Chuck Yates Needs A Job

0:20 Hey everybody, welcome to Chuck Yates needs a job. The podcast we've got a real treat today. I have Kathleen Kelly with me on the phone today on the podcast. And this is really cool. I went to a

0:34 party at Paul Sankey's house over July 4th and I was introduced to Kathleen and she was described to me as the OPEC whisperer. So Kathleen, welcome on the podcast Thank you for having me, very

0:48 exciting. You should aspire to weigh more, but okay.

0:54 So how does someone get to become the OPEC whisperer, particularly dubbed by Paul Sankey, the OPEC whisperer? Tell us how you got to tell us about your career. How did you get where you are? Okay,

1:08 I'm assuming that you haircut almost everything Paul Sankey tells you to begin with I

1:14 think that's what he's referring to. Actually, I don't haircut what he says because with the accent, I don't understand half of it. So, So he might not have said OPEC whisper. He might have said,

1:28 you know, rabbit whisper or something like that. Yeah, fair enough. Fair enough. So I, but I think what he's referring to is that I spent a long time in Vienna at OPEC meetings talking to a

1:45 variety of different OPEC decision makers and advising them on different things that were happening in the oil market. So my mother always says, why would they want to hear from you? And so the

1:57 reason for that is because I spent my career as a hedge fund manager running a portfolio in commodities. And so I spent all this time looking at how investors decide to invest in the financial part

2:14 of the crude oil market. And Most OPEC producers are experts on the physical side of the crude oil market and they don't really understand how the rest of the world is looking at oil and they also,

2:27 the financial side of the oil market is much larger than the physical side. So, you know, it's all these people sitting at their desks around the world, trading crude and having these larger

2:39 impacts than OPEC producers can understand or have understand historically and so I tried to bridge those two worlds for them. Oh, that's really cool because in the financial market, 10 or 12 X,

2:55 the physical market today when you're. Yeah. Yeah. And so that's interesting to me because I don't think I appreciated that about OPEC that they would actually care what the financial markets

3:09 thought about trading. So, this is a relatively new thing. that they started to think about this because there would be all of these moves in the markets that were Fundamentals from the physical

3:24 point of view weren't exactly Aligned with what was happening in the financial oil markets And so they wanted to understand that better and said that's one reason why I was brought along to help them

3:39 on that

3:41 and So okay, so maybe let's do this real quick most of my listeners are oil and gas folks and are well versed in OPEC and what it does but my dear sweet mother listens to my to my podcast and so can

3:56 we give her the 30 seconds on just what OPEC is To give some reference to and then I really want to jump into what OPEC's thinking and and what's going on in OPEC world today

4:11 So OPEC just celebrated its 60th anniversary, actually. It's the organization of petroleum exporting countries. And it was started in 1960. So it's actually 61st, but because of COVID,

4:24 they didn't get to celebrate. So I think this year they're celebrating 60 years and it was started just with five countries and then has grown to be 13 OPEC countries And then in 2018, they invited

4:40 10 other countries to join them to think about making decisions. And that was formalized in 2019 by the Declaration of Cooperation to be OPEC. So there's 13 OPEC countries and 10 non-OPEC countries.

4:55 And the reason I think the 10 non-OPEC countries are not part of OPEC is because there's been a lot of talk about legislation, especially coming out of the US saying OPEC's monopoly and we should try

5:05 to break it up So nobody wants to sign up to be part of a monopoly. So they're, they're OPEC. in that they go to the OPEC meetings, but they're not a part of OPEC -

5:16 I got you, you left out, of course, the single most important fact about OPEC is when they were formed in 1960, it was on September 14th, which is my birthday. So - Oh my God, I'm so sorry - I

5:28 do share it - And I'm not in that - Yeah, well, I do share a birthday. So when we look at OPEC today and the associated partners in that endeavor, how much of the oil do they control of the daily

5:43 production these days -

5:46 So,

5:48 you know, it's a strange kind of question because people have been talking about the demise of OPEC for a very long time because as the US grew to be a very large oil producer again over the last

6:03 decade and Russia production was increasing Saudi Arabia, who's the largest in the. and the de facto leader of OPEC saw that it was no longer the largest oil producer. The US became the largest oil

6:17 producer. So people kept saying, Opick doesn't really matter. Adding the 10 others to OPEC plus, brought Russia and Kazakhstan and a lot of other smaller producers into the mix. So all together,

6:29 they've increased their production numbers. But the key is not really the production because they still account for, I have to actually look at the numbers, well, I can look at them really quickly

6:44 here because I've totally forgotten. But

6:48 so OPEC itself is now producing just slightly under 30 million barrels and OPEC plus slightly over 15 million barrels. So altogether, let's call it 45 million barrels out of 100 million barrels

7:01 total. The key is that the spare capacity in the rest of the world is basically nonexistent and they control all of the spare capacity. So, you know, OPEC's goal is to stabilize the oil markets.

