What energy insiders in DC are saying about oil prices and a possible Iran deal

What I heard from people in energy

If you want to know where oil prices are going next, perhaps there’s no better place than this week’s Global Energy Forum in Washington, DC. Hosted by the Atlantic Council, the event is a spectacular event with a unique global macro focus, featuring more than 1,000 participants from 85 countries. The forum gives us the opportunity to talk to the men and women who run energy companies and policies around the world.

I have had the privilege of having many wonderful conversations, chats and meetings. A few of these were unregistered. But at the same time we definitely had both Open-Record meetings with both Energy Secretary Chris Wright and Amos Hochstein, a TWG Global partner and one of Biden’s former energy tycoons.

The current Minister of Energy had some news with us to kick things off at the Forum. In our conversation, Minister Chris Wright confirmed that ship traffic in and around the Strait of Hormuz has increased. I pressed him further on the subject and he replied: “I would say this [ship traffic] It’s rising very significantly.” That’s not a lot of words, but it was enough words to move several billion dollars into oil futures. When the headlines of our conversation hit the TVs, oil immediately fell and CNBC ran a story. big story about that.

First of all, the “200 ships” number would be higher than many estimates you see elsewhere. But before you automatically discount this, keep in mind that it’s nearly impossible for someone without access to military data or expensive satellite data to know exactly how many ships passed through Hormuz. This is because more and more ships are turning off their location tracking transponders until they are safely away from Iran. Some are accompanied by our great US Navy. Others may be paying Iran a “transit fee” for the oil on board, estimated at around $1 per barrel. Others run at night with their ‘lights’ off. Despite the great job done by Kpler Maritime Traffic Tracking and mapping hundreds or thousands of ships of all types, shapes and sizes around the Gulf is an incredibly large task.

For reference, here are screenshots of all the ships floating around the Gulf on Wednesday night. Each color represents a different type of container. Are you trying to keep track of them all at all hours and everywhere? Good luck.

It is also important to know that oil tankers come in all shapes and sizes. A VLCC, which many may call a ‘supertanker’, carries approximately 2 million barrels of oil. Some smaller tankers carry much less. Doing some quick math on the president’s numbers (200 ships and 100 million barrels of oil) translates to about 500,000 barrels of oil per ship. Many of the ships the president mentioned may be smaller tankers or not tankers at all.

Apart from the ‘opening’ of the Bosphorus, there are two other big questions that everyone in the market is trying to answer.

First, once the conflict ends, how long will it take for oil supplies and exports to return to normal? Next, how could this latest conflict in Iran permanently alter production around the Persian Gulf and in the Strait of Hormuz?

Estimates for the first question can vary widely. Because each Gulf country (Bahrain, Kuwait, Iraq, Iran, Qatar, Saudi Arabia and the UAE) has a different situation regarding oil production, ports and security. A contributor to the Atlantic Council Forum, CEO Kuwait Oil Company Sheikh Nawaf Al-Sabah touched upon this issue in his own article. keynote speech With RBC’s Helima Croft.

On the second issue, Sheikh Nawaf also stated that he and other Gulf countries will examine pipeline options more closely for long-term security. But he acknowledged that pipelines, which currently bypass some shipping risks, are not a perfect solution. Pipelines are only as safe as the areas they pass through.

MY TAKE → Pipelines can blow up. For now, the Strait of Hormuz is the primary exit route, literally and figuratively, for countries like Kuwait, Iraq and Qatar.

On the second day of the forum, we had a special conversation with Amos Hochstein. Hochstein was President Biden’s energy security expert. He is also one of the most knowledgeable and well-connected people on the planet. In our discussion, we talked about the current situation, ‘tank bottoms’ and possible exit strategies for both America and Iran. We also discussed America’s Strategic Petroleum Reserve and how some are concerned that drawing it below the 300 million barrel level could cause physical problems in withdrawing oil. To understand why, watch the conversation. Hochstein oversaw the 2022 SPR sale and knows the storage situation as well as anyone.

So what is the result?

Here are my 5 main takeaways:

1) Ship traffic in the Strait of Hormuz is increasing. It’s still nowhere near pre-war levels, but the upward trend is good.

2) Accurate ship data is difficult and expensive to obtain. The more ships block satellite signals, the harder it becomes to track their journeys. What the big money players are using is likely expensive satellite or military-grade information.

3) The “opening” of the Bosphorus in July is of critical importance. This is especially true for refined products such as diesel and jet fuel, fertilizers, lubricants and more.

4) “Tank bottoms” are approaching. The longer the supply disruption lasts, the more likely it is that storage will continue, and the more likely it is that storage will be emptied.

5) Both sides are looking for a way out. Don’t stand firm.

The news flow has been fast and furious. As I finish writing this — because we have to call and publish this at some point — Trump claims that a deal with Iran is in place. Tomorrow is a new day and a new market. Stay focused, stay agile, and stay tuned to CNBC.

I personally want to say a big thank you to all of you. Power Insider Information readers are there. It’s been two months since we launched and the support has been tremendous.

The macro market and investors had a tough time in the last few days before Thursday’s rally. Stocks were sold across the board. I went to X a few days ago and gave my plain view on the markets.

Tough love. And this view may not win me many friends, but it’s how I feel. No stock market should go up every day. Sales is scary and stressful. They are also standard. Each year usually causes some type of decline in stocks. That’s why you get paid for having them. risk like that return. Otherwise it’s just a savings account.

By the way, is this really a “sell?” Maybe so for some high-beta tech stocks, but energy and healthcare are still on a roll lately. These industry groups higher over the past month. Don’t tell anyone; It may still be early.

I have a few swing stocks to highlight this week.

The first of these is Delek US (DK). This is a somewhat overlooked refinery and has been on the rocks lately. Delek reached a new high earlier this week. It is headquartered in Tennessee. While it’s not exactly an oil and gas hotbed, even its suburban location hasn’t stopped investors from finding the stock.. The $51 average price target might not imply huge upside, but Mizuho is even more bullish with a $60 estimate.

In case you need a reminder that the data center/AI story is also an energy story, Bernstein just got outperform ratings on two major power and cooling stocks: Vertiv (VRT) and nVent Electric (NVT). Bernstein analyst Varun Govindaraj likes both names, and his price targets of $416 for Vertiv and $218 for U.K.-based nVent suggest 30 to 40% upside. He writes: