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The oil prices jump from the commodity pages to the business pages to the front
pages.
It's been an astonishing March the 9th so far.
And I don't know, will it get less astonishing?
With me now is Paul Gooden, Head of Natural Resources at 91 in London.
Paul, I know you're really, really busy, so thanks for speaking to me.
but For some reason I was up at half past four London time this morning.
I looked at my screen and the oil price was up 25% at around about $117 a barrel.
I looked at the high of the morning, it was $119.46.
That was for Brent crude oil.
And I'm looking at it now and I'm saying to myself, oh goodness me, it's only up
13% now.
But as I said, it has been astonishing, hasn't it?
Yeah.
It has been astonishing.
And look, I guess at times like this,
it's good to be calm and rational and just to kind of walk you through the moving
parts here.
So nine days ago, the US and Israel started bombing Iran.
Iran responded by saying it would close the streets of Hormuz and it also launched
some missiles and drones at the energy infrastructure
of neighbors in the area like Qatar and Saudi.
Now, while Iran hasn't physically blocked the streets,
they are effectively closed because the insurance industry won't insure any
vessels passing through the straits.
And that's a big problem for energy markets, because normally
20 million barrels a day of oil flows through the Straits of Hormuz.
And to put that into perspective, the global market is about 100 million barrels
a day.
So that's a 20 percent outage.
Now, there's been a little bit of rejigging of supply chains.
So, you know, Saudi is getting a bit incremental.
oil out of the Red Sea.
But still, I think you've got about 17 million barrel a day outed, which is big.
And that means we're running down oil inventories.
And when that happens, the oil price goes up.
Okay, that's a good summary.
I'm looking at my screen now.
And we've mentioned oil, it's still up 13%.
And obviously, that 119 that I spoke about and 25 to 30% gains was all a bit spiky.
And it's sort of smacked of panic.
But nonetheless, these prices is
are impactful but it's not just oil i mean i look at heating oil for example uh 11.4
percent up and i've got
natural gas up six percent but i don't know if that's a different type of natural
gas to european natural gas which is heavily impacted
by the gas equivalent of the straits of hormuz and that is the qatar pipeline um
yes so look you're right there are a couple of nuances so we've talked about
the oil price.
But of course, we as consumers, we don't consume oil, we consume the products that
are made from oil.
And when you look at some of those products, be it, you know, jet fuel or
diesel or gasoline, or you mentioned heating oil,
some of them are being impacted a little bit more.
So probably, you know, the standout is the European jet fuel price,
which is basically more than doubled year to date.
So yes, some of the refined products are getting a little bit squeezy.
And then natural gas, you're right, I mean, that is also being impacted.
So, I mean, what's interesting about natural gas is that it's really the LNG
market that's impacted.
So that's the liquefied natural gas.
So that's sort of gas that is sort of super chilled and kind of sent around the
world.
About 20% of that flows through the Straits of Hormuz.
That's about 20% of the global LNG market.
And that's effectively been shut in as well.
Now in Europe, we don't really consume any of that gas.
I mean, that is mainly Qatari gas that is sent to Asia.
However, we are indirectly impacted because those Asian buyers that can't get
their LNG are
kind of bidding up the spot price of natural gas.
And so you're absolutely right.
If you look at the European spot gas price, it's basically doubled year to
date.
So yes, this is a broad problem for energy markets, both oil and gas.
And from here, the range of outcomes is wide in that although the rhetoric is
getting ramped up
on both sides, if there was to be de-escalation in the next few weeks, you
would expect the oil price to come down.
I don't think we'll go back to the 60 to 70 we were at earlier this year.
I think some geopolitical premium would remain.
But equally, it's about duration now.
And so if the streets of Hormuz stay closed for a long time, then you...
we're going to see the oil price move higher.
And ultimately, you know,
the worst case is the oil price moves to a level at which you get demand destruction.
And that basically means that consumers change their behavior a little bit so that
they consume less oil.
You mentioned heating oil, for example.
You might decide to burn wood instead of using heating oil.
You might decide to catch the bus or the train rather than driving.
You might, you know, take a short-haul flight rather than a long-haul flight.