7:16 You know, they don't say so in their mission, but it's always better if they stabilize the oil price at a higher level than a lower level. And so they take off and add supply to the market when

7:27 they feel the market needs it. And they have the ability to do that because they have spare capacity, whereas most other oil producers don't have any spare capacity - That's interesting that you

7:39 bring it up I was talking to somebody this morning and the person was going on and on about the trouble with the world when it comes to oil and oil supply was under investment by the United States,

7:53 et cetera. And I kind of said, hey, aren't you being really narcissistic here and saying it's all about me, the United States? Because I think all the shale revolution did as we talked ourselves

8:05 into for call it five to seven years. that we truly were the marginal producer. We were the low cost producer in the world. And at the end of the day, we screwed it all up. And we figured out we

8:18 generated a lot of oil, but we weren't as cheap as we thought we were. And so it all comes down to Saudi Arabia and the excess capacity that they have. And so I actually think our public companies

8:30 are being rational these days by metering out capital, being careful with what they drill, because I think we're back to the old world where we're price takers from OPEC.

8:43 And so a couple of questions on that. How do we know what excess capacity is from OPEC? Because do they tell us the truth? I mean, how do we peel back that onion - Well, I mean, everybody's

8:57 gonna tell you that they have more excess capacity than they actually have, right? Nobody wants to say, oh geez, we screwed up and we don't actually have what we told you we have last year. The

9:08 issue is that at the end of the day, there's not a ton of spare capacity out there. In fact, the IEA in its most recent report just said that spare capacity will drop below five million barrels a

9:20 day by the end of this year, which is less than 5 of daily production. So generally, when that happens, you do see tight markets and much higher prices, which is obviously what we're seeing right

9:33 now

9:36 But within OPEC, obviously Venezuela is all spare capacity right now, but how fast can you get it to come back? And Iran has a lot of spare capacity, but that's not moving any place soon. So

9:49 really, the only big spare capacity you have is in Saudi right now. And so as this

9:59 cycle has played out from last year under COVID, when we saw negative oil prices to now,

10:07 OPEC has gotten stronger and stronger. And it seems to me that OPEC continues to gain market share going forward because nobody really has been. So when you look at Russia, there's a lot of people

10:19 that think Russia is gonna peak pretty soon on their oil production and that they have an upstream problem. And there, if you look at their cycle of investment, it peaked five or six years ago and

10:33 it will not support growing production from here. And so most countries, that's the case. It's not just the US, it's most countries that, and especially given the run up into this year where

10:47 people started to move away from fossil fuels and ESG matters and all of that has made it so that nobody's investing in oil and

10:59 gas in oil specifically And so we, you know, the question of spare capacity is We don't know exactly what it is, but it's probably not as high as we think it is. So there's no good news there that

11:12 there's plenty of spare capacity behind a wall someplace and will be fine. Yeah, that's interesting. The one thing I tried to do back when I was at Caine Anderson is I would pull the rig counts for

11:29 non-US countries and try to watch those And I noticed there was a spike in the Saudi rig count and I'll get these years wrong, but maybe 2017 to 2016 to 2019 or

11:45 there's about a three or four year period where they went from maybe 50 to 100 rigs to 150 or 200 rigs. And I have mixed emotions about that. Half of me says, well, if they really had this excess

11:59 capacity, why are they amping up the number of drilling rigs? But the other half of me said, well. that may be the spare capacity they created. And so

12:11 it's interesting, 'cause it really, I mean, correct me if I'm wrong, it really feels like, I used to tell people when I started my career in oil and gas, they said, what's your industry like?

