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When we talked about the commodity we talked about this earlier with Bill mcgloone, coming off a rough year, it's worst in fact since twenty twenty as concerns about a surplus pressured prices, and we continue to see some of that pressure. You can see that one year chart the
movement to the downside. Geopolitical risks still out there, seemingly not enough though to stem the losses, which is kind of interesting because every time we see either war picking up in the Middle East or elsewhere around the globe, we take a look at oil and it doesn't always spike or spikes very quickly. Well. Joining us live with what lies ahead for energy, the energy markets and the energy supply are Bloomberg's senior US oil reporter, Kevin Crowley
and Tim Moore, senior research analyst at Clearstreet. He covers the clean energy transition as well as oil and gas, so perfect twosome to talk to. Kevin kick it off with us. We just talked with our own Josh Saul and Mark Gungloff talking about the draw down on energy supplies that we have been seeing that are expected to continue into twenty twenty six in the impact it may have or is having on the climate. But kick it
off remind us too about the world's energy supplies. Prices are low, and that's because there's a lot of oil out there.
That's exactly right. Wall Street is almost unanimously bearish on oil going into twenty twenty six. As you said at the top there, oil dropped about eighteen percent last year, and very few people think that it has any room to increase from here. Brent Crewe trading around sixty dollars a barrel, w Tweati trading in the high fifties. And it's really because of this massive oversupply that you mentioned.
The IEA expects there to be about three point eight million barrels a day of excess supply this year, mainly driven by growth in non OPEC producing countries such in the America's Canada, Brazil, Guyana, also US shale here which despite the low prices, continues to grow, and so that's really driving this period of very low prices, which of course is something that is favored by President Trump. Now, this has been one of the most well telegraphed oversupply
instances in a very long time. So the question really is when do investors start to see through these short term oversupply imbalances and start to really look at the medium term which looks much more constructive.
When you say more constructive, Kevin, what does that mean that there's going to be a floor under oil prices and we'll start to see some move to the upside. I mean this is against a backdrop where we talk about data center build out and how we're going to need all forms of energy to power it, and the increasing demand that we are seeing on the world's energy supplies.
It's all needed. So do you anticipate then, or what you're hearing from analysts who cover oil that prices will head higher and if so, when, well.
That's right.
In the medium term, demand looks very very strong. Oil demand continues to grow despite the despite the energy transition, and with the with the with the data center build out and lowering interest rates here in the US. If the economy stays strong, you would expect that demand to to continue to continue to grow. So eventually the world will work through these this this oversupplied market, which will
then help to help to drive drive prices higher. But the big question is when that's going to happen.
Now.
I think people are saying, really by the middle of this year, we should start to start to see some of that oversupply being being worked through. So I would expect I would expect, certainly the market to maybe start start moving around.
Then tim on this ices, on these prices going into twenty twenty six. At what point does OPEC plus say, you know, we want to see higher oil prices, we'll kind of tighten the spigot, close the spigott a little bit, and we'll we'll decrease supply so prices will go higher. Is that still a possibility?
We think so, are clear Street.
You know, we've been watching this and we weren't too surprised since last April with you know, the catch up that they had to do with the two point two million barrels a day, the curtailment they did the prior two years and catch up with two point sevent two point nine million.
Last year through the December.
So you know, we like what OPEC plus has done and talked about since October you know, they vote this Sunday. We don't think that they're going to be raising their quota hikes for the first quarter.
So this kind of lines up a little bit who Kevin was alluding to. You know, we like this up.
We like when investors are bears and think there's a low oil prices and we see reason for oil price you know, to maybe average possibly you know, low sixties throughout the year. And what's more important to us is when does that roll off and start and as soon as it starts rolling off, that surplus supply, which we think will probably maybe get wrapped up by the when you're an anniversary of you know, Liberation Day tariffs, maybe April,
May June. Then you know you do have easier planning by E and P companies to drill and just spending and usage, which is you know, you want a tighter band on oil price just for budget. So we feel pretty good about oil prices for next year. Nothing where it used to be, you know, in the seventies or eighties, but low sixties are good and a lot of the stocks that we talked to and cover, you know, they break even fifty fifty four dollars for free cash flow brains.
So is low sixties enough tim to drill baby drill as the president wants to see.
I think if you have some of the stocks to be covered, like Magnolia Oil and Gas, yeah, they'll, they'll, they'll. They're doing seven percent in net production growth. Probably next year. You know, they might add a little bit more. I think it depends on your economics. But you know, fifties not great.
And having a.
Tighter band with less volatility probably this year than there was last year. And that's because the tariffs maybe not as much of a headwind. Will Peck plus quote is not as much of a headwind. I think that really helps have a tighter band around the oil price five dollars each way in set of ten to fifteen.
