All right, let's get to our next guest. We have a Damian a coop Alan. He's had of energy research at Goldman Sex to having looked at an OPEQE plus decision two million barrels a day cut. But that does not does it, to day mean translate into a supply cut of two million barrels a day? How much does it realistically move the needle with oil output? Yeah, exactly. So the headline cut two million translates roughly into about a million bills pretty of actual production reduction in the
short run. You know, we had expected OPEC output to grow a little bit next year, so that becomes more like a one point three million barrels today, So it's not as big as the headline, but it still is a significant reduction in output from the group today. It sets up a little bit of a battle between the Biden administration and OPEQ plus. OPEC plus is looking to you know, support prices and the president wants to bring them down. Uh. Does this become sort of open warfare
or is it just kind of subtle, behind the scenes maneuvering. Yes, So maybe it's worth taking a step back to understand the genesis of the cut. You can look at it along three different dimensions. The first one is the pricer down there are significant concerns where potential economic hard landing and so OPEC is adjusting supply in response. Um. Your second oil has actually underperformed many out of the of the other cyclical assets over the last several months. It's
really fallen a lot more than equities, for example. And that's the second approach is there has been a disconnect between oil fundamental still relatively tight, and oil prices themselves, and this cut helps to correct the two in our view. And the third one, as you said, is this divergence in desired outcome lower energy prices gasoline price in the
US and higher prices for any oil producer. I think at the end of the day, the outcome has to be above current prices because as we look at the last several years, what we've seen now is just structural under investment UM and so you know, when you try to combine the two views, you ultimately end up requiring a higher price because investment is just not happening. And this will actually prolong the period of below trend economic growth because you're simply not growing supply enough to grow
the global economy fast enough. So it's really then about a time horizon. Right. Yes, in the short term or gasoline prices may be prefer in the US, but unfortunately the measures that have been deployed to achieve that, think spr release for example, are not sustainable solutions. You do need higher prices to finally get investments flowing, and that
is eventually where oil prices have to go. Damon, why are Western nations of wasting that time putting price cuts on Russian oil which is already a sanctioned b They couldn't care less about what the West doesn't. Secondly, it's a China and India buying the stuff anyway. Yeah, So I think the key here is really that Europe has two embargoes in place at this time. There is a physical embargo that kicks in starting in December, and that
there's this financial embargo on shipping insurance. So the price cap tries to avoid the second or replace the second, But at the end of the day, the first one is what ultimately forces Russian exports to be diverted. It's the one that creates production losses and ultimately yet China and India to benefit from lower oil prices. That's the one. Unfortunately, that is you know, at this point inconceivable to lift. So the price cabin itself doesn't really matter to the
outlook for oil production globally. You know, Russia is being sanctioned, is having to redivert barrels. That's not an easy process in terms of boats, in terms of refineries. And that's the supply laws that on top of the open cut will be coming at the end of this year. It's puts Europe and the West in a very difficult position, unfortunately, as your sanction of the ultimately do create those supply losses.
What should we make of the Wall Street General report about sanctions on Venezuela, the Biden administration UH scaling down or planning to scale down those sanctions for Chevron to resume pumping there is that? Is that a Does that actually bring a lot of oil back onto the market. Yeah. So if you think about areas of production destruction, really are three around the world of scale. There is Russia, of Courses, I, Ran and Venezuela. UM so attempts to
ramp up production from Venezuela could help. I think what's important to give in mind, though, is that This would take a very long time. We actually had a precedent after the Civil war in Colombia and it took five years of investment to get production to ramp up. This is heavy oil that takes processing. Assets have been dismantled for the steel content. They're competing claims on assets, likely between US, Russia China. The recovery in Venezuela production is
a five year endeavor. It's not a short term solution. Again, still is needed at this point is investment by producers around the world to increase supply. You know, those short solutions, short term solution just are not that okay, very quickly before we have to leave things. It gives a sense of what are going to be the main drivers of the oil price different to what they are now, and where will oil prices be in six months time. Sure, so we think oil prices will and this year out
a hundred and fifteen dollars. The main drivers for that will be ultimately lower supply. Between the Russian redirection and now it's open cut in the face of demand that is resilient, Demands resilient through September heading into winter, there is no natural gas. People will consume gasoline and diesel. Instead, demand will rise, will start from me near regular level of inventories and fall to a new record law that is a driver for higher prices. Where could this play
out differently? Well, you cannot make hard landing, not just a recession, all right, Damien, good stuff, Thank you. Damian Curve all and there, head of Energy Research at Goldman Sachs