Episode #2: #hottakeover your commute Iran
Hey Everyone David Branston with your host of the hot ticket today. Podcast we are coming to you live from World Broadcasting Headquarters. If you've seen the picture you've seen the SHAG carpet and you know how excited did I am that you've join me. Today's episode is going to be one that we released weekly. It's called the hot takeover. Your commute and the intent of the podcast just to help get you set in ten minutes for the work week ahead so we'll look back on the previous week. Major News events major things that are driving the energy industry some interesting and facts and any other things that we kind of want to talk about last week with it bringing in two thousand and twenty not a ton of energy news to discuss on a personal personal notes. I do do sober January. So if you see me in January you'll see that I pound soda water and lime like it is going out of style. But the annual tradition. I don't always make it to the thirty first. If I'm honest depends on what major events I have coming up at this year. I'm really excited Want to kick start the health getting back into into running so that is what I'm doing. I wish you and your resolutions. The best as you kickoff twenty twenty with a bang well speaking of kicking off twenty twenty with a bang. I think the only thing we really need to talk about on this episode is what happened on Thursday night. In Iran and major so Mani Was A was an Iranian in general before the airstrike in Baghdad at the Baghdad airport ended his life and I'm not going to spend a lot of time on the good the bad ed or the ugly of the geopolitics of that situation because quite honestly there's a lot more politically savvy. Geopolitically Savvy people that can talk about the political ramifications locations and when you're talking about the Middle East your guess is as good as mine a Guy I follow and I have in the show. Notes is Peter Zeon on geopolitics. Really good expertise expertise on the Middle East. So it's in the show notes if you want to do a little bit more reading I definitely recommend Having a look at his articles the New Yorker also had some nice ones over the weekend. So I'll post posting links to that but broadly speaking I think to understand really what the impact of the Iranian airstrike or the American air strike on Iranian general in Iraq. That's quite a mouthful really understand. I think what is going to come out of that you need to make a projection as to. What is Iran going to do in response some interesting facts about Iran? They have the capability of producing three point. Eight million barrels a day and as you know global oil demand slash supply is around one hundred million barrels a day so roughly roughly. They do four percent of the world's oil supply they have eighty one million people which is a surprising number? I was I was quite surprised. By comparison Iraq Iraq has thirty eight million people. Kuwait has four point. Two million people in Saudi Arabia has thirty three million people. So of that oil producing part of the world that produces or has the capability it to produce about twenty percents of the entire global production. The largest by far in fact exceeds the combined population of Iraq Saudi Arabia and Kuwait eight is Iran and as you probably know in November of twenty eighteen the US reintroduce sanctions against Iran which has really crippled their economy. And certainly certainly is no in no large or no small part part of some of what drove the tax over the last month. The attacks over the last three months in the attacks really over the the last year that culminated in the ultimate gonNA call it an assassination of general in more time so Be Be that as is it may what I find really interesting about. Iran is they're currently producing two million barrels a day which is about what their domestic Requirement is just because they're not allowed to export any crude so in terms of their economy. They really have no capability to grow the economy. That's a major major driver in terms of how how Iran might respond. They don't have the financial capability to sustain a war against the world's most wealthy powerful nation with the largest military so so this really brings us to Iraq and and obviously the Iranians have been supporting resistance efforts and militia in Iraq one of the reasons that the general no oh that was was in Baghdad at the time the Iraqis produced four point seven million barrels a day which is You know again. Five percent the issue of the world's supply. And so if you're GONNA see anything breakout in Iran it's likely to be a proxy war through on infrastructure around Iraq The Gulf Four. I remember it because I was in grade seven. I had no idea what a war was. I just knew that the oil price went up and that was good because my dad worked in the energy industry obviously have a very different view that today but I think about the potential ramifications in clearly geopolitical instability in the Middle East is going to drive a a premium to well. What is that dollar? Amount I don't know is at one dollars. A barrel two dollars a barrel five dollars a barrel. But I have to believe that this is going to be very different front than what we saw. In September when the Saudi Arabian facility was attacked and was down for a very brief period of time. I think oil prices aces within a month. We're back below where they were but certainly within two days it was very clear the Saudis we're going to bring production back up to around ten million barrels a day. They have inventory inventory around the world of around one hundred twenty million barrels a day. One hundred twenty million barrels. So there's really no risk to the supply. This in terms of potential tax on infrastructure attacks on facilities attacks in Iraq on five million barrels a day further drones attacks in Saudi Arabian on infrastructure. You may end up with you know one. Two three five million barrels a day potentially at risk and in that scenario I think you definitely see tightness of supply which continues to Dr The price thing. The other thing to think about is right now as you look you know on your typical news report or or website where you get your news. Oil is reported for the February contract month and it closed on Friday at sixty sixty three and change per barrel but when you look to November and December you can see that it Prices trade below sixty dollars a share. The quotes is on Friday. Were below sixty dollars a barrel roughly by August so two to questions that I had that will be answered over the coming. Weeks did the price of oil only go up a dollar or two on Friday Friday because a tremendous number of producers were selling forward barrels and hedging and taking the opportunity to lock in sixty dollar a barrel oil for for the first six seven eight months of the year when they could to guarantee their cash flow and pay down debt. We've talked a lot about the crisis of balance sheets. I think that that's a really essential piece of energy company. Survival is to make sure you lock in cash flow so question number one that I'll be looking for in the queue. Foreign annual reports will be. How much of two thousand twenty production was hedged and how many companies took an opportunity to hedge during the instability that occurred on Thursday and the market opening on Friday thing? The second and uh-huh and related question is is the supply tightness. That's being forecast in the early part of the year. So when you think about backwards backwardation oil prices sixty three dollars a barrel right now by the end of the year oil illustrating at fifty eight. At least that's where the future suggest. So you have a five dollar projected declined through the year. which would be backward as backwardation which which implies you should be producing as many as you can up front because the price is going to fall so your revenue's going to fall? The interesting thing about that is if supplies as tight as they are in my view based on US production declining cop capital starvation in North America limited exploration projects not a ton of were going on in the Gulf of Mexico international growth and then you overlay the political crisis Isis geopolitical crisis in the Middle East. Right now. And you say do you really think that production is going to be the level to satisfy global demand that grows one percent a year and moved from one hundred million barrels a day to one hundred one million barrels next year with all of these things going on that to me is the big question as we move through luke one. I'm looking to see the back end of the oil strip. Come up As you know I am an oil bowl I believe that the supply in the US is coming down and that's going to drive to me. Tightness of supply and when the markets realize that in kind of the February march timeframe. I think that's that's GonNa be the catalyst to drive up the back end of the curve. That's one of the reasons. I'm so optimistic around being able to pay down debt. If you're a good financial company Good Financial Balance Sheet. MP Company in the US right now so that's sort of the the episode today. Iran is a big deal. There's a lot of the people in that region. There's a lot of production coming out of that region. Think that The next two weeks will be very instructive but to me might take away is. This is a very different Geopolitical situation then was this discreet attack on a facility in Saudi Arabia in September and in the tankers through the Strait of Hormuz In June and this has the potential to be a much longer live crisis and based on how the Iranians respond in the coming weeks will drive the geopolitical premium. That's built into oil. Thanks for joining us. Hope you have a great week Until next time find us on HOT TICKET TODAY DOT COM. Subscribe to our email service. So that you can get that sent to you directly exactly each morning and check my book. What is wrong with everyone else? What they didn't teach him business core? Thanks for joining and have a great day yeah.