[MUSIC PLAYING] Hello, and welcome to this podcast from the Oxford Institute for Energy Studies. Welcome to the latest edition of the OIS Podcast series. My name is Bassan Fattouh, and I'm the director of the Oxford Institute for Energy Studies. The war between the United States and Israel against Iran has sent shockwaves through the global energy markets, with impacts extending far beyond energy to the broader geopolitical scene, the world economy, equity and bond markets, currencies, and these reshaping energy security strategies and energy policies worldwide. In retaliation, Iran has not only targeted Israel and US bases, but also neighboring Gulf countries, hitting energy infrastructures, ports, regional airports, and disrupting trade routes. At the time of recording on Wednesday 4th of March at 1 o'clock UK time, Brent is trading close to $82 per barrel, which is almost $10 increase since the start of the war. Even before the current events, oil prices have been trending upwards, partly reflecting the increasing risk of the war. In the oil complex, the increase has not only limited to price levels, the Brent time spreads have also spied, signaling a tighter physical market. And product prices such as diesel and jet fuel also increase sharply as well as refining margins. The increasing gas prices has been sharper than oil, with DTF in Europe pricing by more than 70% since last week. Oil tanker rates were already elevated before the war, and have now reached record levels. Also insurance premiums on tankers have spiked with leading marine insurance and the writers deciding to withdraw war risk cover for the straight of hormones. There have also been attacks on oil and gas infrastructure, including tankers, storage ports, refineries. The most prominent is the attack on Qatar's RAS, Lafan facilities by an Iranian drone, with Qatar energy announcing that it has shut down its LNG production. This did not only send gas prices higher, but also has implications for contractual obligations as Qatar energy declared force major on LNG deliveries. Also, there have been shutdowns of some oil and gas fields, particularly in Iraqi Kurdistan, and due to storage constraint, Iraq has been forced to shut down big part of its oil production. Iran's Islamic revolution regards have vowed that they will attack any ship trying to cross the straight of hormones, the most important choke point in terms of oil and gas trade. To put things in perspective, around 30% of the world's seaborn crude oil imports originate behind the straight of hormones. For LNG, the number is around 20% of global imports. The straight of hormones is also an important trade route for key petroleum products. For NAFTA, it represents more than 30% of global seaborn imports, for LPG more than 20% and for jet carol more than 15%. Also, the Gulf region has been expanding its refining capacity as of recent, exporting more diesel to the rest of the world, particularly to Europe, and therefore this is not a crude story, but also a products and petrochemical store. President Trump announced a plan to ensure and escort tankers through the state of hormones, but the plan lacks details and it has not alleviated market concern. So far, the evidence indicates that activity through the straight of hormones has reduced sharply and currently only very few vessels are crossing. Resuming diplomacy is still not inside and the key actors positions keep evolving with the duration of the war remaining highly uncertain. To discuss some of the repercussions of the current war, I am today joined by Mikal Maiden, Paul Horsenal, and Bill Farron Price. Bill Farron Price is the head of the gas research program at OIS. Mikal is the head of the China Energy Research Program at OIS, Paul is an independent consultant and is the chair of Board of Governors of OIS. To stab the date of the podcast, we are recording on Wednesday March 4, 2026 at 1pm. This is important as the situation is still very fluid with many moving parts and constant flow of hormones. Mikal, Paul, Bill, great to have you all on this podcast. Great to be here. Thanks very much. Lovely to be joining you today. Great to be with you, person. Bill, I would like to start with you first. Can you help us understand this war in context? What are the main objectives each war in party is trying to achieve? What does Iran hope to achieve with its military attacks on neighboring Gulf countries? Well, you know, it runs had a very difficult relationship with the US and Israel way back to the Islamic Revolution in 1979. These dynamics are hardly new, but it is quite challenging to figure out what the objectives are here. For Israel, it's probably the easiest one to figure out. Israel has for a long time sought to eliminate the threat from Iran. Iran's been very vocal in its threats against Israel and the country has long wanted to constrain particularly the new click program but also the country's ballistic missile program and so on. For the US, the objectives are slightly more difficult to establish and that's partly because of the mixed messages that we've had from the White House and from other members of the US leadership. They have included, among other things, eliminating the nuclear threat from Iran, trying to limit the impact of Iranian proxies in the Middle East region and further afield, constraining the ballistic missile program and even vengeance for lost US lives over the last few decades. So it's actually one of the challenges of this crisis is trying to establish when and how the US will declare some sort of victory and what that will look like. So we are waiting to see what that looks like. In terms of Iran's position, I think Iran has always been as Islamic a theocracy, its objective is existential and what despite