On the heels of being impeached by the House of Representatives, Donald Trump unsurprisingly created a diversion, having a key Iranian General assassinated by US drones. But as tensions in the Middle East mounted, the price of oil somehow remained relatively steady. Why was this the case? This week on Sea Change Radio, we talk oil with energy expert Daniel Dicker. We discuss the current state of global oil markets, learn the important differences between sweet and sour crude, and examine Dicker’s contention that the best thing for the environment would be much higher oil prices.
Narrator 0:01 This is Sea Change Radio, covering the shift to sustainability. I’m Alex Wise.
Daniel Dicker (DD) 0:17 The reason we haven’t made more progress towards renewables. And the reason that a guy like Trump can continue to destroy what you know environmental regulations are on the books now is because oil is so cheap. And we have to fix that first.
Narrator 0:37 On the heels of being impeached by the House of Representatives, Donald Trump on surprisingly created a diversion, having a key Iranian general assassinated by us drones. But as tensions in the Middle East mounted, the price of oil somehow remained relatively steady. Why was this the case? This week on Sea Change Radio, we talk oil with energy expert Daniel dicker. We discuss the current state of global oil markets, learn the important differences between sweet and sour, crude, and examined dicker his contention that the best thing for the environment would be much higher oil prices.
Alex Wise 1:30 I’m joined now on Sea Change Radio by Daniel Dicker. Dan is an energy expert and an author of two books. And people can learn more about his work at DanDicker.com. He’s also the founder of the energy word. Dan, welcome back to Sea Change Radio.
DD – Thanks, Alex. Always nice to be here.
AW – Well, when I heard about the assassination of sulamani, by the Americans, and a lot of us feared the worst that we were on a path to major conflagration in the Middle East. And that still to be determined. But the first thing I thought of was, I got to talk to Dan to find out what’s going on with the oil markets, why don’t you kind of give us a recap of the last couple of weeks if you can first?
DD 2:16 Well, I think I think the not to bury the lead. For me the most interesting outcome of the solamente assassination was the lack of reaction from the oil markets. And this has been something that’s been changing fairly steadily for the last 10 years, where the oil markets used to respect to a certain degree, you know, geopolitical incidents like this and worry, as we all worried about, you know, quite frankly, getting into a sector wide war again in the Middle East. And the oil market used to reflect that. And for the most part, it didn’t this time again, and this has been going on for quite a while, where were these incidents that, you know, 10 or 15 years ago, would have made oil jump by, you know, five, six or $7, maybe more, are now greeted with such a whole hum kind of shrugging of the shoulders. When solomani was assassinated, oil went up about $1 and a half, from like, 61 to 62, something like that, exactly from like 60, to 61 and a half $62 when the Iranians In fact, very carefully calculated their response, and Trump was able to take the off ramp, and at least for the moment, say he wasn’t going to accelerate, you know, the the march to war with Iran, the oil markets dropped three and a half dollars almost immediately. Now, this wasn’t, you know, Trump saying that they’ll never be, you know, further difficulties with the rains. This was him saying for the moment for the next, you know, 12 hours, we’re not going to do anything I mean, and it didn’t really remove, I guess it removed the immediate risk of a, you know, a Middle East war or a war between the United States and Iran, but it doesn’t remove the risk overall. But in fact, the oil markets have become so nonplussed by all of these things that many times if you don’t get, you know, in an instantaneous outbreak of hot, you know, hot war bullets being traded. The oil market treats it as if it’s bearish. It’s very strange.
AW 4:32 And a lot of experts are pointing towards the shale revolution in the US as kind of being the buffer against what used to be a shot across the bow to the oil markets. Do you agree with that assessment?
