Latest / Bloomberg Intelligence / OpCo's Gheit Sees $65 As Long-Term Sustainable Oil Price(Audio)

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OpCo's Gheit Sees $65 As Long-Term Sustainable Oil Price(Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Charlie Pawlett. Stocks continue to advance, the SMP five
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  Speaker 1: four percent. The SMP five hundred index now at twenty nine,
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  Speaker 1: up thirty one points, a gain of one and a
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  Speaker 1: half percent. As stack up seventy eight points, a gain
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  Speaker 1: It's little changed the thirteen sixty two. The crude oil
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  Speaker 1: also little changed, up ten cents for barrel on West
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  Speaker 1: Texas and immediate again narrow point. I'm Charlie Pellott and
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  Speaker 1: that's a Bloomberg business flash. This is taking stock with
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  Speaker 1: Pim Fox and Kathleen Hades on Bloomberg Radio. The energy
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  Speaker 1: market oil in particular, just when it seemed that the
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  Speaker 1: bottom was in for oil and maybe the worst of
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  Speaker 1: the decline was over, and certainly that seems so for
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  Speaker 1: the year, we see more news that gasoline, crude oil
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  Speaker 1: are still in heavy supply in the US and around
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  Speaker 1: the world, and that has put down wear pressure on
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  Speaker 1: crude oil. Again. We want to welcome back to the
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  Speaker 1: show now Fottle Gate. He is one of the best
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  Speaker 1: known oil and gas analysts and experts on Wall Street.
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  Speaker 1: He's senior analysts in fact at Oppenheimer and Co. So
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  Speaker 1: fottle first of all, what what is going on with
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  Speaker 1: oil the last couple of days, Breggit was the impacting
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  Speaker 1: things jobs, making people think that there's some more demand
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  Speaker 1: and it's going to help the world economy going. And
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  Speaker 1: the data from the US look like there's just you
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  Speaker 1: know that the supply glutt is not really over yet.
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  Speaker 1: Well again a new surprise here. Supplies over the inventory
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  Speaker 1: level is about five year mark, and that's what really
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  Speaker 1: spoke to the market. Uh. Oil production is declining in
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  Speaker 1: the US, declining everywhere outside of OPEC. However, the rate
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  Speaker 1: of decline is a lot less than what had expected.
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  Speaker 1: So everybody was thinking that two years of low oil
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  Speaker 1: prices would bring US production declient sharply lore that hasn't happened.
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  Speaker 1: Why because the industry is a lot more smarter, much
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  Speaker 1: more efficient. The allocate capital a lot better than what
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  Speaker 1: you used to do two years ago, three years ago.
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  Speaker 1: They can get do more with less, and therefore the
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  Speaker 1: impact was not as great as expected. So it's almost
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  Speaker 1: like good news bad news. It is the market one
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  Speaker 1: to see percipens decline in US production to say, ah,
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  Speaker 1: now applying demand will balance, inventory level will come down,
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  Speaker 1: and oil prices were reba. So that's what has been
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  Speaker 1: at the case and will continue to be the case.
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  Speaker 1: But eventually oil oil supply and demand will that and
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  Speaker 1: there isn't being The industry is not spending enough money
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  Speaker 1: to keep production flat, let alone increase production. Therefore, when
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  Speaker 1: you see the big companies, the X and the Chevron,
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  Speaker 1: the BP and all these companies spending, but you know
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  Speaker 1: you're talking about tens of billions of dollars of capitals
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  Speaker 1: ending that is not coming back, if you will, to
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  Speaker 1: the energy market because of the local prices. So in
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  Speaker 1: two or three years from now, we are going to
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  Speaker 1: be in a situation where we will have much lower
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  Speaker 1: supply if you will, and the demand even if if
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  Speaker 1: the global economy is not strong enough, if you will,
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  Speaker 1: you still have demand growth even half a percent. Here
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  Speaker 1: the world is still using ninety three million barrel the
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  Speaker 1: day of oil. So people exaggerate obviously the movement in
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  Speaker 1: oil prices on a weekly basis because of the inventory.
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  Speaker 1: Because but at the end of the day, you know,
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  Speaker 1: I see, you know light at the end of the tunnel,
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  Speaker 1: that oil prices wilcome much higher, will not stay at
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  Speaker 1: the current level because the current proble will not generate
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  Speaker 1: sufficient capitals to maintain in production at the current level.
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  Speaker 1: So I wonder if you could speak a little bit
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  Speaker 1: about dividends and the safety of dividends from some of
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  Speaker 1: the larger oil companies. For example, Excen Mobile the dividend
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  Speaker 1: now is over three, the Chevron dividend over four, Royal
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  Speaker 1: Dutch Shell nearly six percent, and so on. Are there
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  Speaker 1: oil companies you would recommend to investors who are looking
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  Speaker 1: for dividend income all these punk that is have dividend.
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  Speaker 1: The only way that they really return, you know, any
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  Speaker 1: sort of return to the shareholder, it's through dividend growth.
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  Speaker 1: Not only dividend, but dividend growth. Excel Mobile has been
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  Speaker 1: increasing its dividend for thirty five consecutive years. Obviously, then
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  Speaker 1: is the big sister and all the other companies, whether
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  Speaker 1: Chevron or Shell or be here, all these companies do.
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  Speaker 1: You look at Excel and see what ExM does. It's
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  Speaker 1: not easy for a company like x M, which is
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  Speaker 1: really not growing, to increase davidend for three decades uninterrupted,
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  Speaker 1: where all places were ten dollar or part there a
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  Speaker 1: hundred dollars, it didn't matter. X On increased dividend earlier
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  Speaker 1: this year by five point seven and continue to do that.