the elimination of the spiritual leader and many of the senior leaders of the regime, Iran's effort will be simply to survive this onslaught, intact with the security state in Iran, intact in some shape or form. So I think there are very different forces that are pushing along here. Now you asked the question, what does one of the surprises perhaps of this conflict has been that Iran immediately went and started attacking its Gulf Arab neighbors and we've not just seen and this is very different from last June where there were some attacks but they were entirely focused on US assets and bases in the region. This time we've seen attacks against our Gulf states, we've seen attacks against energy infrastructure specifically and of course the threat to disrupt shipping going through the state of hormones which for global energy markets is probably the most significant thing to have happened. Now I can only imagine that in the mind of Iranian decision makers, these kind of attacks are designed to encourage the leadership of those our Gulf states to put pressure on the US to bring the war to an early conclusion because this is clearly not sustainable situation for those countries to not be able to fully use their airports, to have their shipping disrupted and crucially for the global economy to lose access to that huge wedge of supply both for oil products and energy as well. So we are in a difficult situation, the it's not proven at all whether the US is able or capable or even politically willing really to enforce the opening of the straight-of-all moves that will be remains to be seen over the coming days but I would say that it's going to be very very difficult for them to establish a pathway through this crisis that is military because for the simple reason is that Iran's sort of low tech low cost attacks against shipping and against other assets in the Gulf. I'd like you to be able to continue even when Tehran is under huge pressure and the regime is under pressure. One of the things that the regime did back in June was reorganize the military and disaggregate all of the leadership so that a lot of these units are able to act relatively independently which of course means that that threat remains until there is a political solution to this problem. So Will from the way things have been progressing do you think this will be a short or a long war and do you think there are credible diplomatic pathways to the escalation or any chances for an negotiated ceasefire? That there's always a chance for a negotiated
to cease fire and to create fresh space for diplomacy. And I can see reasons why the US administration would seek to make this conflict contained and to at some point find a way of declaring victory. I think the challenge is that from the Iranian perspective they were involved with negotiations over the nuclear program in the days leading up to the end of last week when this kicked off. And there you will be, it's not necessarily clear whether the regime in Tehran is better off continuing to fight at this point or whether it's better off getting some relief and some space for more talking. I'm not convinced one way or the other on that. I can see the US reasons to want to bring this to a close. I'm not convinced that Iran will feel the same. The pressures on the Iran and regime are very, very different to the US one. And this is not a Venezuelan situation by any means whatsoever. There is simply not going to be, I think, a realistic way of maintaining the existing regime and meeting the US requirements for the nuclear program and ballistic missiles and so on. They are absolutely intrinsic to the objectives of this regime. So it's difficult to see where the space for some sort of compromised lies at this point. But I wouldn't rule it out. And we don't really have a good sense of quite how pressured the remnants of the regime are in Tehran. Paul, I would like to ask you a similar question to Bill. Can you please describe the oil market context for us? What has happened so far from an oil market perspective? And at this stage, what are the key risks for the oil market? Yes, I think it's early days. But we're probably in, I think what I'd call the first phase of the markets response to crisis, which you could perhaps call a justical discovery. I hear that period where traders sort of discover or remember from previous crisis. What are the important bits of the supply chain? There's a lot of information coming in at once. So which bits matter most? How do these bits of the chain fit together? And in short, I think the sort of salient points of that logistics 101, as soon as they stand today, would be first, obviously, that most energy exports do have to go through the straight formers. We'd only Saudi Arabia, the UAE, and well, actually Iran, itself, having the capability to move to divert at least some of those supplies through alternative routes. Plus, of course, a man, which is south of the straight anyway. And of those, really, only Saudi Arabia has a very large capacity to swing supplies from the Gulf through to the Red Sea and alternative loadings. So that's probably the first salient point of that. That leaves Q8 in Iran, no real alternative routes with operations really constrained by how much storage they've got to all the time that they can't move, accrued out to the region at the normal rate, and the availability of any empty tankers that might happen to be in the region. And so that, I think, has been an early focus and is already starting to see the first production shut-ins, obviously, particularly from Iraq, which is the most compromised in terms of its lack of storage and perhaps lack of other ways of moving. So I think that's one category of responses is just getting these logistics and