What Washington DC energy officials are saying about oil prices and the possibility of an Iran deal

What we heard from energy stakeholders

If you want to know what’s next for oil prices, there’s probably no better place than this week’s Global Energy Forum in Washington, DC. Sponsored by the Atlantic Council, this event brings together over 1,000 participants from 85 countries and is a unique global macro-focused event. This forum gives us the opportunity to talk to the women and men running energy companies and policies around the world.

We had so many great conversations, chats, and meetings. Some of them were off the record. But we also had two apparently on-the-record conversations with both Energy Secretary Chris Wright and TWG Global Partner and former Biden energy tycoon Amos Hochstein.

The current Secretary of Energy announced some news at the start of the forum. Commissioner Chris Wright acknowledged during our chat that shipping traffic in and around the Strait of Hormuz is increasing. When I asked him more about this topic, he replied: “I think we’re seeing a very meaningful increase in (vessel traffic).” It wasn’t a lot of words, but it was enough to move billions of dollars in oil futures. When the headlines from our conversation made it to the Telegraph and CNBC ran a big story about it, oil immediately fell.

The next day, President Trump garnered even more attention, commenting that the power of the U.S. Navy is allowing more and more ships to pass safely through the strait. He posted on his social media account:

Like many of the president’s statements, this one has garnered attention. Please draw your own conclusions. However, based on what I know, my take is:

First, the “200 ships” figure is higher than many estimates found elsewhere. However, before you automatically discount it, keep in mind that it is nearly impossible for anyone without access to military or expensive satellite data to know exactly how many ships passed through Hormuz. This comes as an increasing number of ships are turning off their location-tracking transponders until they are safely away from Iran. Some are escorted by the great US Navy. There may also be other “tolls” being paid to Iran — estimated at about $1 for each barrel of oil aboard the ship. Some people turn off their “lights” at night and just run. Even though Kpler does a great job with MarineTraffic’s tracking and maps, tracking hundreds and thousands of vessels of all types, shapes, and sizes around the Bay is a huge undertaking.

For reference, here’s a screenshot of all the ships floating around the bay Wednesday night. Each color represents a different type of container. Want to track all users, all times and places? Good luck.

It is also important to know that oil tankers come in different shapes and sizes. The VLCC – what many might call a “supertanker” – carries approximately 2 million barrels of oil. Some small tankers carry much smaller volumes. If you do some quick math on the president’s numbers (200 ships, 100 million barrels of oil), that means there’s about 500,000 barrels of oil per ship. Many of the vessels the president mentioned are small tankers or may not even be tankers.

Apart from the “opening” of the Strait, there are two other big questions that everyone in the market is trying to answer.

First, once the fighting is over, how long will it take for oil supplies and exports to return to normal? How, then, could this latest Iran conflict potentially permanently shift production around the Arabian Gulf and through the Strait of Hormuz?

Regarding the first question, estimates can vary widely. This is because each Gulf state (Bahrain, Kuwait, Iraq, Iran, Qatar, Saudi Arabia, UAE) has different situations regarding oil production, ports, and security. Kuwait Oil Corporation CEO Sheikh Nawaf Al Sabah, one of the participants at the Atlantic Council Forum, addressed the issue in his opening remarks with RBC’s Helima Croft.

Regarding the second topic, Sheikh Nawaf also said that for long-term security, he and other Gulf states are likely to consider pipeline options more closely. But he acknowledged that while pipelines are currently a way to avoid some transportation risks, they are not a perfect solution. The safety of a pipeline is determined by the area it passes through.

My view → The pipeline could blow up. For now, the Strait of Hormuz remains the main exit point, both literally and figuratively, for countries like Kuwait, Iraq and Qatar.