And that kind of behavior change probably happens, you know, somewhere like $120.
So, you know, is it possible you could temporarily see a spike through that $120
to $150?
It's possible.
I don't think we could stay there.
But yes, a wide range of outcomes.
What about what's been made of stockpiles?
Some people are saying that, for example, China was about 10 days ago.
They said China's got 100 days worth of oil, less other countries, other regions
have less than that.
How important a factor is that, Paul, to the price?
And I'm just looking at the price now.
And West Texas has dipped below $100 a barrel.
So it's all over the place.
But is the stockpile factor also significant?
Yes.
So look, inventories are very important.
And generally speaking, there's quite a good correlation between the oil price and
inventory levels.
So, you know, globally, we've got about
8 billion barrels of oil and refined products globally.
And that is split between kind of oil in transit,
commercial storage and also government strategic reserves.
So that 8 billion barrels is about 80 days of supply.
So, you know...
a reasonable amount.
However, it's not spread equally.
You mentioned China.
China's a big oil importer.
They've been building in which was aggressively over the last year or so.
There's news this morning that the G7 might be considering a coordinated release
from strategic reserves.
But yes, look, more broadly, your point is exactly right.
Inventories are crucial to how this will play out.
How do you see it playing out?
You're not a geopolitical analyst, you just get fed what we're all fed, I think,
except probably a little bit more sophisticated than my news flow, for
example.
But I think what you see on the news of black smoke billowing from oil depots in
Tehran, it sort of fuels the punting side of the oil market.
But the real side of the oil market, or supply and demand, ultimately levels out,
doesn't it?
But as you quite rightly said earlier on with a little bit of a geopolitical
premium built in.
But is it your contention we're not going to come back to the 60-70 that we've been
used to for much of
2025?
Yeah, look, I mean, in terms of the short term, you know, over the weekend, the
rhetoric elevated.
You had Trump saying that a spike in the short-term oil price is a price worth
paying.
You mentioned you've had Israel bomb some oil storage depots in Iran.
So the rhetoric is...
is difficult.
How quickly this resolves itself, I don't know.
You know, you're probably talking weeks.
I think if it goes into months, then yes, certainly the oil price is going to be
heading higher.
I mean, one thing to bear in mind is that in November, you've got the US midterm
elections.
And just as turkeys don't vote for Christmas,
so US presidents don't like going into big elections with a high domestic gasoline
price because the US consumer is...
You know, very sensitive to gasoline prices.
They're more volatile in the US because there's less indirect taxation in the
gasoline price and they drive
a lot more than we do in Europe.
So, look, I think this will be certainly much calmer in the second half of the year
running
into those elections.
For the next month or so, it's very difficult to know.
But what I do think is that post this.
I think a geopolitical premium will remain in the oil price.
We were kind of 60 to 70 to the end of last year, first few months of this year.
I think big oil importers will be nervous and they'll want to build up their
inventories,
which will help the oil price.
And taking a step back on a more fundamental view,
I kind of think that on a sort of a two to three year view.
The big overhangs for the oil price are being removed and those big overhangs are
firstly US shale which is running into
tougher geology it isn't growing so quickly.
It's secondly OPEC spare capacity which has been quite high the last few years but
you know by the middle of this year it's back to
a normal level.
And then thirdly and perhaps the biggest one is long-term demand forecasts in that
I think people are thinking that oil demand can continue to grow kind of into
the
2030s. The IEA recently put out a report saying Thank you.
that under current government policies all demand will grow to the sort of about
2050.
So the question I'm asking myself is does what we're seeing in Iran kind of bridge
us through
what should have been an oversupplied market this year?
into a more kind of bullish market, sort of 27, 28, 29 onwards.
Just a quick one to end, if you would, Paul.
What does this all mean for positioning at 91 when it comes to natural resources and
particularly the energy sector?
Yeah, so look, within the Global Natural Resources Fund, on which I'm a co-PM,
energy was quite a big underweight for us last year.
And in the early part of this year, we started closing that underweight.
And as of the moment, we are kind of...
slightly overweight energy.
Paul, thanks so much for your time.
That's Paul Gooden, Head of Natural Resources at 91 in London.
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