Kevin, Yeah, well, you know, and I just do wonder too, Kevin. I mean, obviously everybody's watching policy out of the White House, and we have a White House that's pretty clear about their view or the president's view when it comes to all the energy, whether it's wind and other. So do the integrated oil companies feel confident though ultimately about drilling more? I mean you said that we're looking for maybe prices
to start to move up. I don't know whether it's midyear or later on this year that the metrics get better, but I just do wonder about what really makes them wanting to increase supply even more because there is just so much out there.
Well, the big the big buzz word here amongst the big oils is capital discipline. They keep preaching this to you to wall streets, saying that we're not going to spend excess money on production, We're going to focus on shareholder retterms. We're going to focus on investing in the very, very best projects that will give us the lowest breake evens in order to generate those dividends and share buybacks.
And what was interestingly happened very interestingly last year is there was a bit of a departure between oil equities and the oil price. So oil went down almost twenty percent, whereas whereas the big oils actually rose about ten to fifteen percent last year. And the CEOs really believe that this this capital discipline which which will continue to drive that kind of outperformance. But the other thing that we've really seen, especially in the US oil sector, is this
continual grind for efficiencies. US shale in particular continues to innovate, continues to drive down costs. They drill longer lateral wells, they put more more power into into their fracking. This is more changes and how they and how they produce oil, which really allows them to drive down their break even and to make money. At this, at this sixty dollars level, they're really on the cusp at the moment. Some companies really really don't like it. But at this, at this
sixty sixty dollars level, usor productions still continues to increase. Now, if we were to drop down into the into the fifties, I think that that might change and US production may come off its record highs. But the industry really continues to surprise on the efficiencies.
Yeah, it's kind of fascinating, but it makes sense right that they that they continue to do that. Tim come on back in here. Because you follow the old energy companies, you follow oil and gas. What's more promising when you think about it, maybe medium term, longer term, what's more promising the outlook for oil and gas, for the outlook for those clean energy companies.
You know, even though the clean energy companies apperformed the s and P almost thirty five percent last year. You know, we think there's still room for them to do well this year if they have exposure to what we're calling the electricity shortfall. We cover several stocks with this exposure, whether it's mos Tech and yr Group, Blue Energy, even sun.
Run and will Dan Group.
You know, they're pretty well positioned because you know, as you probably know, the US has been the power grid was only ending about one and a half to two percent a year of supply, but the demands growing at four to five percent a year now. Half that caused by the new AI hyper scale data center is being built out. The other half cause from reshoring and ev charging, crypto mining heat pumps. You know, there's a lot of
other reasons why. So we think there's a tailwind for the next three or four years of massive expend spending by the utilities. So a lot of the stocks we cover their customers are utilities or commercial industrial new plants, semiconductor plants, even American Superconductor should benefit from that. You know, we think that the utilities could probably spend about thirty five percent more on the transmission distribution side over the next five years to really close that shortfall and balance
every year. That's pretty wide just the last three years. I mean for about forty years, the demand group one to two percent a year in the US.
Now it's scoring you know, five six percent maybe this year.
But tim on the alt energy side of things, with low oil prices, doesn't it decrease the incentive for investing in new technology?
It could depending what you what you're looking at.
You know, we cover sun Run, which is the biggest residential solar solar that's attaching battery storage, and you know, we think there's stocks positions to keep going up.
They're number one in market share.
It's it's very affordable, and you know commercial you need like like your speaker to speakers, I was saying, you need just more than one energy source. You need natural gas, you need some oil, you know, you need solar, you probably need some wind. So I think there is room for alt energy to do pretty well. Maybe not the offshore when that the truck administration.
Might not be that supportive of though.
Okay, Kevin, I want to throw you a crazy question that that sort of has like politics in it, because the US policymakers like to talk a lot about energy independent. Is the US energy independent.
For all intents and purposes largely is I mean, clearly, we still import a fair bit of oil, but that's that's mainly due to the makeup of the of the refining system here. We need heavy oil, which comes from overseas. But essentially, you know, the US is producing nearly fourteen million barrels of oil a day, which is which is, which is more than any other country has ever produced in history. It's it's it's it's at least forty percent more than what Saudi Arabia is.
Producing right now.
So the US, for all intents and purposes, is as energy independent as it has been in decades.
Kevin that said, it is much more expensive for the US to extract a barrel of oil than it is for Saudi Arabia to extract a barrel of oil.
It is, but that it's that that crucial level. It's it's as long as it's profitable to do so, then companies here will will continue to do so. I mean, clearly, yes, Saudi Arabia can extract extract oil much more, much more profitably, but US break evens and maybe in the in the in the low fifties, so they can they can still they can still extract oil. Profitability Now, Saudi Arabia needs a much higher oil price to balance its budget, so that's something to take into consideration too well.
Oil politics always intertwined. A big thank you to both of you for joining us. This is exactly the conversation, the roundtable that we wanted to have this afternoon. That was a Bloomberg Senior US OL reporter, Kevin Crowley. Also Tim More, senior research analyst over at Clear Street, covering the clean energy transition as well