Weekend Edition: An oil glut amidst geopolitical uncertainty
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Why is there currently an oil glut and how is it affecting prices?
There is just too much oil. Hardly surprising then that we've seen prices falling. So is this the pattern now as inventories get added to each day? Does it influence the impact of geopolitics? Like Iran, for example, if something happens there? We'll look at all of that today.
The morning call from NEB with Phil Dobby. The weekend edition.
So supply gl gluts, cuts in demand, geopolitics including wars or ends of wars, tariffs, storms. I mean, there's lots of factors influencing oil prices, aren't there? And it seems like we've had the full set of them over the last twelve months. But what I'm curious about is why do such long term factors as these often are drive such short term changes in prices? And and with so many competing influences right now, right? Rising inventories, but also potentially falling demand or falling supply. Which has the most influence? Well, uh Rory Johnson is an oil market researcher. He's a lecturer at the University of Toronto's Monk School of Global Affairs and Public Policy. And he is the founder of Commodity Context that provides deep data-driven analysis of the oil markets.
You might enjoy his substack content at CommodityContext.com. And Rory is with With me now from Toronto. So Rory, I mean WTI's got over sixty two a barrel this week, Brent's over sixty seven. Um uh you know, it even sixty, uh getting over sixty seems like a win for uh WTI lately, but four years ago, you know, we were talking about a hundred dollar oil. So even though we're starting to get back up again now, th there has been a you know quite a slide over recent years.
Yeah, well, and thanks for having me, Phil. Um, that's exactly right. So the oil market today, as you noted, we're sitting in the low 60s on a WTI basis, high 60s on Brent, and that's down considerably over the past couple years. And the main thing that's been driving that is, as you as you hinted at the kind of start of the show here, is that there's too much supply for the given amount of demand in the market. Um, one of the things that's driving anyone that follows Follows the oil market at all right now has heard about the glut. And what we've been talking about is essentially the emergence of the largest surplus of supply over demand or a supply glut in the market that we've experienced since the 2020 COVID crisis, which obviously itself was historic.
And absent that, this is one of the largest gluts on in the record of the oil market. And that puts a lot of Tremendous downside pressure on prices and both flat prices, the price you see on your screen, and also term structure, or essentially the shape of the futures curve, which gives us a lot of signals about the fundamental health and what's going on beneath the surface of oil prices. So that's, you know, too much supply, not enough demand, prices and structure are going to need to weaken in order to both reduce the pace of supply growth and hopefully. Hopefully to incentivize more demand. And these markets eventually need to come into alignment. Otherwise, we we build an unsustainable volume of inventories.
So when we have geopolitics at play and there's you know, the the fear that it's going to impact oil supplies, I mean, does that really matter when we've got so much supply anyway? Who cares?
It's a great question. And I think there's it's important to differentiate but between what we'll talk about, like realized losses in supply and what we're talking about here. So let's say a big factor over the past couple weeks has been Iran and the concern that uh the the protests that have grown increasingly kind of devastatingly deadly in Iran and the threats from the Trump administration of of
Which factor—rising inventories or falling demand—has the biggest impact on oil prices?
You know, pulling the trigger on some kind of intervention uh on behalf of the protesters, obviously, with markets taking the White House even more seriously these days following the kidnapping of of Venezuelan president Nicolas Maduro and Trump's obviously you know m massive bombing campaign against Iranian nuclear facilities last summer. So I think they're they're taking this seriously.
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Chapters
8 chapters
1
Why is there currently an oil glut and how is it affecting prices?
0:01–3:36
2
Which factor—rising inventories or falling demand—has the biggest impact on oil prices?
3:36–8:55
3
How do geopolitical tensions in Iran influence the oil market?
8:55–12:21
4
What was the impact of the Kazakhstan oil‑field fire on global supply?
12:21–16:45
5
How is OPEC responding to the oil glut and what production cuts are expected?
16:45–20:34
6
At what price level does US shale production become uneconomic?
20:34–24:36
7
What are the key differences between the WTI and Brent benchmarks?
24:36–29:02
8
What does the current contango/curve shape reveal about market expectations?
29:02–32:02