DD 4:48 I don’t, this country has made a lot of obviously he’s made a lot of progress and in generating more oil, so but you know, and now in fact, is A net export of oil, which means that if you could contain everything that’s created in this country, you could in fact be theoretically self sufficient in oil. But oil is not a, you know, a local commodity, it’s a global one. There are local commodities, natural gas, for example, is a very localized commodity. But oil is completely global. And therefore, no matter where on the supply chain, you know, the global supply is affected, whether it’s in the United States or the Middle East, it’s going to affect prices everywhere, nobody is left without getting that effect of prices. So when President Trump, for example, says we don’t need Middle Eastern oil, he’s wrong. We do need Middle Eastern oil, we still import quite a lot of Middle Eastern oil, despite the fact that we make as much as we consume every day. It’s just the nature of oil. And it’s been that way for the past 60 years. You have a certain constraints on transport, and you have just cheaper stuff that you can get. And then there are different kinds of oil that match to different places that you’re sending it to. So for example, on the East Coast, or even down in the the basin of the Gulf of Mexico, where there are several sour crude refineries, you can’t pump sweet croods from Texas in there, they can’t use it. It has to be sour crudes that come from the Middle East in order to adequately supply those refineries that are in that area. And the same thing with the East Coast, you can get more cheaply correct croods, from either, you know, the European markets, Rotterdam and other places on the East Coast refineries or Canada, then you can from a pipeline that runs all the way from, you know, West Texas again, you know, all the way over to the east coast. So the interconnectedness of the oil market doesn’t change, because we have, you know, increased the ability of the United States to, to produce oil by two and a half or 3 million barrels a day.
AW 7:04 That’s interesting. So the refineries themselves are tailor made to refine certain types of crude. Are there refineries in the US that are built specifically to refine shale?
DD 7:18 Yes, of course, of course. I mean, in the you know, before the United States makes practically nothing but sweet croods. So there’s sweets and sours and there’s all sorts of blends of both and variations along the scale. But if you think about, you know, just binary, their sweets and their sours. And when the United States was self sufficient, and just, you know, sticking pipes in the ground and taking oil out of old fashioned darex, those were all sweet croods and refineries were built for sweet goods. But as the United States needed more and more oil and had to go outside the United States to get it. They went outside to places like the Middle East that produced pretty much nothing but sour crudes. So now you’ve got a whole kind of rank of refineries, that are gauged towards sour crudes that the United States can supply to even if they wanted to, and converting those is, you know, it’s it’s astronomical to try and convert them over and it’s not worth it, at least now, you need, you need the differential between prices on that to go up at least 15 to $20 a barrel and stay there for refining companies to put the money into convert, you know, sour crude refineries into sweet crude Finally, so you’ve got this infrastructure in place, that kind of locks you in to where you’re going to get your crude from.
AW 8:33 Do you have any idea that a percentage of what our capacity is?
DD 8:37 You know, I’m not I’m not exactly sure, but I’ll bet you this. There’s 35 or 40% of sour crude refineries out there, maybe a little less, but it’s not it’s not insignificant.
AW 8:47 So those sour crude refineries are geared specifically for imported oil refining.
DD 8:54 Yeah. Mexican crude South American crude, African crude, Middle Eastern crude. Yeah. So where our sweet crude is coming from, mostly from the United States has the best sweet crude and then there are some European suppliers that have sweet crude. And the Middle East has almost all sour crudes.
AW 9:14 And is one more efficient in terms of its energy capacity than the other. Is it just a question of refining?
DD 9:21 Yeah, no one is cheaper to refine and generally is worth more and that’s the sweet croods. They have a lower sulfur content. And sulfur is you know, to take you got to get the sulfur out to make it to make it worth something. So the more sulfur it has, the cheaper the barrel is priced. So for example, oil sands, you know, that tar like stuff from Canada that we all scream about, you know, as being the filthiest crude, it’s filthy because it’s got a huge amount of sulfur in it. And it costs a lot to kind of take that out of there. You have to process it with several chemicals and heat and so forth, to get it to the state. You can actually put it through a refinery. So that’s like super sour. And it’s super cheap. And it’s super cheap. The differential on a barrel price for a sour crude bow from from, from Canada is $30 cheaper a barrel?
AW 10:15 But the refining cost makes it a little more equal?
