oil prices are pulling back by 3% with Brent falling below the $80 a barrel level for the first time since March of this year.
Now crude is extending yesterday's pullback on hopes that a historic US Iran ceasefire will finally and one of the greatest energy disruptions in recent memory.
Trump declaring a deal to reopen the Strait of Hormuz is complete, promising full commercial traffic will resume shortly.
At the same time, European allies and energy logistics experts are already sounding the alarm.
They warned that clearing naval mines as well as untangling inventories and repairing billions in damaged energy infrastructure will take months.
So how real is the risk of ultra low global stockpiles that could mean we are vulnerable to a severe crunch later this summer.
Well joining me to weigh in is Bob McNally, the founder.
Well, as president of Rapid Energy Group, Bob, great to have you here.
Thank you so much for joining us.
So today we are watching oil prices extend their recent pullback right now we're looking at Brent hovering right around the $80 level.
But why do you believe the markets may be potentially misreading the peace deal as a supply floodgate rather than a temporary release valve.
Great to see, great to be with you, Remy.
You know, the markets have correctly in hindsight, uh, sort of reflected offsetting mechanisms, uh, that sort of, um, sort of cushioned this, this major disruption, this historic disruption, uh, an extreme optimism bias about a deal which apparently is about to be validated.
Uh, also, uh, depletion of inventories, which were quite ample, commercial and strategic.
You can do that once, and we're doing it.
Uh, and, and then the third is China's remarkable crash diet, if you will.
It just, it just suspended oil's demand and elasticity, really, it just stopped buying.
Now, you can go on a crash diet for a while, you can't live that way though, most people can't.
And so those mechanisms, uh, one is a one-off, one is, uh, uh, temporary, uh, you can use it once, and the other is, uh, you know, it's just sentiment and it's been validated.
But going forward, most analysts, ourselves included, we think there's going to be continued historic declines in inventories.
US gasoline inventories are at 11-year low.
US distillate inventory is a 29-year low.
The strategic stocks, a 43 year low, and OECD commercial inventories are headed towards the 10-year low for the seasonal, for the seasonal uh range.
And so, and there's more to come, and even a restart of Hormuz won't stop that.
So, we're either gonna learn the market can go really low on inventories and it just doesn't matter, and that seems to be the sentiment now, or that it does, especially if these offsetting mechanisms wear off, uh, or end.
So, we don't think we're out of the woods yet in terms of upward risk on uh oil prices.
Yes, and Bob, while I have you here, I do want to expand on what you just said.
So what do you think is the actual time frame to resume normal transit, and is the idea of a toll-free street realistic at this point?
So Rapidan has had an expectation, and I believe it's going to be accurate.
I think it's shared by the Trump administration.
That come next month, the month of July, we will have demined, uh, we will put in place a, a, a, a regime that will allow transit to begin, uh, increasing.
It's already has been increasing.
The US has been successful at sneaking out more boats.
You know, we're not anywhere near 135 in a Out a day transits, but we're in the 20s and going toward the 30s.
So we think in the next couple of weeks, it'll be clear sailing.
That's like a 70% probability.
There's always a chance this MOU falls apart, uh, and we haven't even seen it yet.
So we by no means is it, is it a certainty, but we think it's likely 70%, and that'll allow the transit to resume.
The big question, Remy, though, is, Uh, once we flush the oil out, will boats be willing to go back in and pick it up, or are they risking being imprisoned again for months if fighting resumes?
And then even bigger, will Saudi Arabia, uh, the Emirates, Kuwait, Iraq, agree?
To fully restart their fields, which they have shut in 9, 10 million barrels a day of production.
That's the big prize.
That is what the market has to see, to know that this is behind us.
Look, we could be on track for that.
If all of those things happen, boats leave, boats go in, the fields come back up, we're still looking at 3 to 4 months adjustment period, and we will have to withstand these low inventories, even lower inventories this summer.
Yes, and of course Bob, when we're talking about the Middle East, we have to think about the energy infrastructure and the repairs that are necessary as well.
I understand that you are heading to Vienna ahead of OPEC's 20th World Oil Outlook panel.
So given what we're seeing right now, how drastically do you expect OPEC, as well as global producers to alter their long-term targets for oil demand as well as defensive spare capacity?
Yeah, I'm getting ready to go.
The OPEC is launching its annual energy outlook, the World Oil Outlook.
I'm excited to be there later this, uh, later this week.
You know, I think OPEC has been correctly confident about the long-term demand outlook.
I don't think this changes that.
They were never believers, nor were we at Rapidan in this peak demand narrative that was very fashionable until late last year.
And I don't think, you know, we're not going to see EVs take over the world because of this.
This is not a situation like in the 1970s where you had a permanent quadrupling of oil prices.
Prices and an ability to swap out fuel oil, which is 40% of our demand, with coal, gas, nuclear.
So we don't see massive demand destruction as a result of this.
I don't think OPEC is either.
What OPEC has to be concerned about is what you raised.
Do we have a coherent functioning swing producer?
I think for the moment we do, even with the UAE having to leave, uh, but it'll get challenging when and if that oil market tightens later.
This decade or in the coming years when demand really picks up, especially for stock filling, that's going to be a lot stronger after this crisis.
Everyone's gonna want to build and expand their strategic stocks, and that'll be added to this still robust demand.
And so OPEC's got its work cut out for it, but uh it understands, you know, the alternative to OPEC is mayhem, and uh wild crude price oscillations, and nobody wants to see that.
Well, Bob, we will have to leave it there, so thank you so much for taking time out of your busy schedule to join us today and safe travels to you over to Europe.
Thank you, Remy.
