Bloomberg Audio Studios, Podcasts, radio News. I want to take a closer look now at the oil market, as the prospect for a peace plan between the US and Iran and along with the threat of further escalation the world were to continue, have led to wild price springs. Let's bring in Swings, I should say, let's bring in Stephen Shork for some analysis of what we've been seeing in the crude market. Stephen as the president of the energy analysis firm, the Short Group. It's great to speak with
you once again, Stephen. Thanks for being here as we watch Brent plunge more than four percent this morning. I think we saw fourteen percent drop after President Trump announced who was going to hold off on going after Ironni and energy for five days. I wonder what you make of these big moves that we've seen in your neck of the woods. Good morning, Good.
Morning, Nathan, and absolutely and I think it is just the ministative of the amount of speculation that we've seen in this market. Point. We're all focused on the ice BRN market and the NIMES WTI market, which are Atlantic basin markets. That is to say that these are futures contracts, and the futures is what they derivative, and they derive
their value off of a physical asset. In the case of nomics WTI, that physical acid is landlocked in the middle of the country in Cushing, Oklahoma, quite a distance
away from the Strada hor moves. So what we really want to focus on is the Asian based markets, and that would be the Oman market or the Dubai futures market, and there we see a massive disconnect where the Brent crude oil market is trading at around a thirty thirty five dollars discount to Dubai for instance, So in other words, oil where we needed, the oil that is pent up in the Strada Hoo moves is trading at upwards of one hundred and thirty one hundred and forty one hundred
and fifty dollars today. So that distance that skids them between the Brent market the WTI market, those large discounts just tells you that where the shortage is and the shortage of oil is not in the Atlantic basin. So we're focused on these prices that are now ok Yes, Brent and WTI are plunging right now, but their discounts are growing relative to where the actual war is so what we're still seeing is a market that is now pulling back sharply today based on some rhetoric, based on
some headlines. There's no reality there. The Iranians attack Demona, the Israeli nuclear site, over the weekend. The attacks don't seem to have stopped, at least on the Iranian side, and their rhetoric on the Iranian side still seems rather belligerent, regardless of what the administration is saying. So we are still in the midst of a war. The headlines are being pulled back on a headline, but in reality, the spreads are telling us that this war is far from resolved.
So when you see this kind of disconnect between the physical market and what we're seeing play out in the futures contract, what does that tell you about where prices could be once the war gets resolved.
Yeah. Absolutely, So what we do is we'll look at you know, we'll do a little quantitative probabilistic modeling here and at this point based on over the next four weeks we just rolled into the new contract contracting WTI. I'll pick right now, we have a cluster of right around ninety two sixty one, So right now, WTI is treading just around eighty eight dollars. Our first band, our first envelope in the area where you would expect it to kind of be range bound, runs from about one
hundred and two dollars to about eighty five dollars. So we're still within that band Nathan of eighty eight dollars eighty five dollars. That's where from a statistical standpoint, I would expect to see support. But if we do see resolution, well, if we see a resolution, and what's the best possible resolution, a positive regime change in Iran, then we'll see a six significant downdraft in prices IE prices back into the
fifty dollars range. If we see some sort of settlement where oil starts to flow freely through the Strait of Hoboos, but the regime in Iran is still in place, we'll still see a pullback in our first target. Once we break that eighty five dollars support, Nathan would bring us down. Another twenty dollars would bring us down in that sixty
five dollars range. So essentially, what I'm saying is, if we do see a resolution oil flowing again, we will see a pullback, and where does that pullback go naturally to where we were before this all started, and again that would be back into that mid sixty dollars range.
In the meantime, of course, we've heard from the International Energy Agency talking about this four hundred million dollar emergency reserve release from its members, and we heard from a Energy Secretary Chris Right that the first US flows have started to come into the market as well. How much of an impact could that have on price in the short term.
Well, it's an excellent point. And the impact we'll have is what is to store that spread I talked about between Brent Wti and Dubai Oman. Yes, the United States is releasing barrels where those barrels coming out of Houston, Gulf Coast. Golf Coast has plenty of crudal right now. The same goes with IEA members in Europe. Where's that oil coming out of from Rotterdam, Northern Europe again into
a basin that is well supplied with oil. Now we have to get that oil from where it's not needed the Atlantic basin to where it is needed to the Asian markets. And that comes out of premium, that comes out of cost. So with that oil coming out into the market. One, it will continue to distort that spread and kind of give a false signal of weakness in Brent WTI and really kind of ignoring where the shortage is as I said, in Asia. Therefore, it is having
that impact. And let's keep in mind that's a lot of oil, but realistically you could only get maybe five million barrels a day logistically onto the market from those reserves. Well that's only about quarter of what we were losing through the strait of her moves. So it is going to have an impact, but a deminimous impact because it's really impact in the markets that are well supplied with oil.
We still have to get it to where they're not supplied, and again transportation logistics so forth, that's going to come at an added cost.
Hugely informative Steve, and again great to have you back on with us on daybreak. That is Stephen Shark, president of the Short Group,