Middle East vs Oil Prices

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How Conflict in the Middle East Could Send Oil Prices Soaring

Israel, Mideast Markets Fall on Iran Threat, Global Stock Plunge

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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.

Michael Tanner: [00:00:14] What’s going on, everybody? Welcome into Tuesday August 6th, 2024 edition of the Daily Energy News beat stand up. Here are today’s top headlines. First up, how conflict in the Middle East could send oil prices soaring. Next up. Israel Mideast markets fall on Iran threat and global stock plunge. Holy smokes. That’s going to be a theme throughout the show today. Next up Norwegian high gas exports to northwest Europe say strong in the month of July. And finally in the news section of the Shale keeps getting leaner and meaner. Stu then toss over to me. I will quickly cover what happened in the oil and gas market yesterday, guys. Holy smokes. And then we’ll we’ll we’ll basically finish up by talking about what’s going on. As you can see behind me, in the overall broader stock market Monday, we saw an absolute pounding, both here in the United States and most likely abroad. We’ll cover all that in a bag of chips. Guys, as always I’m Michael Tanner, joined by Stuart Turley. Where do we want to begin? [00:01:15][61.7]

Stuart Turley: [00:01:16] Hey, let’s start with our buddies there. How? Conflict in the Middle East could send oil prices soaring. There’s a couple big points in this article. Israel’s conflict with Hamas is now well advanced. Really? Holy smokes. We now have another four aircraft carriers. There has never been this many aircraft carriers in the Mediterranean area in that entire Mideast area. Unbelievable. Gas prices are also rose. Around 70% of them are comprised of oil by the end of the embargo in 1974. When we take a look at this, it’s unbelievable. Brant is at 76, 91 about right now in. [00:01:57][40.9]

Michael Tanner: [00:01:58] The Brexit 7765. I don’t know what markets you’re looking at, but it’s the only thing that’s up today. [00:02:04][5.5]

Stuart Turley: [00:02:04] I’m looking at mine and it says 7691. And then the other one at WTI is 7282. [00:02:09][5.2]

Michael Tanner: [00:02:11] So I if you’re looking at it you can at some. Right. But either way not a great day for bright oil prices today. [00:02:16][5.1]

Stuart Turley: [00:02:16] But it’s holding strong. And I have to admit if during this big of a collapse we are going to see more things coming in and they’re saying the in the next article here Israel Mideast markets fall on Iran threat. [00:02:31][14.5]

Michael Tanner: [00:02:31] Global. [00:02:31][0.0]

Stuart Turley: [00:02:32] Stock plan. This was really, really wild. And this morning I woke up and the Japan index was just totally at the bunkers at the bottom. The Saudi Tadawul index and Egypt’s Hermes benchmark both went down 3.7% and 5.8%. Turkey’s Basra and in the 100 index was the hardest hit at 7%. Unbelievable. Folks are just sitting there kind of going, wait a minute, you don’t have aircraft carriers cruising around over there for no reason? Yeah. [00:03:06][33.7]

Michael Tanner: [00:03:06] I mean, it’s what’s going on in the Middle East right now is is kind of the backdrop to what’s going on in the markets right now. And really it’s kind of, you know, the tale of two storylines when it comes to where prices are. But hi, I’m nervous. That’s all I’ll say. I have I’m very nervous that there’s that there’s going to be a massive escalation. I did see Saudi Arabia just came out and said they’re not going to allow I ran to use their airspace, which gets go. Iran in Saudi aren’t necessarily friends. They did specifically say, though, this is to protect themselves and not necessarily Israel. You know, Saudi and Israel aren’t necessarily friends, so it’s a whole geopolitical mess. [00:03:41][35.0]

Stuart Turley: [00:03:41] Oh, Russia has dropped in more advanced weaponry in the last few days into Tehran than I’ve ever seen. It is unbelievable the amount of armament that is coming in. I’m afraid that they’re sending in. I don’t know this, but some of the aircraft that have landed in Tehran are known for carrying high and Russian munitions. This is hypersonic missiles. This is their electronic warfare equipment. The stuff that is out there that is going on is frightening. I have never seen this kind of activity going on. [00:04:21][39.1]