DD 10:20 Well, that’s kind of Yes, that’s kind of that’s kind of the point. But also, there were other issues with with sour crudes in terms of transport and, and, and just the fact that it’s from Canada, and there’s all sorts of things at play. But that’s why it’s basically cheaper. It’s basically cheaper cause it’s worth less because it costs more to, to turn it into something that you can actually sell. Much off the ground. Cost is in the ground. Not so much in the ground.
AW 11:35 This is Alex Wise on Sea Change Radio. I’m speaking to energy expert Daniel Dicker. So, Dan, Iran is not the behemoth of oil production that it used to be in the 70s. How much of that is a function of embargoes against the country? And how much of it is just a question of the market itself?
DD 11:57 No, no, it’s sanctions that have hurt them horribly.
I mean, the sanctions running up to the Iran nuclear deal that was signed in 2015 hurt them terribly.
AW – With that in mind, is that one of the reasons why oil markets have not really gone through the roof with the possibility of a war with Iran.
DD 12:18 No, Iranian Iranian supply is really not what’s driving oil markets up or down. What what is driving markets up or down is the threat of a supply disruption, for example, in areas that the Iranians control, for example, in the Gulf of Oman, and you know, the Straits of Hormuz, and in fact, what a what a dust up between the United States and Iran could mean for the entire Middle East, you know, how, how long will it be before Iraq is involved? And they have their supply issues in the Saudis get involved in they have their supply issues. So it’s not really about Iranian oil, per se. It’s about the likelihood of supply difficulties running through the entirety of the Middle East.
AW 12:58 Yes, like when we saw that report that there were five us fighter jets that were taking off from UAE and the United Arab Emirates got kind of a warning message from Iran saying any countries that allow enemy fighter jets to attack Iran, like if those fighter jets from the UAE come and attack us, we’re going to attack the UAE and that probably sends tremors through the oil market side imagine
DD 13:25 Exactly, exactly. It’s the threat of that, as opposed to, you know, restraining the Iranians from having their crude hit a global marketplace. That really is that’s the risk that you’re looking at.
AW 13:37 So let’s look at another phenomenon which seems to have grown in recent years. And that’s global powers, stockpiling oil, China, for example, in 90 in 2015, had about 191 million barrels stockpiled now they have about 800 million. And it’s similar in places like Saudi Arabia, what is this trend all about?
DD 14:02 Well, there are those who want to have at least some sort of reserve. But the Chinese have had another issue, the Chinese have had an issue of keeping an economy moving. And that includes buying oil at a certain pace, despite the fact that maybe their economy is kind of slowing down a little bit. So they’re stockpiling has been, you know, part of their support of the economy. And they’ve been doing it with copper as well as with oil. They The Chinese have a kind of different viewpoint on commodities than we do. They see it more as, you know, global dollars global money. And they don’t have a problem with stockpiling these things because they figure that it’s very much you know, a liquid Bank of some of sorts, we don’t really do stuff like that. But the US stock piles of oil have become less and less important. And in fact, it’s been my contention for years that you know what’s in there is pretty much mud at this point and wouldn’t be useful anyway. I mean, you could sell, it could sell some of it, but I think what’s at the bottom of those tanks is really not much oil anymore. It’s been, it’s been down there since the 70s.
AW 15:16 And does the US shale boom have anything to do with the kind of easing off and the run up of stock?