see what is important and straight away. It is the importance of those flows, which is perhaps not too surprising. I think there's a few other categories. I mean, the second one would be just the physical infrastructure. It is quite difficult, even with modern drone technology to hit energy infrastructure in such a way that makes any kind of medium or longer term different. But again, things happen. I think the market is still concerned about hits to important parts of infrastructure, be that terminals, be it storage, be it refining capacities, and perhaps most of all there, any potential for damage to Iran's logistical systems and particularly car island and the future of flows out of there. So that would be a sort of second category of responses, which I think the market is working its way through. The third one, and Bill's really been through some of this, is these longer term issues. The concern is to what happens after what do flows return? Is this supply chain still intact in the way it was before or has something changed dramatically, either in the geopolitics or in the flows themselves? So that one's still on the back seat, but I think over time, that one is going to come a more important. And then the very last bit of context for the markets response this is just down to the market dynamics. And what I mean by that is we've suddenly an oil had a period of, well, pretty much a year, of relatively low volatility and a very clear downward trend in prices. What we've transitioned to over the course of really since the start of this year is a market which now has got much higher volatility, both intraday and intraday. So the nature of risk has changed just when the way it's trading. And that longer term downtrend has been broken. All the moving averages are now suggesting an uptrend, mostly other technical indicators between drop trends. And you trade a high volatility uptrend market in a very different way to the way you trade a low volatility downtrend market. I think we're starting to see some of those dynamics come into there. A lot of by the dip, a lot of traders been challenged with the amount of risk that they can handle, given this amount of volatility. So that makes markets look pretty chaotic from the outside and the points can make them virtually untradable from the inside. So I think those are the four main categories that are response up to now. So Paul, one of the categories and the most important one, perhaps at this stage, is the sustained reduce activity through the state of hormones. As this will not only impact trade flows, but we also start affecting production in some countries. And we're already seeing that in Iraq. Do you think Trump's announcement yesterday to ensure and score tankers through the state of hormones? Will it help alleviate these market concerns? It's one of those areas where the market is perhaps changing its views to what the actual threats of about flows through the straight-fall museums. I mean, for years, I'm literally per decades. There's been this underlying question of, can you block being the key word that the straight-fall moves? And it's all been conducted in terms of blocking it, somehow just preventing navigation. That clearly was the wrong agenda. It's not a question about blocking it. It's a question about making transit through the straight, more dangerous. That's all it takes. The dynamics change if you make it more dangerous, because the crews themselves, the captains, the insurers, the costs of going through-- can more reluctant, the costs go up. And of course, if you are targeting vessels passing through the straight, you've only really got to get lucky once. If you're trying to stop incidents happening, you've got to be lucky every single day that they trip through. So I think Trump's announcement, first, it's not very major. There's a lot of work that would have to be done before you get into that process of escorting vessels through. And secondly, you do that every single day. Those vessels themselves become a target. And I think the market is not convinced that having military backup and escorts there necessarily takes away the danger they're worried about. And the danger they're worried about is that Iran is lucky once. So in that sense, that announcement, I think, is still being thought through in terms of market impact. But I'm not certain it was the silver bullet that it was perhaps designed to be getting your insurance from the US rather than from the normal insurance clubs isn't really much for comfort if you're in an in a highly dangerous situation. It doesn't take away the danger. It just means that perhaps you're effectively getting your insurance as a subsidized rate. But you still feel that you're in a dangerous position. So it changes it a bit. I said not to silver bullet. Paul, we have discussed this many times before in previous podcasts. So before the war, the oil market was somehow relaxed about the risk of geopolitical disruption, though the probability of the war kept rising by the day. And perhaps this has to do with the narrative or the perception that the market is oversupplied. Even some analysts were saying that the world does not need to hold much stocks despite a worsening geopolitical situation. How do you think the current events are going to change this narrative? Yeah. As we discussed in this podcast before, I was never particularly convinced by the massive oversupply narrative and the belief there was a very large club. Because they really see that to excess. And if to the extent that there's been any excess, it doesn't appear to be in places that can be immediately accessed by the market and where the market price formation takes place. There isn't a surplus. The inventory coverage isn't relatively thin. I think you can see that from the market.