12:21 And I said, we wake up every morning, hoping the Saudis are in a good mood. And that's what it feels like. It feels like we're back to with OPEC. They really are in the driver's seat - They

12:33 really are And their position just looks to set to strengthen, right? Because the Saudis have said they wanna increase their production going forward. It depends on what happens with the US. Is

12:43 you tell me is shale production gonna get back to its highs next year? Doesn't look likely, but -

12:53 Yeah, one of the things about being unemployed is I definitely have not studied rig rates and rig efficiency. 'cause I don't wanna cut into sitting around eating bonbons, watching Oprah. So, you

13:08 know, I've only done it on a limited basis, but it just feels like, I guess we're a couple of million barrels down from our peak. And it feels like we've been flattish around call it 11 million

13:20 barrels a day or so. And I just don't see how we increase it. I mean, the - Oh, rates have definitely picked up a lot in the last couple of weeks, as you would expect, good prices moving the way

13:32 they are. But the rigs that are going up now are being put up by private operators, mostly. They're running more than 50 of the operating rigs right now. And, you know, public companies really

13:44 have their feet to the fire or whatever they're saying is because investors, as you mentioned, you know, want some returns and they don't want them to just ramp up production and kill the whole

13:55 cycle. Yeah, no, I think that's exactly right. We were talking around here at Digital Wildcatters and we were singing Beach Boy Songs. We'll have fun, fun, fun, until Daddy takes the T-bird

14:08 away and the investors have totally taken growth capital away from the industry. I mean, you're entitled to a share of your cash flow to go drill wells again, but that's it. And so, and there's

14:22 just not that much wear with all in the private company world to sustain much more growth and rig rates, I don't think. Well, it seems like the availability of capital is definitely improving as

14:36 you would expect. And so that's gonna go to private operators as well, but they're less efficient, they're smaller, they don't have the same scale, so. And to some degree, they're just trying

14:47 to build in hopes to sell to a public company. So in terms of how many, you know, how long a legs this run has. Yeah, no, it feels like yes, there's more cash flow, or there's more capital

15:03 available, but it's almost just internal cash flow that seems available on that front. So, can 11 million barrels a day with rig efficiencies and all that go to 12 million barrels a day, given

15:19 where we are maybe, but boy, I just don't see us. I mean, those decline rates are really, really steep these days - Yeah, and

15:29 the issue facing the market right now as you're, I'm sure well aware is that there is the sense that the growing crisis for power in Europe and Asia is going to feed into the oil markets through the

15:47 transmission mechanism of demand for oil to make power, which generally we don't use oil to make electricity because it's very dirty, when you can't find anything else, you will use it. And so

15:60 you're seeing demand for dist to let go up globally. And we think that that's being pulled into the power sector. So when you think about right now, what's gonna happen, you know, right now the

16:12 market's very tight, but when you look at balances as I do, so my company, Queen Anne's Gate Capital, does consulting on commodities, all commodities, but primarily oil and we build models, as

16:28 does everybody and forecast inventory levels in oil. And so when we're looking at our balances right now, they're very tight in this quarter and next quarter, but they loosen up substantially at

16:40 the end of 2022. Because demand next year, even with a very robust demand forecast of four million barrels a day, which is what I have, you're still gonna see supply increase so much next year.

16:53 you're still looking at surpluses at the end of next year. So if you're a US producer right now thinking about next year, the market's not gonna look nearly as good. So how do you make this

17:04 argument that I want more capital so that I can put more rigs up so that I can pump more, but the market's gonna be in surplus by the end of the year and it's gonna take me six to nine months to get

17:14 there anyway. So it's a tricky proposition - Yeah, no, it's interesting in that if you look at oil prices today, I mean, pick a number, has an eight handle on it somewhere and who would have

17:30 ever thought that? I know certainly when I was staring at minus 37 oil last April, I never thought we'd see 80 again - So we actually thought that you would see 80 to 100 this year, last year when

17:44 you saw negative prices. And the reason is because having those negative prices, basically all commodities are cyclical, right? when prices go up. people demand less of it because they don't want

17:55 to pay the high prices, so they look for a substitute and producers make more. And that causes the cyclicality in commodities markets. So what that did last year by dropping prices so much is it

18:07 increased demand

18:10 and it decreased supply. And so what it did is it shortened the whole commodity cycle, but it made it more exaggerated. So you're compressing it, but you're exaggerating it So you had a negative

18:22 price and then you're going to see a much higher high price also. So we were telling people last year, right after we saw negative prices, you should buy every asset that you possibly can that's

18:34 tied to oil because you're going to see next year really high prices. And you know, you're probably still haven't seen the highs in our opinion.