The second day of the forum featured an exclusive chat with Amos Hochstein. Hochstein was President Biden’s energy security expert. He is also one of the most knowledgeable and well-connected people on the planet. In our discussion, we discussed the current situation, the “bottom of the tank” and possible exit strategies for both America and Iran. We also discussed the U.S. Strategic Petroleum Reserve and some concerns that physical problems could arise if less than 300 million barrels of oil are extracted. Watch the conversation to understand why. Hochstein is overseeing the 2022 SPR sale and knows the storage situation better than anyone.

So what’s the conclusion?

My five main points are:

1) The volume of ship traffic passing through the Strait of Hormuz is increasing. Although it has not yet reached pre-war levels, it is on a good upward trajectory.

2) Accurate vessel data is difficult and expensive to obtain. The more ships turn off their satellite signals, the harder it becomes to easily track their voyages. Companies with big money are probably using expensive satellites or military-grade information.

3) The “opening” of the Strait in July is extremely important. This is especially true for refined products such as diesel and jet fuel, fertilizers, and lubricants.

4) “Tank bottom” is approaching. The longer a supply disruption lasts, the more likely storage will be out of service and empty.

5) Both sides are looking for a way out. hard stop.

News moves fast and furious. As I finish writing this article, which I’m going to have to call and publish at some point, President Trump insists there is a deal with Iran. Tomorrow is a new day and a new market. Stay focused, stay alert, and stay tuned to CNBC.

On a personal note, I’d like to say a big thank you to all the Power Insider readers. It has been two months since we launched, and we have received tremendous support.

Macro markets and investors have had a tough few days ahead of Thursday’s rally. Stocks were sold across the board. A few days ago, I met with X and gave him my unvarnished view of the market.

Tough love. And while that view may not win me many friends, that’s how I feel. The stock market shouldn’t go up every day. Selling out is scary and stressful. Those are also standard. Usually, some kind of stock price decline occurs every year. That’s why you get paid to own them. Risk is return. Otherwise, it’s just a savings account.

By the way, was it really a “sales pitch”? Maybe that’s true for some high-beta tech stocks, but energy and health care are still doing well these days. These sector groups have been rising over the past month. Just don’t tell anyone. It may still be early.

There are a few individual stocks I’d like to highlight this week.

First up is Derek US (DK). This is a lesser-known sophistication that has recently been gaining attention. Derek hit a new high earlier this week. Based in Tennessee. It’s not exactly an oil and gas hotbed, but that hasn’t stopped investors from finding this stock despite its suburban location. While the average price target of $51 may not imply a huge upside, Mizuho has an even more bullish forecast of $60.

As a reminder that the data center/AI story is also an energy story, Bernstein issued outperform ratings on two major power and cooling stocks: Vertiv (VRT) and nVent Electric (NVT). Bernstein analyst Varun Govindaraj likes both names, and his price targets of $416 for Vertiv and $218 for UK-based nVent suggest 30% to 40% upside. He writes:

“We believe that both companies have real technological moats. The markets they both enter will eventually slow down in growth, but both companies are well-positioned for when that happens.”

In the same note, the analyst also mentioned HVAC company Trane Technologies (TT), calling it an “excellent operator” and “well integrated into data center cooling environments.” His trading target is $550, implying 22% upside.

A rare interview with Diamondback Energy CEO Kaes Van’t Hof. Here I will introduce some simple points. Van’t Hoff won the Pac-12 (then called the Pac-10) college tennis singles title. His father also won a collegiate tennis title, making Van’t Hoff the only father-son duo to earn that honor.

Interview with energy leader Dan Yergin of S&P Global:

This week’s Inside Line is Amos Hochstein. He is a former senior energy adviser to Mr. Biden and negotiated with Middle East leaders on the region’s most sensitive issues.

A visual chart showing the U.S. Strategic Petroleum Reserve dating back to when it was first filled. Amos Hochstein said the concern is not whether the SPR will reach zero, but rather what will happen around the 300 million barrel level. The amount of oil extracted from it could likely be dramatically slowed down due to physical problems around the salt caverns that hold the oil.