response. So the time with this recording rent is trading the near month rent price is trading $3.50 above the next month out. So that's a market where you're prepared to pay $3.50 barrel to accelerate your supplies by one month. Now to me that's the market saying physical supply matters. Actually having those barrels in your hands in the tank under your control is of value. The idea that a surplus somewhere could be tapped on doesn't be reassuring the market. So I think the so-called glut is not a great reassurance. It's also down to the usual crisis point when something affects the supply chain. To what extent can you substitute a flow of oil with a stock? So is having a large inventory good enough to deal with a truncation in your flows? Now in most cases that's a whole point where we have inventory. So variations in the supply chain doesn't matter you can smooth the move with inventory. However the numbers we're dealing with here are a bit different scale. So the potential losses and in a bad case scenario the potential shut-ins through the Gulf are much larger than even the wildest Wall Street analyst estimate of the surplus. They're much larger than any of these other estimates of supposed service we could find it. So it just seems a very poor substitute. The other aspect in that course is you are shale which has been put forward as saying that we don't need to worry about the Gulf because we can run up your shale production. It really doesn't work like that. It's short cycle but it's not that short cycle. And again in terms of magnitude there isn't the ability to say cover 2 million, 3 million of overall supply loss. One last thing on that of the fact is we look back historically what have been the biggest oil shots ever. We always think in terms of the single loss of supply, how much is lost any one time. And actually the most difficult crisis had been the ones where it's been relatively modern, well lost but it's lost for a long time. So the biggest volume, volumetric loss ever was actually from the 1951 to 1954 Iran crisis where there was a lossable over a four-year period. So that's I think going to be the final but I'll answer your question is how long does this last? If we're looking at a relatively short interruption, but low-pension, large one, that will have market impacts but it can be smoothed over and we've got inventory and strategic inventory is and other checks and balances that might be able to cover for it. But that comes a point where it gets prolonged enough that those going like the stocks are no longer covering for the flows. And that's perhaps the state where REN is working out. How long does this go on before it moves from just being a a short-prone problem into something that might have a little bit more in the way of duration? So Paul, in terms of scenarios, what would be the worst case scenario for the oil market in your view? And do you think we are anywhere close to that worst case scenario? I think we also have to look at how to answer that question at both the front and the back of the price curve. Up to now, really all the price reaction has been in the nearby months, again, at time of recording only the first eight months of the rank curve trading above $70 a barrel. Beyond say a year-out rating months out, there's been very little response to prices. So what the time curve is showing you is, you know, it believes that this is a relatively short-term crisis. So the worst possible case in me is something that breaks that, that the back of the curve starts to move up. That you start seeing a price impact that goes beyond those seven or eight months above $70 and it gets to the point when the first few years of the curve start pushing up beyond $80, $90 or perhaps even higher. So to get to that, I think this is where what we're talking about earlier and Bill referred to, the shape of post-war Iran, starts becoming important. Because one dimension, I think, has emerged is that this is a different war to previous U.S. involvements in the region. It was put very succinctly by the Hexath, the Defense Secretary, when he used those words of no stupid rules of engagement, no nation building quagmire, no democracy building exercise and no politically correct wars. What he's saying there is we're not too worried about what the end looks like. And so in that sense, I mean, the biggest risk, I think, for the all-market and longer term is precisely that. We get to a point where that post-war outcome is not a good one. It's not one that is good for the supply chain. It's not one that keeps the supply escape. So the sort of things that have been coming in on recent years, flow of, you know, arming the curds, arming various other sort of ethnic groups, vulcanizing Iran, trying to achieve regime change through essentially that's really alarming when I think in terms of, you know, the worst possible case for the all-market. Again, it's something that becomes one of what I said talks about no more of these everlasting wars. That would be an everlasting crisis. So that's the worst case at the back end of the curve. I think the worst case at the front end of the curve along the cause of spike. Again, we've already spoken to this about, you know, should any infrastructure of importance get hit, that will cause a potential at the spike. But the very worst scenario I think at the front is exactly where we are. That it remains dangerous to transit the straight formers and that that continues for an extended period. And I have seen it will worry that within a month or two we might be looking at $100. It would get $100 much, much quicker than a month or two should this interruption continue. Without being overly alarmist, I do think that all of the little