18:44 Gosh, that's interesting. While I was getting fired by Kane Anderson, I wish I had known you then and you could of called me and like. talked me through that as I was curled in a ball crying every

18:56 day going, Oh, it was funny. I had Dan Pickering on the podcast the other day, and we were talking about where oil should be and Dan's take is. It's about where it should be given supply demand.

19:09 If it gets too much higher, we're going to get into demand destruction. That's not good for us. So, so hopefully we'll be able to navigate through those waters. And I said, Dan, you've totally

19:20 missed the whole take. The whole take with 80 oil is I can claim to be smart again. And that's the important thing. So so I

19:29 would just say one thing that or two things rather, maybe three. So all right. So traditionally around 80. So I spent a long time looking at when demand gets destroyed in the oil markets and

19:46 telling the powers that be at OPEC this so we we by the time OPEC oil, Brent prices got up into the 80s in

19:57 2018. They were very well prepared to put supply back on the market to keep prices from going much higher because they didn't think the fundamentals were there to support that and they didn't want to

20:07 see demand destruction. They were very nervous about their customers, their consumers. And so, we look at oil prices in every different currency because obviously oil is denominated in dollars,

20:19 but if you live in Brazil, you're paying real So when you look at all these different oil prices right now, a lot of them are still significantly below the 2018 levels because the currency has moved.

20:33 And so their currency is stronger relative to 2018. So in Europe, you're still below those levels. In China, you're well below those levels that we saw in 2018. So you're not seeing record prices,

20:44 you're not even seeing 2018 level prices right now. So demand should be pretty good. Secondly, The elasticity of demand has changed because of COVID. So whereas before you saw 350 gasoline, I

20:57 don't know what it is in Texas, and you were like, oh my God, it's so expensive. Maybe I'm not gonna drive to, you know, beach this weekend or whatever. Now, COVID restrictions have been in

21:07 place for a year and a half. You're like, 350. I don't have to get a Starbucks for 6. I can still get a gallon of gasoline. It's cheaper. I'm going to the beach. I don't care And so people are

21:18 not going to curb their demand the same way they have historically at these price levels. The last thing I would say is that OPEC in general has been very focused on their customers. That is no

21:30 longer the case. So if you look at the dialogue and the communications that are coming out of OPEC, they are much more in line with the idea that they had a really bad year last year Next year

21:46 doesn't look so good either. This is their sweet spot and they're gonna let it run. So they're not looking at like, oh my God, 80 oil, which we do, should we add oil back? No, they're saying

21:58 this is our opportunity to add oil back in a very strategic way, which we agreed upon in three months ago, and we're going to continue to do, as we said, nobody's gonna pressure us to put more oil

22:12 on or less oil on, we're gonna enjoy the run for the time that we have it. And then, next year we're gonna have to look at balances again, but right now, we're good. And so you're not gonna see

22:24 them intervening to keep oil prices in this 80 range, whereas they have in the past, you're gonna see oil go much further - Interesting. So if we look out kind of three-ish, five years, pick a

22:41 little bit longer of a timetable, anyone you want to, you say 22 were oversupplied, there'll be some pressure on prices. What do we see beyond that? Do we? Because you look out at the five-year

22:57 strip and I haven't looked at it in a week or two, but it was still in the 50s, high 50s. But when you looked out five years, the market's basically saying, Yeah, you can ramp up production

23:09 pretty quick and we still live in a 60 world. What's your kind of take on that? Part of the reason comes back to what we were talking about before in the spare capacity conversation. You're going

23:23 to see OPEC continue to add oil back to the market every month through the end of next year. The first couple of quarters of next year look like they're still in a draw in inventories and the year as

23:33 a whole basically looks balanced. Given a very strong demand recovery, after that, the best you can do is guess that gasoline demand grows like 12, 13 million per hour per day. I'm sorry,

23:46 product demand. total oil demand because that's historically what it's been. So let's say that we go back to an average demand picture. And I'm not a huge believer in electric vehicles. I think

23:58 the best way to clean up the environment is to change the fuel that the stock of cars is using right now so that it would be an immediate change instead of trying to actually change the stock of cars,

