Lead Analyst at Sankey Research Paul Sankey Talks Commodities

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

SPEAKER_2 (0:07)

Let me explain Paul Sankey, folks. For years, you'd get the Deutsche Bank research, and this is before the internet. It was chiseled into granite.

It was chiseled.

SPEAKER_1 (0:19)

Excuse me.

SPEAKER_2 (0:20)

Chiseled into granite. Let's go.

SPEAKER_3 (0:22)

Let's get into this right here.

Paul Sankey (0:23)

Chiseled into granite.

SPEAKER_3 (0:24)

Chiseled into granite. We used to get the paper research reports. All right, you know, we were sitting here with Paul Sankey, lead analyst at Sankey Research. He is the go-to voice on global energy.

Paul, I've been reading over the last 24, 48 hours that a lot of crude is getting through the Strait of Hormuz, like a lot of crude. Why is Brent still at $103? Why aren't we trading this stuff at $80 a barrel?

Paul Sankey (0:45)

Well, I think it's going to come down because, yes, the numbers we're getting are actually 20 million barrels a day right now, the very latest. So the US has absolutely thrown the military, the Air Force particularly, into, for example, I was told they have eight F-15s constantly running up and down the Petrol line to protect the Petrol line. And the F-15s apparently are faster than the drones. So it makes you wonder about top gun and stuff. But what strikes me, obviously, is the enormous expense of this effort. And it's clearly an all-in military effort by the US to get the oil flowing, and that's succeeding. I think the problem is what happens once we get through the midterms, because it's clearly an unsustainably expensive effort right now. And what you're seeing, I was just looking at the charts, is actually year forward crude is now moving up quite aggressively. So you're above 80 for one year delivery.

So this time next year, the price of oil has gone up quite a lot.

SPEAKER_3 (1:45)

Why is that, again, with the supply?

Paul Sankey (1:46)

Because I think everything you're looking at now is pointing towards 2027 being a problem as well. Because we've drawn down, we've run through the six or seven buffers that we had in global oil, which would be some of the less well-known ones were, for example, that Saudi and UAE had major inventories in Asia already stored. An obvious one is the Strategic Petroleum Reserve. Those are getting tight. There is another release of the Strategic Petroleum Reserve coming through. But you've gone from one and a half million barrels a day of drawdown to more like 150,000 barrels a day there. And that simply can't go on forever. So this is a short-term sort of sugar rush of crude that we're getting.

That isn't clearly, is clearly, I don't think the US military effort can be sustained, quite frankly, at this level of expense.

SPEAKER_3 (2:32)

When you get to oil out, then what do we do with it? We got to refine it, right?

Paul Sankey (2:35)

That's the second problem. I keep saying, you're pushing on a string. And the fact of the matter is, the constraint is not crude. The constraint is diesel, and we're getting almost no diesel out of the Straits of Hormuz.

The Q8 refinery used to supply 60 percent of Heathrow's jet fuel. That's all now missing. And you really have basically an energy crisis again in Europe that we're hoping won't be as bad as it might be because we're looking for a warm winter with El Nino. But I think we're also looking at a very volatile winter. As you know, we just had a nor'easter here in September. That's not that's very early. It's not unknown. But it's it looks like we might have energy disruptions from force majeure from God himself or herself.

SPEAKER_2 (3:19)

Paul Sankey with us, folks. Sankey Research. Thrilled he could be with us today. I should say in the plague that I'm getting over, now I have two people on the Bloomberg Money Team, Paul, with it out today.

Paul Sankey (3:30)

Yes, I saw that.

SPEAKER_2 (3:31)

Folks, if you've got this flu thing going around, this pneumonia thing, go to the doctor. Don't be a hero.

I can't say enough the care I've gotten. We're working it in every day. Paul Sankey, I think Paul's dead on here, and that the public is looking at simplistic politicians and their rhetoric. If you were talking to the politicians with their simplistic primetime news soundbites, what would you say to them that they need to understand what's the come to Jesus moment the politicians need?

Paul Sankey (4:05)

I think the free markets, I think the idea that we would ban diesel exports in order to short term bring the price down, because the Russians banned diesel exports and the Chinese banned diesel exports. That's one of the comparisons that makes you realize what a terrible idea it is. It's like, no, we got to this position of the world's biggest oil and gas producer and exporter, in an amazing position that's greatly underestimated by almost everybody in terms of the benefits that it's brought to the US.