building blocks there for a more significant price shock are in place. But what we haven't really had is the passage of time and confirmation that actually this is a problem that we do need to start to be concerned about only duration. So duration, the key word as it was at the back end of the curve in terms of when does this come up problem. So Paul, given the picture that you describe, do you think markets are pricing in the risk and if not why not? I know that's a difficult question because we tend to think that the market is pricing in a lot of things and it's very difficult to distinguish the short term and the long term impacts. Where do you stand on this? Do you think the markets are pricing in this risk properly? I think it's a mistake to ever think the market has some kind of scientific instrument that sort of calibrates up a responsibility. It takes all the rest there is today and gives you an answer in terms of price. I think we're still in this, as I said, this sort of phase of the justical discovery. The market is not pricing in what it thinks yet. It's because they're still trying to work out what is important, what does it need to think about. It's not attempting to price in pure impurities. That's not really its job. It's there to interact with information flows, to trading circumstances. If I turn your question around a bit and say, it should prices have risen more at this stage, I'm not certain it necessarily always works that way. Most other prices, it has been a drip drip thing. You get $2 one day, then another $3 next day, then it might be a few down days, then another $2 another $2. It has been tended to be a fairly slow response. This feels no different. It's not a single impact, which means that we move from no war and at a lower price, then instantly into a situation where there's a war in the markets perfectly calculated what the price should be and we get there. It's early days. I think all we can say is that if the longer this goes on, the higher prices will go. We are in that uptrend. The full trading strategy will remain that sort of by the dip. While remaining massively volatile, the markets do pretty much what you would expect it to do, given current information, given the increasing cost of holding risk in the market again, back onto this increase in volatility and the general change in trading dynamics. No, it's not pricing in risk, but not its job. But I wouldn't be too surprised that it hasn't gone up dramatically over the course of a few days. The reverse of that is you shouldn't then say, "All of the markets are not worried." Clearly, there isn't a problem in the Middle East because the all prices are only $82. They're clearly as a problem in the Middle East and that 82 is a very unstable thing. It will move around. The amount of headline risk is obviously completely ridiculous. But as it stands at the moment, I'm not certain the market is pricing in much of that sort.
question we spoke about on the the shape of the post-war situation and I'm not certain it's pricing in fully the difficulty of replacing the suppliers that have already been shut in. So overall that looks a very tight short-term market to me, who one didn't appear to be producing anything more than a normal seasonal build and now it's not even going to do that as the short-term feeding and make the front market extremely tight. Bill back to you and perhaps we can focus a little bit on gas and LNG markets. As I mentioned earlier the current war is having bigger impact on gas prices. At 2.0 years back in June last year we constructed a scenario about the potential impacts on gas and LNG markets, only disruption from the straight of hormones what were the main conclusion of that Fadeh and do this conclusion still hold? Yeah well if you think all is bad you should look at LNG, I mean the the market it seems to me that if you look at the TTF price which is probably the best global benchmark for gas it's up nearly 100% now so it clearly has gone up a lot more than oil has. I put that down to the fact that there's a lot more flexibility in the global oil market. It's a more fungible market apart from everything else. LNG is more restricted, more point to point and there simply isn't the scope or despair within the system to surge any sort of production if it is what it is. So we ran this this modeling exercise back in June last year when the the first US attack happened on Iran to sort of war game the idea of the closure of the straight and it proved somewhat prescient. The interesting the headlines from it are that when you shot in UAE and Qatar as LNG producers you're taking out about 115 BCM of gas from the market which is not that much less than the loss in Russian pipeline gas that we saw in the 2022 price shock. It's a similar amount the the problem is that there as I said there's there's very limited slack within the system to to increase supply to surge the price maybe a little bit in Australia but not really very much. Now the the the the modeling shows that the countries and this is a flow model I mean it shows that the countries where imports will fall most dramatically are Europe and China and and so that's something to take into account and I think that I'm not going to try and answer this question but it raises the question of whether Russian gas in some shape or for possibly even Russian oil on the outside get some sort of reprieve in in in a situation like this that will be the question that people may not want a voice but it's going to be in the back of their minds as we go thoughts. In terms of price impacts I still think and it's kind of in line with what Paul was just saying on on the all front the the modeling that we did suggests that compared to a baseline scenario you would get a