat because the bigger producers are less price responsive than the small private ones who are losing market share and also because the big producers tend to hedge their price risk less. And if you have less hedging, that means more price volatility. It could also add the margin, I think, put some downward pressure on long-dated oil prices as those big producers continue to book efficiency gains and lower the cost of production.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“And that consolidation has actually really been this emerging theme, and we have seen many, many headlines in the last several months, but even in recent weeks. So what's really driving that and what are the implications for oil supply?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, if you look at US total oil production, it's basically 21 million barrels per day, and that's as much as Russia and Saudi Arabia combined. Another striking statistic is that over the last decade, 100% of the incremental growth in global oil supply has come from the US. And so, yes, a bigger US oil sector gives us another buffer, another adjustment mechanism to deal with supply disruptions, for instance, out of the Middle East. That said, I think that oil prices in the short term could still spike a lot if you were to see geopolitical supply disruptions. One reason is that while Saudi Arabia, for instance, can bring on extra barrels to the market in a few weeks, it would still take two to three quarters before you were to see a big jump in US supply. Moreover, we think that with consolidation in the US energy complex, US oil supply has become less price responsive because big”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“And the other big shift that we have seen in the production landscape more broadly is that the US has become a gigantic producer of energy. How does that factor in to this and what does that mean for OPEC leverage today versus in the past?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“See these mega price spikes because you sort of reduce your long term demand for your OPEC barrels. And I think what we have seen is that Saudi Arabia in particular is very focused on keeping oil prices elevated but not too elevated and avoiding these big big price spikes that eventually harm your demand over the medium run.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“It is still the key tail upset Risto O'Price as big geopolitical supply disruptions in the Middle East. If you were to see, for instance, a closure of the Strait of Hormuz, highly unlikely, but it will be very meaningful. Prices would probably rise by 20% or so just in the first month and could eventually double, but not likely. And so what has really changed? I think that energy consumers and energy producers have drawn lessons from the energy crisis we had in the 70s and 80s and actually also from the energy crisis we had over the last couple of years on the consumer side. Countries like the US, Europe and China have built up big buffers through strategic petroleum reserves, consuming countries have also reduced the so-called oil intensity of GDP, sort of the number of barrels of oil you need per dollar of GDP by switching heating to electricity by having more fuel efficient cars, for instance. And then turning to the producer side, producers, I think realize that it's not in their long-term interest.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“And so you mentioned there's a supply component and a demand component to this relatively complacent market, even if there's been some volatility. Let's dig into the supply situation because, of course, the scenario that is scary, that everyone is ultimately concerned about is something like what we saw in the early 1970s with oil embargoes. Is the supply situation just different today, or is there a potential for it to be repeated?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, the geopolitical risk premium is basically the part of the oil price that we cannot explain by the central outlook, the most likely outlook for supply and demand, but the part of the price, the premium that reflects fears that supply may drop off a cliff in a non-central risk scenarios related to geopolitics. It's low in our view despite ongoing wars based on two observations. Number one, the actual oil price is pretty close to our fair value that doesn't incorporate geopolitical escalation. And second, if you look at the cost of insurance against big oil price spikes using options prices, the cost of insurance is low. It's pretty cheap to insure yourself against big price spikes in oil.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, if you look at brand crude oil prices, they have been fluctuating in a very narrow range, roughly around $80 per barrel. And I think there are really two reasons for that limited volatility. Number one, the so-called geopolitical risk premium in oil prices remains remarkably modest despite the two ongoing wars in Russia and the Middle East. And I think second, there have been several other factors related to demand concerns that have been weighing on prices as well, especially related to China demand and the possibility that the Fed cuts may not come anytime soon.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“So, Donna, as I just said, the markets seem to have somewhat shrugged off the concern that the conflict in the Middle East is going to lead to a big disruption in energy supplies and ultimately big price spikes. Why is the market so complacent here?”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT
“A bigger US oil sector gives us another buffer, another adjustment mechanism to deal with supply disruptions, for instance, out of the Middle East. That said, I think that oil prices in the short term could still spike a lot if you were to see geopolitical supply disruptions.”
2024-02-21 · Goldman Sachs Exchanges · Shifting supply and demand dynamics buffer oil market · IDENTIFIED FROM THE TRANSCRIPT