24:09 which is going to take a decade or more So I think that as we start to continue to see improvements in fuel efficiency and cleanliness, I think when you think about moving all of these stock of

24:27 automobiles onto a grid that's not in itself clean, it just makes no sense. So I think if we have more efforts to get the fuels cleaner, we can make a big impact faster. And so I think that there

24:39 still is this demand for fossil fuels going forward. And we've seen in this crisis in Europe recently that Renewables just are not at the point where they can make a big impact in Demand yet and so

24:53 that's going to take probably longer than we think it will so anyway So I'm going to stick with my average demand growth Assumption of like 12 13 million barrels a day If we bring back four million

25:05 barrels next year of supply which looks like we will that also means four million barrels less of Spare capacity so you're gonna see more volatility in markets going forward because there's gonna be

25:18 less spare capacity and as Demand grows every year. You still need to make another a million barrels a day in order to meet that demand So we do have a lot of projects that we're seeing down in South

25:30 America that will come on We see some expansions in in some regions in in the Middle East in Asia But you know getting a million and two million and a half barrels a day of new oil supply every single

25:45 year gets tricky

25:47 So it does look like the end of next year is surplus. 2023 looks like a surplus, but then after that you start to draw inventories again and from a much lower level to begin with - Do you have an

26:03 opinion on what happens to that potential for supply ads if we no longer have Exxon at all of the majors being oil and gas companies and them actually trying to morph into more energy transition type

26:23 companies? 'Cause I'll tell you this, the three folks, the three call it dissident shareholder board nominees for Exxon, one of those folks is a friend of mine, Andy Karsner, who I went to rice

26:39 with. And I'll tell you this, that guy is a wind power guy and he is a force to be reckoned with.

26:47 He's incredibly articulate and I've said on a podcast I don't know this because I haven't talked shop with Andy in a long time but the board is gonna have their hands full with with Andy and I think

26:59 you're hearing rumblings of that coming out of Exxon and talking about delaying certain capital projects and my two cents worth and then I'll let you give your take is if the majors and you've got all

27:12 the pressure on the large European In a graded to to do less in the way of oil because of admissions I think adding barrels is gonna be a lot tougher than it certainly has previously

27:28 Yeah, I think that that's true, you know, I think there's some independence that will continue to grow but

27:37 Yeah, I mean it it all comes down to it's there's definitely some Um, um. hesitation around some of these ESG mandates and pressures because there is evidence that there's been greenwashing in a

27:53 lot of these cases. So whether that continues to be really

27:59 a target that all the majors

28:33 are forcefully trying to hit or whether they become more selective about the sub-targets within that. But diversifying into renewables makes a lot of sense. The question is who's going to make the

28:33 fossil fuels that we still need too? The thing is that nobody in this world really thinks about conservation. Nobody ever talks about conservation, right? It's all about how can we have more? And

28:33 when populations are still growing globally and people are still electrifying and people are still adding cars onto the road, you need more. You have to grow supply every year. And so who's gonna

28:46 be there to do that -

28:49 Yeah, no, that's right. So in terms of looking out kind of at your forecast, where does it go wrong? What potentially happens? I mean, there's always the occasional black swan pandemic event,

29:05 but are there politics involved at OPEC that maybe potentially cause issues on this forecast, capital markets opening up in the United States? What do you kind of think potentially happens? If your

29:21 model's wrong and we're talking about it in two or three years, what potentially popped up -

29:29 Yeah, so I mean, we've seen OPEC fall apart already in the last 20 months, right? Last in the first quarter of 2020, we saw Russia and Saudi Arabia fighting over policy in OPEC and really kind of

29:45 leadership of OPEC and of OPEC Plus. And so we've already seen what that can do to markets. I mean, they can come and swamp the market and send prices lower. That's they're the only ones that can

30:01 really do that ramp up production very quickly. So that's, if you're saying, where is the, because I'm obviously still very bullish on oil prices right now So what could cause them to go a lot

30:16 lower? Certainly that could. So that's the supply side. There is a lot of SPR strategic petroleum reserve barrels that have been built up around the world over the last year and a half. But we've

30:30 seen what happens when those are released in China just released some oil from their SPR last month for the first time ever. And it has a short term impact, but then people think, at some point

30:45 because they just took oil out of their SPR. So it's a very short term impact and the oil market came back and made new highs very quickly after that.