an increase of up to 170 percent so that's about $29 per million BTU of of landed LNG through blocking off this supply for a year or more. So that's that's a pretty considerable impact. It's interesting when we when we wrote this note we said that we didn't think it was likely that the straits would remain closed for any great length of time and that's really interesting because I I've been looking at this region for the decades and that's always been our assumption on the closure of the Straits of all moves was that the US and its allies would not allow even China would not allow the the strait to close because it's it's too consequential for global energy balances. So my big surprise I would say just to finish off is that I've been absolutely flabbergasted that the the US has not been a little bit more planned as as regards how that they would deal with this very very predictable situation and the sort of off the cuff comments from the from President Trump may be helpful they may be the kernel of a of an idea that can be deployed but I suspect and and it's in line with what Paul said you only need run any needs to get lucky once those who are set to protect that shipping pathway need to be successful 100 percent of the time and and that's going to be a very very difficult thing to enforce militarily it seems to me I think that the only genuine pathway for some sort of resolution on who or moves will be some sort of political agreement and and that's why I am somewhat not optimistic about the outlook at the moment because as as we discussed earlier I can't see that happening anytime soon. I think now it's a good time to bring the China perspective China like everyone else when we're looking at these developments with the big concern China is a large importer of crude and products and LNG from the region also China has been the key or perhaps the sole importer of Iran's crude and condensate earlier this year they lost access to discounted when as well in crude now they could lose access to Iranian battles. Mikhail can you please put the China position in some context how do they view this war and will they attempt to intervene in any way? Yeah so I mean Chinese stakeholders obviously as you noted extremely concerned by these developments although on the crude side they have some some shock absorbers there are few issues right the loss of Iranian crude in itself is not a huge problem for China officially China does not import any Iranian crude but if you look at tanker tracking it's around 7% of total imports last year. It matters mostly for the Shandong independent refiners the teapots who are really losing their sources of discounted oil right as you just said it started with Venezuela now it's Iran it means that they have less leverage over Russian suppliers those discounts that Russia's willing to offer into China are narrowing quite quickly I think they're growing concerned that they're going to have to compete with Indian buyers over barrels so the the sort of loss of Iran is a reshuffle domestically it's again a problem for the teapots but really the big problem is the loss of Middle Eastern flows and the transit through war mues and this question of duration because right now it's not an availability problem right now there's a lot of oil on water we saw the February export programs were massive so anything that actually left the Middle East before late February is on course to reach its destination but if disruptions continue then there's both an availability and a price impact the Middle East accounts for 50% of China a little over 50% of Chinese imports which is massive however if you flip it there's another 50% that doesn't come from the Middle East so there are options and this has been one of the I guess hallmarks of China's kind of energy supply security has been diversification and actually capping that share of Middle Eastern flows at around 50 but still there are high cost there are shipping costs there's going to be competition for those barrels we're already seeing some preemptive cuts especially from refiners that have Saudi crude as a base load we could see some more preemptive run cuts and we'll talk about stocks in a minute the on crude actually condensate LPG enough for a bigger worries because that is very heavy reliance both on Iran and the Gulf so the chemicals industry in China is hugely concerned lng again is a big source of area of concern we'll talk about that as well because Qatar is roughly a third of Chinese lng imports if you look at it in the overall sort of import mix when you factor in pipelines as well it's slightly smaller but it's still 15% and as Bill was just saying that market is much less fungible so the alternatives are harder to come by and more expensive despite all of this the Chinese government is unlikely to intervene in a meaningful way beyond calling for restraint and a return to peace talks when we have heard the government officials are sort of pressing their Iranian counterparts not to attack oil and lng tankers transiting through the strait they've also asked them to not strike export hubs like Qatar but it's unclear you know whether the bait you know just like Trump said that the people that they were going to talk to are now dead it's not clear that the Chinese have a better access to you know the leadership and they want to send their navy in Costco which is the largest shipping company is just announced that it's suspending shipping although there were a few tankers that were still sailing out of the straits of home moves so I think more broadly it is in a way very much like in Venezuela although in a much much larger scale it's wait and see and assess the damage so Michal since last year China has been accumulating large amounts of crude oil stocks and actually this has been a key trend for the oil markets will they now start releasing some of these stocks back to the market and how would they approach all of this is stocking issue that's been a really big question.
