Oil Slips As Risk Premium Eases After Iran Attack

Now we're going to bring in a real expert on everything oil related. We're joined by industry veteran Tom McNulty, president of TJ McNulty & Company. Tom, great to have you here with us. Let's get down to business here. What is the story with oil now after what happened in the Middle East over the weekend? Great to see you, Don, as always. Yeah, I think that what we've seen is without evidence of significant threats to the physical structure of the oil complex. Remember, oil is a physical business without damage to refineries, pipelines, production facilities, tankers. The market kind of traded flat and flattened out. It looked like the tit for tat still is dangerous and the escalation is still a risk. But the market traded flat and even down a nothing of significance was hit or damaged. There's a lot of money at stake in the oil space. And I think that there seems to be an attempt to avoid maybe doing damage to the complex. Can you just elaborate further on the subdued reaction of the oil market? So you mentioned that nothing physical was actually damaged. Was that the primary concern for this reaction or was it the reaction based on what they think will happen in the future? Well, Trey, it's definitely the latter. Where are we going? And I think that the reaction, and it may not be correct, but the reaction was that there's a bit of a tit for tat between the Iranians, the Israelis and their allies. And there is a sense that escalation could be very dangerous, could lead to a much wider war. There will be a lot of effort spent to avoid escalation. It doesn't mean there won't be escalation, but the market, I think, wants to believe that there won't be significant escalation to the point where you have the physical damage to actual oil infrastructure, natural gas infrastructure. It's not clear that won't happen. But over the weekend, I think that's how markets read the activity and the sort of the back and forth that we're seeing. And let's continue on this point of escalation. Of course, if it did escalate, it could potentially impact oil in a big way. But I want to hear it from you. Just lay it out simply for us. What would happen with oil prices if something physical actually was damaged? I think that oil prices could spike if there is a broader escalation and the indication that this would be a full-blown regional war, drawing in a lot of other major powers. But that's a big deal. I mean, I'm talking about a much wider conflict with much more highly developed combat operations that could damage oil and gas infrastructure, the Hormuz Straits, et cetera. So I think that what is different now, the United States and Canada and North America able to produce a lot more crude, that the price spikes that you'd see like in the 70s and 80s are harder to get to. I don't think would be that significant because there's a lot of production that can come from other parts of the world to make up for lost barrels in areas where there might be combat operations. So I also want your comments on this. So with the reaction being a bit subdued for oil, what do you think is driving the movement of oil right now? Because for some, it's sort of wait and see. It's still a supply and demand calculus, as it generally is. If you take away the geopolitical threats, you still have the ability for there to be a lot of supply. I mean, Russia is sending barrels around the world. The Iranians are producing barrels. North America has tremendous amount of production capacity to increase. You've heard me before talk about the ability of the United States to get to 15 million barrels a day. I don't know if we'll get there, but it's definitely possible. The resources exist in the facilities. So I think that there's still a supply-demand balance. There's demand particularly from developing world. Asia is still very thirsty for oil. So that's the primary driver of where we are in prices. And I think the geopolitical element is serious, but it's still going to be in the context of supply and demand, how long a and the ability of other areas to bring barrels to the market. All right, we just got about 15 seconds here. Real quick, barring what's happening in the Middle East, if the status quo maintains, what is your outlook on oil? We're still in this trading range. I still think we're in this range where we are now in the mid 80s. And I still think over time, there's more downward pressure because there's a lot of supply that could come on. At these prices, margins are very good and producers are incentivized to produce oil at these prices. All right. Thank you very much, Tom McNulty, president of T.J. McNulty & Company. Great to see you. Thank you very much.