Michael Tanner: [00:04:21] Yeah. Extremely extremely extremely frightening. All right. Let’s I mean let’s stick in the Middle East here. But let’s talk I guess what’s going on the broader markets. [00:04:29][8.0]

Stuart Turley: [00:04:30] Well, the broader markets I was checking with Ananias on some things. He is a great guy on X and in the EU right now, the U.S. this year put out 41%. Their imports on LNG are 41% U.S. 20%. They’re still buying from Russia, LNG, 14% from Qatar, and then Algeria is 10%. But when we take a look at Norway, Norway is exporting ten bcm in July and it’s down because of maintenance. And it’s a good thing right now. But the deindustrialization of Germany has caused a bunch of. The demand to go away. So that’s why prices are holding. Sadly, you have a combination of deindustrialization because of renewable green energy policies. And then you have the combination of this. So LNG is saving their bacon as well as the Norway fields up in the North Sea. [00:05:31][61.1]

Michael Tanner: [00:05:31] Yeah I mean this is a lot of gas flow into the EU. And this is what happens. You know, you you’ve coined this phrase, the greater you go the more fossil fuels you will need. If this doesn’t tell you that’s the case. It does tell. It tells you that. And especially you know everyone needs AC. It’s hot. Got an extremely hot summer. It’s the it’s the is the exact time we need it. I mean, this is a pretty big number. Yeah. Norway said it’s expected 2020 for gas production is about 119 point 9BC 1,000,000,000m³, which is bigger than feet. [00:06:05][33.4]

Stuart Turley: [00:06:05] Yep. [00:06:05][0.0]

Michael Tanner: [00:06:06] Yeah. Multiply that by 3.2. I can’t do that math in my head, but somebody smarter than me listening to this can. [00:06:11][5.7]

Stuart Turley: [00:06:12] Oh, at Oklahoma State, I have to get my crayon. [00:06:14][1.7]

Michael Tanner: [00:06:14] There’s no way you’re going to be able to figure it out. [00:06:16][1.5]

Stuart Turley: [00:06:16] No. No way. That’s what crayons are for. Shale. There’s no spellcheck in a crayon. Did you know that shale keeps getting leaner and meaner? I love our great US shale producers. Absolutely love them. Wood Mackenzie, analyst, reported this week cost in the shale patch could decline by 10% this year, which would be fantastic. We need that back into the profits of the great EMP operators. But he sees cost peaking in 2023 and beginning to fall, with the decline set to continue more efficient operations. Michael, and I want to ask you, based on your crayon math and everything else, there was a number in here and let me try to find it more efficient. Operations are helping and MPs drill and compete wells faster cutting cost. At the same time, oilfield service firms office are utilizing more efficient kit and workflows. Sustained. There is a number hang on when customers combine and end of lesson. Hang on. It was a really big number I wanted to ask you on because I didn’t believe it to be true. [00:07:18][62.2]

Michael Tanner: [00:07:19] Well, I think the big thing that you’re seeing in this is. [00:07:23][4.3]

Stuart Turley: [00:07:24] Oh yes, here it is. Sorry, Michael. According to Wood Mackenzie, the rig count in the U.S. shale patch is set for an increase over the next year. But because this increase will not be as substantial as it might have been in the past cycles due to the drilling efficiency gains, here’s the catch these research firms would eliminate the need for 28 rigs. Are our efficiencies that good? [00:07:49][25.1]

