Are Higher Oil Prices the New Normal?

0:00From the Goldman Sachs trading floor, in ten minutes or less, investors and analysts share timely analysis on the week's market activity. The market's podcast from Goldman Sachs. Listen now. Signs of progress in the Senate as lawmakers push to fund the TSA, plus oil rebounds as traders assess potential long-term hits to global energy supplies. Before the conflict, refinery runs in the Middle East were around 26 million barrels per day. Right now, within the refinery runs, it's close to 16 million barrels per day. And the EU and Australia ink a free trade deal as the world's middle powers link up. It's Tuesday, March 24th. I'm Luke Vargas for the Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. Senators say they are closing in on a deal to fund most of the Department of

1:06Homeland Security, including the TSA, as security lines continue to grow at airports nationwide. Carved out of the potential agreement, according to Democratic Senators, would be funding for an ICE division that carries out immigrant arrests and deportations. Delaware Democrat Chris Coons said the deal would broadly require ICE to wear body cameras and display identification, though it's not clear if it would address other core Democratic demands, including a ban on agents wearing masks. Meanwhile, the Senate has approved President Trump's choice to succeed Christy Nome at DHS in a largely party line vote. The eyes are 54, the nays are 45, the nomination of Mark Wayne Mullen of Oklahoma to be Secretary of Homeland Security is confirmed. Mullen will face the task of pushing for a deal to reopen his agency and balancing the president's desire to deport large numbers of immigrants with a shift to a more low profile enforcement style. Mullen, swearing in, is scheduled for this afternoon. The Pentagon is once again limiting press access, including rehousing credential

2:06reporters outside of the building and requiring that they have escorts when inside. The restrictions come after a federal judge on Friday ruled that prior limits on reporters' access to the Pentagon were unconstitutional, including forcing reporters to sign a document restricting their communication with military sources. The Defense Department has set plans to appeal that ruling. Meanwhile, the DOD is set to meet face-to-face with Anthropic in court today in a dispute over the military's labeling of the company as a supply chain risk. The spat between the sides spilled out in public last month after Anthropic drew red lines around the use of its AI tools in mass surveillance and autonomous weapons, leading President Trump to call it a radical left woke company and direct every federal agency to immediately stop the use of its technology. General Tech reporter Heather Somerville told us about the court fight to come. We are expecting to hear Anthropic talk about how the Pentagon has retaliated against it first free speech and its speech should be protected under the First Amendment.

3:09It's going to talk about how the Pentagon's behavior and actions have already detrimentally impacted its business and its ability to raise money from investors has been negatively impacted. What the US government has said in its response is that it is well within its right. It has the discretion to declare Anthropic a supply chain risk and that the government's actions are not retaliatory. They have nothing to do with free speech, but they have to do with this building mistrust of Anthropic and a fear that Anthropic if it has access to the Pentagon's wartime infrastructure can meddle with the AI models, can put limitations on its technology, can create changes to the AI that's been deployed that will negatively affect US national security. Israel, Kuwait, Bahrain and Saudi Arabia have been hit by a barrage of missiles this morning as Iran launched fresh attacks. That comes after President Trump said the US military would stop strikes on Iranian power

4:12plants for five days following what he called a productive talks with Tehran. Iran has denied the talks were taking place according to state media, but acknowledged that countries in the region were trying to get diplomacy going. At the same time, journal Middle East editor Andrew Dowell says that Gulf countries are weighing whether to get more involved in the fighting. The Gulf's a little bit of two minds here. They've obviously been heard very badly by the war and they don't want it to continue by the same token. They don't want it to end where Iran is in, for lack of a better phrase, a position of power. Certainly where Iran has more influence over the crucial strait of war moves, waterway than it had coming into the war. So in the background, the Gulf is pressing the US very hard to keep going and finish the job so that Iran doesn't come out of this, still able to pose a threat. On the other hand, they are participating in the process with talks to make sure that they head in the right direction and also just because they do eventually want an end to the war. And obviously diplomacy will have to be a part of that.

5:14President Trump promised earlier this month that once Iran's nuclear threat was taken out, prices would drop rapidly. But how likely is that now? As banks raised their medium-term oil price forecast, and energy producers warned that it could take years to rebuild following Iranian attacks. Jorge Leon is the head of geopolitical analysis at Reistad Energy. Jorge, it's a new week, but here we are once again, focusing on Iran holding up traffic through the strait of war moves. Despite the country now having been hit thousands of times by the US and Israel, obviously we saw how markets were very quick to price in a short-term disruption of war moves traffic. But did anyone really factor in that Iran might possess an enduring asymmetric advantage here? I think indeed, I think no one was really anticipating that this was going to be a longer conflict. It's Iranians only cart on the table to close the strait of war moves. At the end of the day, it all goes back to the leverage.