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  Speaker 1: So going forward there to increase is definitely going to
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  Speaker 1: slow because Xxon and Shell and all these companies would
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  Speaker 1: not have pree cash flow in order for them to
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  Speaker 1: increase the dividends. So daviden will be maintained and most
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  Speaker 1: likely for company like x AND will continue to grow,
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  Speaker 1: albeit at much lower rate. Follow trific story on the
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  Speaker 1: Bloomberg Today, Big oils billion dollars of new project signals
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  Speaker 1: spending revival by our colleague rug team Katake and basically
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  Speaker 1: emboldened by rising crewde prices, low costs, big companies like
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  Speaker 1: Chevron a VP doing these big expansions. Is this, uh,
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  Speaker 1: just another sign that the days of bucks of barrel
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  Speaker 1: oil are long gone. Because as soon as the price
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  Speaker 1: is up a bit, boom move ahead. There is no
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  Speaker 1: question in my mind what brew the twenties seven dollar
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  Speaker 1: oils in February, which was the lowest eleven in thirty years.
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  Speaker 1: Was the hundred and ten dollar oil we had a
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  Speaker 1: couple of years ago. Oil prices do not move in
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  Speaker 1: any logical you know or protectable fashion. Lower oil prices
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  Speaker 1: will bring higher oil prices, and higher oil prices will
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  Speaker 1: bring lower oil prices. So uh, in my view, the
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  Speaker 1: industry should look at sixties sixty five dollar oil as
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  Speaker 1: longer term sustainable price. Uh. Forget about forty because it's
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  Speaker 1: not going to last too long, and forget about hundred
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  Speaker 1: because obviously from experience we see that it doesn't last
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  Speaker 1: too long. And right now I'm ex screwed. The trading
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  Speaker 1: higher by about two tents of a percent at forty
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  Speaker 1: five dollars and twenty four cents we're of course speaking
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  Speaker 1: with Fatio Gate, senior analysts at Oppenheimer and Company. Can
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  Speaker 1: you comment on the terrorist attacks in Saudi Arabia and
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  Speaker 1: what that means to all investors in the past such
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  Speaker 1: an attack, whether you know, push all the prices you know,
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  Speaker 1: five ten dollar or whatever not in the less three
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  Speaker 1: or four or five years. I mean, you know, people
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  Speaker 1: are beginning to get used to this bad news is
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  Speaker 1: it's unfortunate, but it is a fact. It's not really
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  Speaker 1: a factor anymore. It's not driving oil prices up or
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  Speaker 1: down or sideway people just totally ignored. People are looking
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  Speaker 1: at fundamentalits, you know, what kind of inventory, what kind
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  Speaker 1: of demand, what kind of supply, And there is aliens
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  Speaker 1: in the industry actually is creating its own problem because
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  Speaker 1: I just said before, the industry is much more efficient
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  Speaker 1: than it was two years ago because they forced to
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  Speaker 1: be more efficient, otherwise it would be go out to
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  Speaker 1: out of business. So the rate of the client is
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  Speaker 1: a lot, you know, lower than before. So people are
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  Speaker 1: not worried about what happened in Saudi Arabia or Coait
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  Speaker 1: and all these countries. We are more concerned about what
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  Speaker 1: is happening in the US because sill has brewed about
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  Speaker 1: this disruption, if you will, in the global oil market.
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  Speaker 1: It is no longer Saudi Arabia that the swim producer is.
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  Speaker 1: The shild in the US is going to be the
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  Speaker 1: swim producer. And we know even when the prices were tumbling,
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  Speaker 1: a lot of the figures that are banning about. One
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  Speaker 1: of them was what around thirty five dollars a barrel
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  Speaker 1: with a lot of the show producers can just barely
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  Speaker 1: afford to operate, and when they can, they do so.
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  Speaker 1: Your official new range for crude oil now, fottle sixty
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  Speaker 1: five dollar oil is the longer term sustainable oil price.
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  Speaker 1: Too high, too much higher than that, or too uch slower,
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  Speaker 1: it's not gonna be sustainable. So in terms of uh,
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  Speaker 1: this disconnect between the refiners in the United States and
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  Speaker 1: the crude oil and the gasoline price and the crude
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  Speaker 1: in a nutshell, what's going on? How's that going to
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  Speaker 1: work out? Well? A couple of things. Uh. What happened
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  Speaker 1: is day tining industry has had incredible will run over
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  Speaker 1: the last five years. Some of these starts are up
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  Speaker 1: over the last two years. But like anything else in life,
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  Speaker 1: nothing is sustainable in this business. Or any other business.
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  Speaker 1: And so far this year refining stacks had been the
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  Speaker 1: worst performed stacks. The major integrated AT companies are by
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  Speaker 1: by twelve percent, the independent re China, the independent producers
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  Speaker 1: are up by the other service industries up about five percent,
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  Speaker 1: but the refiners are down by thirty plus percent. Some
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  Speaker 1: of them are down forty five percent. And there even
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  Speaker 1: being the biggest driver has been the discount between Deblity
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  Speaker 1: Eye Crews, which is our benchmark, and brand which shrank significantly,
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  Speaker 1: and that Erouded you know, crack spread the margin. And
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  Speaker 1: this is a margin business. Lower margin me and lower
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  Speaker 1: profits me and lower prices. So the definder is not
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  Speaker 1: going to be in the penalty box for a long time.
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  Speaker 1: Fado Gate, senior analyst, Oppenheimer and Company. This is taking
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  Speaker 1: stock and this is Bloomberg