Michael Tanner: [00:07:50] Well, everyone’s moving to you know, if if you’ve listened at all to the deal spotlight, which we know you’re a religious listener of, you would know that all the rage right now in all these deals is the move and the push, the three mile lateral, the same thing that happened in 2014 when we moved from the one mile lateral to the, you know, proverbial two mile lateral, which is all what we see now as you move to longer and longer laterals, the need for more rigs goes down because you’re getting more lateral foot in your individual wells. This also leads to higher costs, but not on not on the margin, which is on a per foot basis. You’re actually seeing costs go down on a gross basis. You’re seeing everything go up. Wow. [00:08:27][37.6]

Stuart Turley: [00:08:28] But let me let me say I love. [00:08:29][1.2]

Michael Tanner: [00:08:29] This quote from the from the Dallas Energy Fed survey. Too many equipment providers are taking too few EMP customers. Without consolidation within the service or equipment providers, it will be a race towards the bottom for pricing. That is one of that’s a very, very sober quote if you’re in the service business, because consolidation is great for upstream. We you know, we you know, companies, you know, private equity firms like Cambridge, they’re, you know, been pounding the table for consolidation over the past five, ten years. Well that helps guys like them. It helps PE it helps investors. It helps stakeholder shareholders whatever you want to call them. Who doesn’t hurt though. Well, it hurts employees who get laid off via synergies and two service providers. Now all of a sudden you’ve your two biggest companies merge. Well they’re not going to just now all of a sudden pay you invoices for both. They’re going to probably only pay you 150%, which means you just took a 50% cut to to it to two to your contract revenue here. Yeah. Wow. So it really is a you really is a catch 22. Everybody on the upstream side loves to talk about efficiency. Everybody on the downstream or the service side. It can be spicy because you know where exactly is you know where exactly are these efficiency gains coming from. Well they’re asking their service providers to cut costs. It does you know, it does point out you know that it it again, and I think this article points out I’ll read this last last paragraph here. As usual, the biggest players, both EMP and oilfield service will be the winners. They have resources to withstand the current oilfield service situation and seal long term service deals with big MPs. Would you term had the resources to commit to such deals that are mutually beneficial. So it’s it’s the bigger. As always, the bigger ones survive. The smaller ones get eaten. [00:10:15][105.4]

Stuart Turley: [00:10:15] Alive, right? But the smaller ones that use the work over rigs and different rig technology to enhance existing well is going to play in at a certain point. [00:10:27][12.4]

Michael Tanner: [00:10:28] I disagree. I just think at some point, at some point, the smaller guys are the first ones to stop drilling. Think about it. If you have if you if you’re running a one rig program, you are much more sensitive to future price of oil. You can see what’s going on behind me. It’s a it’s all red on the stock tickers today. All I. [00:10:46][17.6]

Stuart Turley: [00:10:46] See is a guy on a commercial with his head bobbing. [00:10:48][2.0]

Michael Tanner: [00:10:48] Around, but point all pointed. That being is the larger companies as it mentions in this article, who have a 1015 rig program. Well, they’ll trim to seven rigs, but they’re still running seven rigs. You have a you’re doing a one rig program. Well, you you may be much more sensitive to where prices go and your future forecasted and the future forecast of where the economy’s going to go relative to that contract. Then you are these larger ones. So I would expect to see a lot more oilfield service consolidation in, in not just the coming months, but really I think in 2025 that’s going to be a big theme. Okay, cool. [00:11:23][34.7]

Michael Tanner: [00:11:23] Well we’ll go ahead and jump over into into the markets guys. But before we do that we’ve got to pay the bills. As always, thanks for checking us out. World’s greatest website Energy News. Beat.com The best place for all your energy and oil and gas news. Stu and the team. Do a tremendous job making sure that website stays up to speed. Everything you need to know to be the tip of the spear. When it comes to the energy and the oil and gas business. You can hit the description below for all the links, timestamps, the articles. You can also check out the link below to our Substack, and you can also check the link to our friends over at the Crude Truth and Pecos Country Operating. Rey Trevino. We love those guys. We’re partnering up with them to help bring more awareness around their investment strategy. When it comes to the oil and gas, they have an awesome project they are raising money for. So if you’ve ever wanted to be an oil man and trust me, it’s fun being an oil man, even if it’s not up working. It’s awesome. We love the production checks. I’ve got one right here. I’ve got one laying around right here somewhere. Here we go. Here’s one we got. Here’s what we got this month, folks. We absolutely love it. If you if you’ve ever all wanted to get involved with the oil and gas business, feel free to hit that link below. Set some time on our calendar. We would love to chat with you and keep you, you know, get you. That was a great movie. [00:12:33][70.1]