The stock piling and exactly how much was a big area of debate and we've published recently about that But they have anywhere between 110 and 140 days of forward crude cover. So a massive cushion However, an SPR release is less likely. I do think corporate stocks are going to be drawn down in the near term both in Shandong and by commercial refiners They're going to do again a combination of run cuts and tapping into commercial stocks SPR is much more complicated. I think first of all prices are Sort of as long as we're in the 80s. There's not a real and clear incentive to do an SPR release It goes back again to this question of duration if we are in the 80s 90s and certainly 100s then that becomes an issue and you remember product demand growth in China is essentially flat So there is some sort of demand management and discipline that can happen I mean one thing is for sure that they're not going to buy for stock piling right now and at these current levels Even though there's probably another SPR mandate It's it's actually on the technicalities that an SPR release is looking quite difficult They've never done this before they did one test one auction in 2021 and that was actually seen as not very successful It sort of goes back as well to Paul's comment about replacing a flow with a stock The locations and the prices didn't seem to align back then and so it doesn't it's not clear that they've tweaked that mechanism and when you speak to Interlocutors in China, they're sort of saying The SPR mechanism is not mature which suggests again that there That that mechanism is not fully understood I'm sure that they're going to be working very hard on trying to get that mechanism right in case In case the the outfit is last for long But I think they will rely first and foremost on the commercial stocks and would avoid doing an SPR release for the time being Tomica you mentioned petrochemicals and LNG I would like you know to ask question try to combine them both so China no longer imports us LNG, you know could it change its views on about us LNG and You mentioned petrochemicals as well, you know how The petrochemical industry is in China is going to react especially in the light of the debate over capacity You know dominated most of the debate last year The part of it again is demand discipline and that over capacity that the weaker players and the counter for to to manage Either counter for to manage the price bikes or just don't have the physical the cargo's Will I don't know if they'll shut down, but there we'll see maintenance We'll see you know cuts in their operations until there's greater clarity and they come back to the market LNG is really the big vulnerability for China. There's much less storage in China We don't have a good sense, but it's probably 13 to 15 days of forward cover So a loss of supplies and higher prices I think they ultimately mean a demand response the other thing we have to bear in mind is that gas is 10% of China's energy mix It's not just saying that it's nothing because the industries that do need gas are susceptible to price changes and And as Bill was saying earlier buyers have less options than include there's only so much more that you can squeeze out of pipelines Parapsybaria one has reached it's 38 BCM capacity last year So maybe technically they can eke out a little bit more, but nothing dramatically higher Domestic production is growing but international LNG markets are tight spot prices are rising And it's still cold in China. It's still sort of winter and relatively cold For now though the domestic market response has been relatively muted They did come into the winter with high stocks So they can draw down on that Qatar actually is ironic from sort of a geopolitical perspective that was seen and it goes back again to what Bill was saying earlier It was seen as sort of the safe option from Sort of bilateral geopolitical disruption if you look at us LNG and you look at Australian LNG Those could come under tariffs or you know bilateral issues And so Chinese buyers were looking at Qatar for investments in North field east expansion in off-take agreements And that's actually massively back firing right now So US LNG is a really interesting option as you say there's been no US LNG going into China for a year now But that's because of a tariff not any sort of interdiction So if you look at it now if we're at $34 for Henry hub and shipping And you add a 25% tariff on that you're still in the money compared to 16 dollar per Mmbt UJKM or Even a higher TTF And we are heading into the shoulder months into softer demand months in China. So I think what's going to be interesting to see is whether Chinese buyers will resell to Europe because obviously TTF is rising And they can make a very good margin on their US cargoes Or whether the supply security mandate will mean that they'll take those cargoes Into China pay that tariff but again, it's still in the money if spot prices go up And that would also be a nice little gesture and a nice little gift for Trump If the planned visit to Beijing at the end of the month actually goes ahead It will be a nice sort of deliverable look we're buying more US LNG So it's doable and it's in the money I do think that long term and again going back to what Bill was saying it could favor Russia When the navigation is open I think the Chinese will take more More sort of Arctic LNG to Cargos into bay high that's helped to soften some of the demand response in southern China It could accelerate power of Siberia too that's