Oil prices surge in response to Middle East conflict

0:00Before the break, when I was talking about how there would be plenty of time to discuss the geopolitical and economic fallout from the attacks on Iran, well, it turns out that time is right now. The Alberta budget, we know, was a real downer, including the forecast for oil at about 60 bucks a barrel, far, far from the days of $100 plus. But with the ink barely dry on that document, get it, barely, barely, it's an oil joke people. Oil is soaring, thanks to uncertainty in the Middle East with WTI, over $70 when I last looked per barrel. A premier speth was asked about this today, and she seemed to suggest a couple of things. She said, hey, look, this really puts the onus on us being able to get that pipeline to the West Coast, along with some of the other capacity things to get these resources, you know, a safe, ethical manner to some other of our partner countries. And that also, yeah, at the end of the day, you know what, it probably will mean that our deficit for $25, $26 is going to be lower than the $4.1 billion that they anticipated

1:05as they see this uptick in oil. But to talk all things oil and what this might mean for us and the global market, join now by the former chief executive at the Alberta Petroleum Marketing Commission and friend of the show, Richard Nasson with us, again, good afternoon here, Richard. Great to be here. So let's talk about, I guess the spike that we're seeing here, right, I think it was a 6% spike day over day. And obviously that was already up and previously, what's your take on what this means for oil prices going forward because I've been reading some people saying that it's possible with this conflict that $100 per barrel could be in the offing in the next week or two. Yeah, I think there's still a lot of potential, particularly higher. The Strait of Hormose is a very narrow waterway 21 miles wide, 15 million barrels of oil, a day flow through it, and most of the Middle Eastern countries use it as their primary means of getting oil to the world, and right now it's not working, and 15 million barrels

2:05a day is a lot. So we had gone into this part of the year with the general view that there was overproduction in the world of a million to a million and a half barrels a day, so inventories were building. But if we take 15 million barrels a day out of it, it doesn't take many days to offset what those inventories were, and people are going to start to look at it as being shortages. Also, there's a lot of liquefied natural gas that goes through that Strait, and you see it a little bit more in that market. So in Europe, liquefied natural gas prices are up more than 40% today, so they're already feeling a big pinch. Yeah, well, so what does that mean for our supply here, obviously, as I mentioned, the premier spend did mention both LNG and oil, I mean, does this impact, like, do the countries that we supply, how heavily are they impacted by what's happening in the Strait of Formos, for example? Well, I mean, the reality is we supply the United States, you know, with where the biggest supplier can be present to their imports, which is 90%, 87% of our exports.

3:11The balance that goes off the coast, China is the biggest importer, China is really hurting, because Iran has become its major source of imported oil, and 1.6 million barrels a day from the CarGuyle Island facility isn't moving to China right now, so they're going to be feeling the pinch from all those countries that they have been buying from, and so they'll be looking for more oil. We just can't deliver any more than we already are through the pipeline to Berby. Yeah. Well, because that's what I was going to share is that we know what our capacity is right now. It's not like we can get that pipeline to the West Coast, that Daniel Speth and Mark Karni agreed upon, we can't get that done overnight. So yeah, we're kind of constrained with that, but does this in your estimation lend further credence to the fact that, you know, this isn't the first time we're going to see a conflict in the Middle East result in this kind of pinch, and it's not going to be the last time, you know, so from a geopolitical perspective, an economic perspective, does this add credence to the need for that pipeline?

4:11Well, absolutely. I mean, if you think about where are the big suppliers in the world, we'll remember one is the US, and fracking is kind of reaching its peak, most people think. And then number two and three are Russia and Saudi Arabia. And bombs are falling on Saudi Arabia, and it can't export a bunch of its oil because of the straight-on-arms being shut down, and then it's, you know, a list of countries like Iraq, the Kuwait Qatar, and we're right up there as number four in the world, but we have a limited ability to get to market. So we have always claimed that we are positioned to be one of the most alive suppliers to the world. The big challenge has been market access, and once we can get market access, there's a huge ability to produce more oil and natural gas from Western Canada. That's just the biggest challenge. Unfortunately, a pipeline to the Northwest Coast that the premier's talking about is probably 10 years away at best, so it doesn't really play into this conversation at all. Yeah, just from a larger broader perspective, obviously, what's happening in the straight-of-form

5:13moves is constraining the supply, and it could conceivably be the case for quite some time. Is there an alternate route or some sort of ability to kind of play around that, or is that basically the be-all and end-all of being able to move the product? Yeah, that's the be-all and end-all. Saudi Arabia has a pipeline of five million barrels a day that has a little bit of spare capacity. You can move two million barrels a day across the country to the Red Sea, and maybe there's a million barrels a day that the UAE can move across, but that's three out of 15. So no, this is such a big source of supply, and it's always been open. This is the first time it's ever been closed due to conflict, and we just are not set up to deal with it. Yeah, well, just crystal ball real quickly, if you can here. Donald Trump said that he anticipates that this could all be wrapped up in five weeks. Call me a bit of a skeptic on that file there. But hypothetically speaking, if this is a five-case or deal, how high do you think oil will get?

6:14Well, I would be surprised if it doesn't move over 90, some point here in the next few weeks. And I am a huge skeptic on that too. I mean, when they did the Iraq war, it wasn't over quickly, and they had all kinds of tanks and evasion forces and things, this is just bombing from there. You can kill a lot of people, but a lot of people will hide. And as soon as you stop bombing, they'll be back, and they're going to be looking for vengeance, and there'll be all kinds of factions fighting. And Iran is a big oil supplier, right? So even its production is something that the world relies on. It's 3% of the global markets. So we just got to not be unrealistic about this. This is a big conflict, and there's no apparent way to get out of it. Yeah. Well, as early days to say the least, and it's hoping that it will come to a quick conclusion, but this never hurts to prepare for the worst. Richard, as always, my friend, I appreciate you coming on and talking shop with us.

7:16Anytime, Courtney. Thank you, Richard Masson. Former Chief Executive over the Alberta Petroleum Marketing Commission.