Stuart Turley: [00:12:34] I hate to throw you off, but there was a great Bruce Willis movie. When he says at the end of it, the bad guy goes, we’re going to be sitting on the beach getting our 20%. I’m like, hey, I know where to put 30% in 30. [00:12:47][13.4]

Michael Tanner: [00:12:48] Absolutely, guys. So hit that description below. Let’s go ahead and jump over into the markets guys. Pretty pretty rough day for the markets to say the least. Guys. That’s understatement of the century I’d say overall S&P 500 as time stands here it’s about 2:00 as we record this. So a little bit left to go in the markets. But we’re down about two and a half percentage points for the S&P 500 Nasdaq down a little bit below three percentage points. Two year yields actually rose about a half a percentage point. Ten year yields down 3/10 of a percentage point. Dollar index down a half a percentage point. Bitcoin down seven percentage points was down oh. Was down below 14 percentage points all the way to 49,000. And since rebound up to 53,864. Crude oil for WTI is only down a half a percentage point 7315 and climbing over it. So, you know, things could be a lot worse. Brant oil actually up about a half a percentage point currently trading 7784. Natural gas continues to get pounded down 1.83 percentage point 193 overall zip, which is the the S&P Energy Select was down 2.8 percentage points. I mean, it’s a lot of red over here. So what’s going on. Let let’s start with the broader markets here. I think that’s the biggest thing that the people are worried about. I woke up to a bunch of tech say, hey what’s going on? What are you hearing? You know everyone’s got a theory. I think the biggest thing driving right now, the, the, the economy one is, is, is you’ve got recession fear. I think that’s a it’s this was a global market sell off. The the Japanese stock market was down 12 percentage points, which was the largest one day drop in the history, which is more than Black Monday, which took place in 1987. Absolutely. You know, it was a 12.4% loss in the Nikkei 500. You know, the it’s basically was the the largest drop in its history. The Dow actually lost 22 percentage points that day. But you know, now we’re going back to 1987. The big thing though is what’s called the the yen carry trade. And I think that’s the the underlying sentiment going on. Basically what happens is in in an environment where there is an arbitrage between two currencies, you borrow money in one currency, convert it to the other currency, AK in this case borrow cheaply the year the Japanese yen converted to. Get the increase in the in, in the, in the trans or in the, in the, you know, the currency lip basically. And then you invest those dollars in the U.S. market. And so as, as that as that process plays out, what are you only vulnerable to if you’re playing that market, you’re vulnerable to interest rate increases in the place in which you’re borrowing the money, aka Japan. And that’s what’s been happening right now. Bank of Japan has continued to raise rates, which is again, just sort of unwound this trade. A lot of that will probably see finishing in the fallout tomorrow. Here’s Sam Stovall, chief investment strategist at Cfra research. The market was whistling past the graveyard. I think people were basically lured into a sense of security at the market itself was very vulnerable due to the weaker expected economic and employment data provided the catalyst for correction. You know, we’re S&P still about 8% off from its recent high. I think this has much more to do with what’s going on with this yen unwind carry trade than I do think the overall broader economy is is melting down. I mean, obviously, you know, people have been saying for a while would do for a correction, but I mean blind mice, fine cheese every once in a while, if every single day for five years you’re screaming for a market correction, you’re going to get right every once in a while. So yes, it was there a correction maybe that’s needed, but I’m going gonna I’m not going to bank on anybody’s opinion who’s been telling me for five straight years, every day we need a correction because eventually you will be right, because the market just doesn’t go up. It goes up on the aggregate, but it doesn’t necessarily continue to go up. So, you know, what’s your thoughts on the overall broader market stew. Before we we’ll finish up with with with a little bit of oil. [00:16:50][242.4]