30:60 I don't know, it's hard to say. And so obviously the supply side, we could get more supply, the demand side, we could have a lot weaker demand. We could have some run on effect of the pandemic

31:10 with another variant that shuts things down again We can see demand drop off significantly. And that was to the order of magnitude of 8 million barrels a day last year. So that's a lot of oil that

31:21 can accumulate. But it's kind of tough because

31:26 I've been trying to figure out if you're

31:31 sitting here in the US and you're a US citizen, you don't want to be. We were told that we're energy independent for the last

31:42 six or seven years. So you don't want to be in a world where you go back to having the potential of OPEC controlling all of the resources. So how do you manage to get more production out of US

31:55 producers? And it's tough because there's not, even if you were to say as an emergency

32:04 solution to the tightness that we're seeing right now, we figure out some way to let US producers produce more, it really the supply can't come on for another six months. So it doesn't solve our

32:16 immediate problem. We can release barrels from the SPR, but again, we have been releasing barrels since Hurricane Ida because a lot of companies have requested emergency SPR releases and then we

32:29 actually have some SPR scheduled to be released anyway because of repairs that we're going to do the SPR facility. So we've been seeing some of that oil come out anyway, You know, the backwardation

32:41 today in WTI is a dollar in the front, which is, you know, we haven't seen that in over five years. In the DCS. backwardation is the highest, I think, in, again, six or seven years. So we're

32:56 seeing very, very tight physical markets. You know, that's a sign of physical tightness. So we need supply. And you know, the next big thing that everybody's going to be talking about is pushing

33:07 Oklahoma and what inventories are there because there's only the potential for another about 10 million barrels to be drawn out of there before you hit, you know, operational tank bottoms. And then

33:19 that means we're basically out of crude in this country. So I mean, because pushing is our benchmark storage facility. So it's, it's tight. It's really tight The only thing I can see, because

33:33 I'm probably, and I don't have a model. like you do, and you're obviously 100 times, 1000 times in a better position to make this. But the one thing I worry about is, is it such a cold winter?

33:49 And who knew we would ever worry about winter again? But here we are. But is it such a cold winter that economies are having to make the decision, do I shut in my industrial capacity to keep my

34:05 people alive?

34:08 And does that potentially cause an economic recession? And I haven't, you know, that was, that was a, so Dan Pickering thinks, when he was on the podcast and we talked about it, that

34:22 governments are gonna make those hard choices, they're gonna keep people alive. He thinks there's enough gas out there in the system that everybody will stay alive, kind of like within the bounds

34:33 of just a normal cold winter or but. He thinks we go from maybe having a, on a scale of one to 10, one being, nah, don't worry about it, bro. And 10 being sure, sure thing, it's gonna happen,

34:48 mortal lock. He thinks we went from kind of a two to a three on chances of a recession globally to maybe a five or a six because of the possibility of a cold winter. And you're starting to hear

35:02 weather stuff and I get it weathermen and weather women are just horrible. And they're like my college football picks, but

35:14 the buzz you're starting to hear is we really are setting up for a La Nina situation this winter, which just means colder weather, generally in the northern hemisphere, which is where the people

35:26 are and where industrial stuff is. So that's kind of the one thing I think I see out there that maybe could trip us up.

35:37 Yeah, no, that's exactly right. I mean, the national weather forecasts that NOAA has come out saying that La Nina probability has risen and that would be for a colder winter. And so, so, you

35:52 know, there's obviously a lot of switching that can be done from natural gas back to coal in some countries, over to oil in some countries, you know, all these different generation units have

36:08 different

36:11 mechanisms to switch feedstock. But yes, if you do see

36:18 industrial activity fall off dramatically because there is not enough power to keep the lights on and the heat on. And so they shudder in activity, industrial activity that could cause a big

36:30 recession. And we just saw that in the Chinese numbers I came out the other night, their GDP numbers were much lower than expected blackouts that were there. And there is a lot of high frequency

36:40 data, which is suggesting that the UK, for example, lots of different countries are dealing with that right now. So yeah, that's definitely a potential risk - So I'm gonna put you on the spot

36:53 here. So what's kind of the oil forecast and go out kind of beyond at least this year? So maybe even get us into 2023. What are you seeing that oil prices are gonna do - So as OPEC always says, we

37:09 don't forecast prices. We forecast inventories, but the inventory level is basically 100 correlated with price level. So that's when they're telling you that they're forecasting inventories,

37:21 they're really telling you that the forecasting prices. But so I don't forecast - So

37:27 it's when they ever say, it's not about the money, it's about the money - It's yeah, exactly. It's about inventories means it's about price So I think we will see over 100 crude. this year.