sort of more of a medium term question But leaning on Russia is now seen as sort of politically acceptable again And Mikhail what does this mean for coal because we are hearing in some Asian countries actually that they might You know start using a more coal if gas prices increase and LNG prices become Become much higher. So how would China approach coal now? I mean coal is already seen as right a base load and a very important The ballast stone of Chinese energy. So China has a lot of coal. It will continue using coal It is important to note that coal consumption at least coal in power declined in 2025 So they could go back to using coal It's important to remember that in the power sector gas is 4% of generation. So not huge And the market impact could actually be quite muted because China has a lot of domestic capacity coal imports are roughly 10% And they increased last year because China was doing Environmental inspections and capping domestic coal production If prices get too high it could ease some of that tightening and scrutiny on domestic production And increased domestic supplies I mean Indonesia has changed some of the taxing regime some of the tax regimes And so there's less Indonesian coal which again would be a problem for a lot of Southeast Asian buyers Looking for coal but in that respect I think you know there is a clear near term problem But if you look at China's broader kind of energy security strategy which is consisted of rapid electrification Flexibility and optionality in the system That's actually going to serve them quite well Okay, a final question to you to you all Which trends will you be monitoring over the next few weeks And what key turning points should we be watching for And perhaps we could start with oil gas and then China So Paul Yeah, I think in the short term some of the those areas that stress we've already spoken about so particularly The it's the situation of loadings from Iraq and Kuwait I mean those countries with limited alternatives and who might See the first substantial Shuttings more important than that how the straightfulness As it is scorching and insurance issues play out whether there is a A viable solution there that will take that out as a as a major market Worry and then perhaps the third one which is more general pressure than just oil but also the extent to which an off-brand can be built By the US at what point will they feel that they can disengage and whether that could be early In this process that may be tied in with the almost focus I think those are really the the three main areas on on that last one It does seem to be a suggestion now that maybe regime changes not an objective of the operation or could be The defined as perhaps not being a necessary end before disengagement can be made So again, that's quite an interesting focus in terms again that question when is it safe for the US to take it on front? And to build for gas and energy yeah, I think I'm I'm mostly focused on obviously the the key political point Where's the off-ramp? Are there any signs of it? But beyond that, I think there's some interesting structural challenges coming down the pipe for gas one of them is where exiting European winter with stocks storage at some of its lowest for years After a cold winter and normally we'd be refilling that storage Fast in in the coming months Now if this term structure continues as it is that's that's not going to be an attractive option for storage holders So we're back to What does Europe do about this Europe's been rather quiet on this whole crisis so far Would be interesting to see whether they get up to speed and start adapting
new emergency regulations on energy, particularly gas, or whether they don't do anything at all. And that, of course, then brings into focus the question that both Harlan and I have discussed, which is what role does Russia play in this, and potentially, of course, what role does that have for the Ukraine crisis, for the Ukraine war? So there's an awful lot of interlinked issues here. Movement will play out in all sorts of complex ways, but I think the first thing that everybody in global training market will be looking at is when does war moves have a realistic chance of being secure and for flows to restart there. And Mikhail, what would you be watching for in the next few weeks? So stock levels, where the draws are happening, if there is some kind of announcement on the SPR. I mean, there tends to be a lot of paperwork on things like SPR releases. Again, I'm not expecting an SPR release, but seeing where the stock straw, run cuts, if there are any run cuts, as we expect, but also who is cutting, I would expect that private refiners would be the first, and actually state-owned refiners will try and maintain sort of stability and supply security. Domestic gas prices and the extent to which they rise, that will tell us a little bit about the arbitrage and the ability to buy either US, LNG or other sources. And then whether Trump's visit happens, I mean, for now, assuming it's all going ahead and there are plans for Trump to go to China. So, you know, what does that look like and what are the outcomes of the visit as long as it is still on track? This is all what we have time for. As Everpal, Mikhail, will thank you so much for a fascinating discussion on insights, and I would also like to thank our listeners for tuning into this podcast. Thank you for listening to this podcast from the Oxford Institute for Energy Studies. You can find other podcasts, as well as our written research on our website at www.oxfordenergy.org. If you would like more details about our energy transition, gas, oil, electricity or China research programmes, then please contact us at
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