DD 15:25 I don’t think it’s had much to do the SPR. But it certainly had a lot to do with keeping oil prices down for the past four years. I mean, it’s, it’s been the major cause, that oil prices have stayed below, you know, $70, for the most part, had one rot run up to close to 70, at you know, in the middle of last year, but since then. And before then, and since then, you know, since 2014, you’ve been basically looking at an oil price between 45 and $60. For four years, which is not, by the way economically viable for 70% of the of the folks who are pumping oil with shale oil in the United States, they’ve been slowly going broke, which is why if you look at the stocks on the stock exchange of all of these companies, you know, the the stock market has been going crazy that, you know, the Dow is a 29,000. And, you know, this has been a straight melt up in in equities for 10 years, almost 11 years. But with the oil markets, the past five have been nothing short of disastrous, they haven’t kept pace with the indexes. In fact, most of them have gone down and gone down a lot. And what do you attribute that to? Well, again, it’s it’s this, it was this kind of shale boom. And I’m, you know, I’ve been I’ve written one book about this, and I’m in the midst of writing the second one about it. It’s been this rush to, to, you know, monetize oil from the new technologies of shale. But it’s been something where they’ve shot themselves in the foot, because they’ve borrowed a ton of money. And because they bought a ton of money, they’ve had to pump continually pump oil, no matter what the price is that’s in the open market. So for the most part, the majority of those that are pumping oil and shale, are doing it at a loss and have been doing it at a loss for four or five years. And all that is coming home to roost, you know, it’s come home to roost and stock prices, and their ability to find more money to pump more oil. And at some point, you know, this entire business sort of explodes upon itself. And I think 2020 looks like it’s going to be the year I mean, it’s been going on kind of slowly. But it’s been it’s been it’s been, you know, it’s it’s gotten to a fever pitch at this point, where, you know, many of these companies not only won’t survive, but the ability for the United States to pump to the degree that they’ve been pumping, even last year where they increased by over a million barrels a day, I think is going to be over pretty soon. And they’re going to it’s going to start to drop. And that’s when you’re going to see some real action in the oil markets, and even more so I know where your listeners are interested in the renewable
AW 18:05 We’ve been watching these these renewable prices with the doomsayers saying, you know, it’ll never be able to compete. And then we’ve seen things shift quite a bit over the last five to 10 years. You’re an oil guy, but you look at things through a clear eyed lens. And you’re obviously somebody who embraces the reality of science and climate change. Are renewables starting to carve out a space that’s significant in the energy markets globally?
DD 18:34 I don’t know if there’s ever been a time I’ve come on your show or I haven’t posited, you know, this one important thought with your listeners. And I’m going to do it again, because it’s the the it’s the thesis of my upcoming book. And it is you know, trying to map realistic pull road from where we are now with fossil fuels, to sustainable renewable energy. And that road goes through very, very, very high oil prices, it has to economically it has to on several levels. And for the oil companies it has to go through on several levels. So what we’re all waiting for, and what I’m trying to push forward when I speak to you and when I when I’m writing this book, is that we are looking to manipulate or at least help markets take out as much money per barrel of oil as they can so that we can make these renewables much more competitive. The reason we haven’t made one progress towards renewables and the reason that a guy like Trump can continue to destroy what you know environmental regulations are on the books now, is because oil is so cheap, and we have to fix that first. It seems like the most anti environmental thing you can Think of in order to attack, you know, a global climate change issue. But it in fact, is the most important thing we have to work towards, and try and find a way to, to chart a course, where we take the oil companies along with us for the ride and allow them to make some really amazing profits. As we try to transition this country, this economy and the global economies from fossil fuels to renewables. You place to start doesn’t matter. It doesn’t matter. laughs guys.
AW 21:14 This is Alex Wise on Sea Change Radio. I’m speaking to energy expert Dan Dicker. So Dan, you’re talking about what the planet needs is higher oil prices to try to make renewables, more of the standard for our energy, and we need to work towards boosting oil prices. And yet, in the face of world war three, and all this middle east unrest, I see headlines like fear alone cannot sustain an oil price rally or bearish sentiment returns to oil markets. How can we boost oil prices? Who is this we and how do we do it?