37:41 But I think that will be the,

37:44 I think that that'll be the top of the cycle. So I think next year we'll see prices come down again. But like you're saying, usually the forward curve is a horrible predictor of price. But I do

37:59 think that we're going to be at an elevated level

38:05 of of prices. So, you know, when we fall, we're going to fall down into the low 70s high 60s. And that's basically going to be where we're going to average next year. So I would, I would expect

38:19 that we see, you know, just under 70 average price next year. You know, costs of almost everything have gone up. But energy itself is an input into everything. And so that lifts what's the

38:33 saying again the rising tide lifts all boats or whatever said But in addition,

38:39 we won't see real bills start until 2023. So I think in 2023, you're going to see prices fall further. And I would think that you would probably see prices get back below 50. But

38:55 when you look at inventory levels right now, we're drawing them down to below the five-year average, which is what OPEC always has spoken about, keeping inventories below the five-year average And

39:05 right now, the average, the five-year average, doesn't include 2020. It's 2015 to 2019. And so we're down

39:14 below that average, and we're actually at the bottom of that five-year range. If I'm right on my forecast for this quarter and next quarter, we're going to go significantly below that. Then we're

39:24 going to have small draws next year and then a little bit of a build in the end of the year. But so we're still going to have these inventory levels that are at the bottom of the five-year range So

39:34 we have much lower inventory levels. despite the fact that we start to build inventories in 2023. So that's gonna be supportive to prices. You're not gonna see 20, you're not gonna see 8, you're

39:44 not gonna see negative 43, you're probably gonna see 50 - Oh, interesting. So generally speaking, the curve right, it's probably, you're probably just a little more volatile than the curve.

39:57 You're gonna have a higher high and a lower low, but generally the shape of the curve is right. Looking out, we're gonna ramp up - We're gonna have a lower prices going out, yeah - Yeah, gotcha,

40:08 gotcha. Well, do this. I wanna put you on the spot again.

40:16 Give me one or two, yeah. Give me one or two interesting tales of OPEC either in the past or maybe what's gonna happen next year, OPEC intrigue, maybe something we haven't read in the newspaper

40:31 somewhere All right, well, let me just tell you about. around OPEC meetings. Let me just warn everybody. So, you know, the media interest in OPEC is pretty intense. And you know, you go to

40:46 these meetings and the hotel I stay in is where the Saudi delegation stays. And so you go down into the lobby and there's 50 to 100 reporters that are waiting to catch a sighting of the Saudi oil

40:59 minister. And so,

41:03 but so much that you read in the media and that you hear on TV is just false. So it just is not happening. So usually when you go into an OPEC meeting there's a lot of discussions in advance before

41:16 anybody even shows up in Vienna. And then there's more meetings. And then by the time you walk into the OPEC meeting hall, it's pretty much a done deal. Everybody, you know, nods as low, blah,

41:27 blah, blah, it's down and they get a deal done. And so normally that's how things happen. And over the course of the last couple of years, it's gotten very heated because there's been, obviously,

41:38 Iran has a different point of view and there was the difficulty between Saudis and Russia. But so I'll just, as an example of how bad the media is in covering these meetings, I was with my daughter

41:56 in Vienna, she was visiting me and we were actually meeting the Saudi oil minister in the morning before he went to the

42:05 OPEC meeting. And so we were just chatting with him and we left, his sweet and we walked back down to our room and we, and the TV was on in the room with CNBC on it. And so he was going to the

42:22 OPEC meeting of which there was a deal and they were going to sit down and, you know, announce the deal And the headline across CNBC says, Saudi oil minister says, not confident of a deal. And so

42:38 Tara said to me, how do they, where is that coming from? Like we just left his room 30 seconds ago and now they're saying that on TV. And I said, well, he has to go downstairs through the lobby

42:50 and maybe somebody asked him something and I don't know, I can't imagine what he had possibly said. And so I texted his chief of staff and said, CMBC is reporting this. And he's like, we didn't

43:01 even go out the front door We went out the back door and got in the car. We did not see one reporter. So they're just making things up. And it's crazy to see it from behind the scenes. I have no

43:13 idea where this stuff comes from. So when you see all these, this intrigue and drama and this person is mad at this person, this is gonna happen, most of that is not actually happening. Most of

43:24 them are sitting down, having a meeting and moving forward there's not the intrigue that's assigned to it by the media.