6:15To Iranian leverage, they hold the strait of war moves and also putting pressure on the US. And a way of doing that is through attacks in energy infrastructure that would hurt the US economy through a high oil price. So I think that everybody in the market was anticipating that this was going to be part of the problem, but everybody in the market, I think, anticipated that this was going to be top priority for the US and governments around the world to try to reopen as fast as possible. Now, in reality, what we have seen is that it's not that simple to reopen the strait of war moves. I wonder, are we starting to look at a situation now where even if it is reopened, that supply could remain disrupted for quite some time? I think that the markets can reopen faster than supply chain. I think that is key. Yes, if the strait of war moves reopens tomorrow, we shouldn't expect that supply will come back to the market very rapidly. For a few reasons, the first one is that there has been supply production shut-ins and it takes time for that production to go back to the market. You've actually taken out the pressure from the wells and pressure in the reservoir is

7:18fundamental to determine how much oil you can get. So it does take quite a bit of time. Then you also have the fact that you have massive logistical backlog in the strait of war moves. So even if it reopens tomorrow, just clearing up all those vessels that are waiting there will take quite a bit of time. And then finally, the fact that energy infrastructure has been hit. We've seen refineries being hit. We've seen pipelines being hit. We've also seen oil storage capacity being taken offline. So to give you a sense, before the conflict, refining reruns in the Middle East were around 26 million barrels per day. Right now, we think that refining around is close to 16 million barrels per day. So that means that roughly 10 million barrels per day of refinery runs have been hit because of the damage to infrastructure. So that's, it really shows how important those attacks have been. Kind of an insult to injury in all of this is that the big oil companies had spent recent years sort of doubling down on the Middle East and in existing partnerships and investments they had there as opposed to pursuing new ventures elsewhere.

8:22All of that sort of suggesting that if there is going to be a push now to hedge against the Middle East, it's going to take a while and be pretty costly. Is that fair? I think that's very fair. I mean, yes, we can get a little bit more barrels from Venezuela, maybe 200,000 barrels per day more towards the end of the year. Yes, Shell producers in the US could ramp up a little bit production. Let's say 300,000 barrels per day and a little bit here and there. But we're talking about the supply disruption of 10 million barrels per day. So you could get probably half a million barrels per day of extra supply by the end of the year. What's going to increase the pressure on the White House on Europe to ease up on sanctions on Russian oil? Is it not if this continues? For sure. For sure. We've seen that the waivers were given to India to continue buying Russian crude at sea. We've seen that now waivers have been given for buying Iranian oil at sea. So I think that governments around the world are trying to find different levers to try to limit the upside price pressure and protect consumers around the world.

9:22We've seen some measures from certain governments, particularly in Asia, to try to protect final consumers, new policies such as remote working, car sharing, public transport, and so on. But those are measures that I wouldn't anticipate that if this conflict continues in the next few weeks, that governments will continue to put into place. If they do, you'll hear about it here. Jorge Leon is the head of geopolitical analysis at RISED Energy. Jorge, thanks as always. Appreciate you. Thanks. The day's markets news, including a new EU Australia trade deal and a potential beauty tie-up. That's after the break. So many organizations choose out systems because it's an outstanding way to quickly deploy apps in AI agents and deliver results. A top US bank deployed apps for their customers to easily open new accounts on any device. We helped a leading global insurer quickly deliver a portal and app for their employees while a global brewer developed an app to automate tasks to clear bottlenecks.

10:23Out systems. Build your agentic future. To learn more, visit outsystems.com slash WSJ. The European Union and Australia have inked a new free trade deal and security partnership. Journal reporter James Glenn is in Sydney. The agreement comes after an arduous eight-year process that stalled a number of times and it feels as if it was sped up in the end by the extreme level of uncertainty that most countries are facing at the moment with the on and off-again tariffs of the White House. European Commission President Ursula Von Delayen was very explicit in what was motivating her to get this done and it really goes to the requirement for greater certainty around security agreements and curing things like critical metals, which Australia is a big exporter of for Australia. It means an extra eight to ten billion dollars in trade, which is not insignificant, but

11:24I think the agreement really should be viewed as part of the middle powers to larger powers reaching out to each other at a time of great uncertainty. The deal is the EU's latest asset diversifies economic relations away from the U.S., following agreements with India, Indonesia and four South American countries over the last year. Elsewhere in markets news today, Estee Lauder is in talks to buy Spanish beauty group Pooch Brands, a deal which both said could still fall apart, would create a global beauty giant and expand Estee Lauder's already sprawling portfolio to include cult brands such as Charlotte Tilbury and Byredo. Tesla has notched its first monthly sales increase in Europe in more than a year as double-digit growth in the continent's battery-eV market boosted a number of car makers and Europe's most valuable fintech company, Revolut, has posted a 46% jump-in revenue with its customer base growing by around a third over the past year. The London-based company, whose app lets users make payments, trade assets, and hold money,

12:27got regulatory approval to operate as a full-fledged bank in the U.K. this month and recently applied for a national bank charter in the U.S. And that's it for what's news for this Tuesday morning. Today's show was produced by Daniel Bach and Hadi Moyer, our supervising producer, his Sandra Killhoff, and I'm Luke Vargas for the Wall Street Journal. We'll be back tonight with a new show, and until then, thanks for listening. At Janice Henderson, we strived to deliver better outcomes through insight-led investing, innovation for clients in a partnership approach that's core to our identity. I'm Dan Aronson, ETF client product specialist. I enjoy translating complex ETF strategies into clear, actionable insights that enable our clients to create more robust client portfolios. Janice Henderson, investing in a brighter future, together.