Smarter Markets is back in Lausanne, Switzerland for the 15th edition of the FT Commodities Global Summit. So happy to be joined by Helima Croft, fresh from your panel on oil, which was very spicy.
Very spicy. We came in hot. And it's kind of needed, you know, I haven't heard an oil panel with almost unanimity in the sense of frustration, almost of, you know, I guess the unwarranted or unrelenting optimism that seems to be out there that everything's going to...
Everything's going to be okay. And I think what was interesting on that panel is you saw that like there was a reluctance to give a base case, because I think everybody wants a base case. Tell me when this ends. Like I expect it to end soon, and then talk about how much is going to come back. And I think what the panel kept trying to say is how does this end? What does it look like? Everybody's using scenario analysis as opposed to just saying like we know it's going to look like this. Right. And I know from my old oil analyst days, there gets to a point when you're working through your balances, when you can figure out, okay, we need to like rejigger this, rejigger that, and it'll work out. But then there's a point where it's like, yeah, it just doesn't work.
It's just broken. And I think the scale of the disruption is so large. I actually got to interview Fatih Birol last week because it was the IMF World Bank meetings. And that was a kind of moment in Washington where there wasn't a lot of optimism. There was a lot of realism because people were having to think about what does this crisis mean for emerging markets? What does it mean for emerging market Asia? And how do we put the genie back in the bottle? How do we basically try to get flows being normalized? And when Fatih Birol kept saying 13 million barrels are off the market by their estimates, and that during the crisis of the '70s we were talking about 5 million barrels. So the scale of this is so vast that I think for many people it's just too large to process. So they say this has to end soon. That's the part that's amazing to me, that psychological aspect of it's just too big to think about, so we're not going to think about it.
And I think one of the ways I believe you were trying to put it in context in the panel is the amount of supply we've lost is comparable to the amount of demand that was lost during COVID.
Right. And remember in COVID, it took a while for people to say, wow, this is going to be a multi-month, potentially like multi-year crisis. But remember the early days, everyone thought it was going to be over in a couple weeks.
Couple months, we just shut down, take the pressure off the hospitals, it'll be fine.
But I think what is really different is that during COVID, you didn't have such a relentless messaging machine from the White House. The White House was saying at times it'll be fine, go to church, but they were also really working on the vaccine. They were working on warp speed to try to come up with a cure. The challenge right now is that you do have negotiations proceeding, but you still have this relentless machine of messages saying we're making so much progress, and the negotiations seem to lag the message.
And I wanted to come to this point because I think one of the sources of frustration on the panel was this idea that, you know, oh, there was a tweet or a news item that came out that said the straits are reopened, so now everything's fine. We all go back to normal. And for people who work in the oil market and spend so much time thinking about it, there's a lot of details. There's a lot of things...
Details matter, and I think that is the frustration is that, you know, sometimes people say like, why are you bogging me down in detail? It's like the details are critically important. Like the David Petraeus quote in the Iraq war, I admit I maybe I'm scarred because I was an analyst in Washington in a certain organization during the Iraq war, and David Petraeus had that famous quote of like, tell me how this ends. Like the details of the reopening will really matter. And if you get to a situation where President Trump just says I'm out, and it basically becomes a strait of Iran as opposed to the Strait of Hormuz, who can really operate that? Like what do the flows look like? You think about a company like Maersk, they don't go through the Red Sea at this point. Like what's it going to take for certain large shipping companies to feel safe going through the Strait of Hormuz? So do you get in a best-case scenario a reopening that looks like the Red Sea reopening?
And there are a number of folks on your panel also talking about this difference between you can look at the price of Brent, you know, whatever, $95, but if you look at products, crude oils in Asia, other parts of the world, $150, $200. How much of that is these details of freight and insurance and...
100%. Again, this is such a complicated situation because it's a multi-dimension crisis. But we just look at the screen and say, well, we can look at the WTI price that pops up on my Bloomberg or the Brent price, and like that is the sort of mechanism by which we assess the degree of disruption. Whereas, you know, nobody is... it's a massive product story. It's also a massive fertilizer story. I mean, there are multiple dimensions to this crisis that in order to get anything back to February 27th levels, it's going to be a Herculean task.
And, you know, speaking of putting the toothpaste back in the tube, I think one of the frustrations on the panel also seemed to be that, you know, when you look at the situation, unlike others where it's, oh, this thing could happen, and what happens after it happens, that's always been like a scenario. This is... it's already happened.
And I think that was a great ending question. We had someone ask, well, this panel with a panel like this in '22 was all wrong. You told us that there would be a massive price spike on the back of a Russia disruption. Well, that was because we thought after the EU went forward with the sixth package of sanctions that if you didn't get the price cap mechanism, you could potentially lose 3 million barrels a day, and it really got to the wire whether that mechanism would launch. That was 3 million barrels. Estimates range between 10 and Fatih Birol's 13. RBC places it about 11. So we're talking a massive difference between what the hypothetical was in the case of Russia-Ukraine and the reality of what we're facing right now. But everybody keeps saying, well, Russia wasn't such a big deal. It's like, yes, Russia didn't have a disruption.
