Transcription
To have you on with us. Um, how do you interpret the events that's going on right now? Um, increased strikes and the impact on on oil.
>> Well, I'm back on television, unfortunately, right? So, uh, you know, we had a quiet couple of months back there and uh, we, you know, I've I've warned people here at CNBC, oh no, I'm back, you know, so the situation, obviously, has gone gone rotten again. We never really resolved it, as you know, there's three huge issues here. Control of the Strait of Hormuz, the whole issue of nuclear, and the whole issue of Israel-Lebanon. And then, you know, do we bribe the uh, the the Iranians with vast amounts of money, which is relatively easy, obviously, and we really haven't advanced the solution to the three major problems. And so, the ongoing situation continues. You have to remember that the Houthis have have cut Suez throughput by the Bab el-Mandeb by by 50% for the last 3 years. So, I don't think we're anticipating a return uh, to full Hormuz volumes ever again, as we saw, you know, 27th of February before this started. On the other hand, as you know, the US is is quite immune to this in many ways. You know, we are certainly oil and energy immune. Uh, there are other issues around sulfur and and other and other commodities, but the fact of the matter is, you know, we can handle this situation. It just seems like it's going to remain an open wound, I'm afraid to say.
>> So, we saw a 5% increase yesterday. Today, we're seeing oil markets fairly subdued given the you know, other headlines that have happened overnight and this morning, up by about a percent on Brent. How do you anticipate this playing out? I mean, I don't I don't think many analysts think that we're going to go back up to crisis-level highs, but how far can we go?
>> Yeah, I mean, crude oil is not the problem, right? Nobody's burning crude oil in their car, and the problem is US gasoline in many ways. So, yesterday, by contrast, what we saw was a new low in US gasoline inventories, and a major problem in terms of capacity of US refining. There's enormous risk around US refining, particularly in in extreme heat. Uh, the potential for accidents increases, and then, of course we've got hurricane season coming. So, I think what we found out is that governments can control the crude price. You know, you've had enormous releases by the US government, by the the European somewhat, certainly by the Japanese over a million barrels a day from Japan, and then of course as we all know the Chinese at one point had cut imports by as much as 8 million barrels a day of crude, and in fact yesterday announced that they will now start exporting products which will take the pressure off in Asia. But, there's no real solution to the refining problem here. Um and as you know, refining margins have gone through the top of the range here.
>> Yeah.
>> We would normally say that uh you know, above $15 a barrel is about, you know, a good margin. Uh it costs between $5 and $10 a barrel to refine for someone like Valero. And we're at 60. You know, so that you can see where the problem is, and there's an incremental problem with the ethanol market, which is frankly too complex to get into right here, but that's also at very very high levels.
>> And we've seen the refiners do quite well in the stock market. Yeah. Valero for instance. I mean, is there some more juice in this trade?
>> Well, we're going into earnings, and so, you know, I think it becomes a political risk question, not a profit risk question. So far the the the Trump administration's done a very good job of staying out of the market, because what's made us so strong here in oil and gas has been free market, and you have to remember that. You know, once the government starts messing with it, as they have in Europe, it ends up as a disaster. But, what we've seen here is no limits on exports. We're exporting a lot of product, which is great for the US, great for the dollar, great for our fiscal balances. And so, I would urge the Trump administration to stay out of this and let the market sort it out. I would also say that US gasoline demand has stayed high. So, although people are saying headline
>> Despite EV penetration,
>> and you know, if you look at gasoline as a share of income, or you know, really the extent to which it's still on the front pages, what you've seen is actually here, you know, if you think about $4 gasoline, which is not even where we're at right now, in Germany it's eight. You know, so there's a lot more pain in other countries and really the US gasoline price is structurally cheap and it's just a headline number. And what I would say, and this is where you have President Trump alongside Elizabeth Warren, which is never comfortable, is blaming gouging as flat nonsense. And anyone who blames gasoline price gouging as the reason for high gasoline prices just reveals their ignorance about oil and I'll leave it there.