DD 21:50 Right. And and this is this is obviously a lot more complicated. And a lot of the book, you know, leaves some of this open for judgments of people that are more expert than I. But first and foremost are our carbon taxes. I mean, this is a really, really good idea that the Europeans have put into place that has gotten absolutely no traction here in United States every time it’s brought up. But it’s absolutely critical. We find a way. And we find, you know, a congress that is on the same page on carbon taxes and the argument for carbon taxes for the republicans. For us, there’s no argument for us on the left, there’s no argument they make sense. But for those on the right is that it helps oil companies secure profits when profits are available. And that’s the plus side of for carbon taxes. That’s number one. Number two, there needs to be continued governmental support, in terms of subsidies, tax write offs, and so on for not just renewables. But for natural gas conversion. For me, having watched the energy markets and knowing the history of energy going back to the 1800s, there is a natural progression, much like there is a natural progression for humans to advance from being of the ape to the Homo sapiens, you know, there was stages at which humans go through to become homosapiens. There are stages in which the energy markets have to evolve to get to renewables. And one of those stages that has been totally looked over as if that can be jumped across. And it can’t is natural gas, we have to move forward in terms of incentives to first get this country off of oil and onto natural gas, which is already cleaner, and requires less in order to convert it into energy. It’s much more efficient, and it’s cheaper in here in the United States than any other fuel that we have right now. And we need to take that leap in order to move as much as we can outside of oil based and move it towards natural gas base. That is the next step that must happen before we move, again, transitioning from that natural gas based kind of economy into the solar based economy into the geothermal based economy into the wind based economy, which will come but again, like with humans, this is an evolution that you can’t skip steps. And right now all I hear from the left is we’ve got to move immediately to these kinds of renewables, which is just not possible. You cannot destroy a grid set up for fossil fuels in one easy step. It takes a few and the next step is the the push towards natural gas. And that’s kind of the the that’s what I’m positing in the book. I hope it’ll be somewhat received well, and it’ll be talked about, because guys like Boone Pickens who had this idea, you know, eight, nine years ago, everybody kind of screamed at him and said, well, it’s all about him and his hedge fund. He’s, he’s invested in natural gas, and that’s why he wants it to Move that way. And that may or may not have been true. But the evolution of energy requires us to move from dirty oil into far cleaner natural gas first, before we can move into completely sustainable and zero carbon sources, like wind and solar.
AW 25:19 And I think we can agree that getting Donald Trump out of the White House and having real leadership at the top could make an important difference for markets. What’s your interpretation of the fact that oil markets are afraid of a global recession, and that’s kind of what’s keeping prices down in the face of conflagration in the Middle East.
DD 25:43 It’s funny, but oil markets don’t usually forward think economic trends, they don’t they react to, you know, the here and now. So I can’t say that I think that the markets have been reacting to the risks of recession. But I do think that they have been reacting to an enormous surplus of oil, coming from shale, and to a large degree from the people who are playing the oil markets now that used to play it in the past. And that’s also pretty deep in the weeds. But there was a time when, let’s let’s make it simple that, you know, 10 or 15 years ago, the oil market had a much bigger supply of speculators who were betting on oil prices, and driving up prices just based on that speculation. And that’s drained out of the oil market a lot. And it’s been replaced by computers, who really only care about momentum. And for them, if the markets are down, it takes a lot to move them up. And if the markets are up, it takes a lot to move them down. So as they get more and more involved, the oil markets if their lows tend to stay low, and if they’re I tend to stay high. And right now they’re low for good, fundamental reasons.
AW 27:06 And you look at oil and gas separately, although a lot of companies think of themselves in the oil and gas space. As a oil analyst. You look at these things as not necessarily bundles that correct?
DD 27:21 Well, it depends how what you what you mean by that. They’re bundled in that if you are an exploration company, for oil, you’re going to get gas with your oil. And if you’re an explanation for gas, you’re gonna get some oil with your gas. So if you’re in the business, you’ve got to be engaged in both oil and gas. It just comes out of the well. They both come at the same time, you know, in different in different quantities, depending on where you’re drilling, but you know, you’re forced to be in both. But in terms of markets, there are localized markets that are global markets. And believe me, every oil company understands that as well.
AW – Well, it’s always illuminating and I always learn something speaking with you, Dan. Dan Dicker, thanks so much for being my guest on Sea Change Radio.
DD – Always a pleasure, Alex
Narrator – You’ve been listening to Sea Change Radio. Our Intro Music is by Sanford Lewis and our outro music is by Alex wise. Additional music by the Tony Rice Unit T-rex and Tower of Power check out our website at Sea Change Radio.com to stream or download the show or subscribe to our podcasts. Visit our archives they are to hear from Bill McKibben, Van Jones, Paul Hawken, many others and tune in to see change radio next week as we continue making connections for sustainability. For Sea Change Radio. I’m Alex Wise.