Stuart Turley: [00:16:51] Well Jim Cramer said today vote for Trump. If you actually vote for if you care about your paycheck. And I went no no please don’t Cramer jinx Trump. [00:17:04][13.0]

Michael Tanner: [00:17:05] He’s trying to inverse Cramer. [00:17:06][1.1]

Stuart Turley: [00:17:07] Yes. Everything that Cramer touches goes to hell in a handbasket metaphor. As for me and my house I’m voting for Trump. I don’t want Cramer to ruin a dare, you know? [00:17:18][11.5]

Michael Tanner: [00:17:19] Wow. Wait. Did you just make an endorsement? So you’re voting for Trump out of never guest. [00:17:22][3.7]

Stuart Turley: [00:17:23] Yeah. You going to figure that out? I’d like to pay and make a paycheck. [00:17:26][3.3]

Michael Tanner: [00:17:27] Yeah we’ll see. We will see guys as we move over again to oil I think you know, the the part that’s, that’s holding up prices really is the fact that there’s all this geopolitical conflict when it comes to oil prices. And I mean, not that not that anybody wants and I’d rather not a middle East conflict, because then there’s a good chance I’m going to be off the podcast because I’m going to have to go get drafted. I’m going to end up in Taiwan when it’s all said and done, storming the beaches there. But that, I think, is what’s holding and propping up oil prices from really cratering from where they could have gone today. I mean, you look at the physical markets, guys, things could have been kind of, you know, could have gone backwards. I do think, you know, relative to how bad it could get in the oil markets. I mean, we’re still at $72, guys. We’ve got to got to be able to take that. Those $72 is not what it was five years ago. So all in all, I think oil and gas gets spared a little bit today. I do think you’re equities markets when it comes your oil and gas stocks are going to hit hard. Basically the only company that I see is green here is actually EOG. They’re only up about you know 6/10 of a percentage point. Everybody else from Chevron to Exxon on down is actually getting hammered. So pretty unbelievable. They’re good for EOG on that point. But hopefully everybody’s been able to stay calm. Hopefully you’re not a Charles Schwab member and you were able to get into your brokerage account if you needed to transfer some money. I’m never good. So but yeah, that’s really all I’ve got, Stu. Not much. You know, we had some earnings drop last week. We’ll have some some come up this week. So we’ll we’ll keep on keep on keeping on. But what what do you what should people be worried about coming up this week. I didn’t get to ask you. That was gone yesterday flying back trip. So I didn’t get to ask you what are you worried about this week. [00:19:02][95.1]

Stuart Turley: [00:19:02] World War three? I’d be honest with you. And and I really just flat out pray for our troops out. There are four additional aircraft carrier groups over there, and I wish the world would have a little bit of sanity. Yeah. [00:19:20][17.4]

Michael Tanner: [00:19:20] No, no. [00:19:21][0.5]

Stuart Turley: [00:19:21] By the way, get a generator, make sure you have enough water and food to last for a minimum of a month, just in case there is a tornado or any natural disaster. There are grid potential people hack hackers that have said they’re going to take us out and hearing more rumblings on that. So just be prepared for any natural disaster. [00:19:41][20.2]

Michael Tanner: [00:19:42] With that bucket of fun. We’ll let you guys get out of here. [00:19:45][2.6]

Stuart Turley: [00:19:45] Sorry. Start your. [00:19:46][0.8]

Michael Tanner: [00:19:46] Tuesday. We appreciate you checking us out here on The World’s Greatest Podcast. Check us out www.energynewsbeat.com pursue a tour and I’m Michael Tanner. We’ll see you tomorrow folks. [00:19:46][0.0][1149.5]

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