43:33 Oh, that's funny. I had a buddy that during college, we'd go to Africa and he'd work as a safari guide. And when folks would show up, the buzz would start about, Are we gonna get to see the lion

43:48 on this safari? And he'd take them out the first day and he'd hype the lion up the whole time, Oh, well, we see the lion. And they'd see all these animals. And the second day they'd go out. And

43:60 then the third and final day they'd go out and they'd see the lion and everybody left and it was great. And John told me, Yeah, we fed the lion. So he sat right there.

44:12 We know where the lion is. I gotta wonder if some of the misinformation is not just member nations kind of having fun with the press - It could be. It could be - Yeah. Could be. So anyway, well,

44:28 Kathleen, you were great to come on. I really appreciate this This is.

44:34 It's been just crazy times because I was cleaning out some stuff the other night. My remainder of my office, it's kind of pesky. They fire you. They don't let you just leave the stuff in your

44:48 office. You actually have to pack it up and take it with you. But anyway, I was digging through some stuff and I had written myself a note in January of 2020 saying, We're going to hit 75 oil at

44:59 the end of this year

45:04 And I was off. Maybe directionally I was right. Maybe it was timing, not necessarily my number. But anyway, this has been fascinating stuff. Real quick, tell me a little. You talked a little

45:17 bit about your company. Tell me just a little bit more about it and where folks can reach you to the extent they'd like to visit more. Yeah, sure. Thanks. We have a website which is QAGCapitalcom

45:29 it stands for Queen Anne's Gate Capital.

45:34 Queen Anne's Gate was the name of the street that I lived on in London when I formed the company, so not very original. And we do all sorts of research. We have some weekly pieces of research that

45:49 we send out to clients. We do bespoke research on different topics that clients ask us about. We look at renewables. We look at metals We look at eggs, but obviously the last couple of years, the

46:06 focus has been on the oil and gas markets. And it's actually so fun right now. It's just such an interesting time because when you see how everything feeds into the same puzzle that we're all trying

46:21 to solve, which is how we have enough energy going forward, it's just fascinating And some people are so smart and coming up with such great ideas and we're going to

46:34 that are gonna get us to a cleaner environment, but

46:37 hopefully we can do it a little bit quicker going forward anyway. But so

46:42 most of the information is on the website

46:47 and we're happy to send stuff out to people to have a look if they're interested - Well, cool. Again, can't thank you enough for coming in and maybe I'll get to bump into you at the formula one

46:59 race this week - I know I'm gonna text you and see where you are and this you might be someplace really exciting that we wanna be - There we go. Yeah, that sounds like a lot of fun. I will say this,

47:10 I've never had a bedtime in Austin, Texas. So - I know, but I don't think we're gonna see Austin. I think we're gonna be on this

47:18 track the whole time because there's big concerts every night and there's, you look at the schedule, they just sent out the schedule. It's pretty exciting - I know I'm fired up about Billy Joel.

47:28 The one thing I wish I could do and I'm not gonna be able to get there, Furs are actually playing tonight in Austin - No way - Yeah, and - At the track - Not at the track, they're playing, I think,

47:41 at one of the clubs, Emos. That's

47:45 Austin builds itself as a live music capital of the world and they really do have a lot of great shows coming through there. The thing I will say about the psychedelic Furs, they sound like such

47:56 wimps on the album, but I promise you live, they're almost worthy of being the clash They are so good live. In fact, one of their former guitar players left the band in 2002 to join Guns N' Roses

48:11 - Wow - Yeah, I just say that. So yeah, it definitely texts me when you're down there and hopefully we can say hi, my sense is it's gonna be a zoo - I know - I think you're right about that, but

48:24 I'm hoping I get to go see Billy Joel. I'm looking forward to that - Great Okay, well, see you in Texas. Sounds great. Thanks again for doing this. Bye. Bye.