Just really need an introduction. I think he's a household name in Houston in the industry, but of course, Chevron CEO Mike Wirth. Thank you so much for joining us.
You're welcome. It's nice to be here. And, you know, I'm a Houstonian now, so it's like two years right home. I'm in like, yeah, two years.
Well, we'll get to the politics of California at some point. But now looking at where California is, does it seem kind of crazy that you were even headquartered there at one point?
Well, I don't think in the beginning it made a lot of sense. I mean, we made the first commercial discovery in California, in Pico Canyon in 1879. And we built our first refinery there in Northern California. Second refinery was built. It was the refinery called El Segundo. It was the second refinery. It's now a city that's named after a refinery. So the state grew up around us more than us going to the state. And so we are part of this state's history and for an awful long time. California is a big producer. It was one of the biggest producers in the world at one point. And we're an integral part of the economic story in California. Things have evolved, obviously. But it made sense for a long time. It doesn't make sense today.
Okay. So we're going to start with more. So the news of the day and what's going on in Washington. I know you've been keeping up with the headlines from the president. Secretary Wright said 7 million barrels a day are getting out of the Strait of Hormuz, which would be a pretty big deal. How do you view the market dynamics right now? What actually is coming out of the Gulf?
Yeah, our view would be it's probably not quite that much. There are ships that have been transiting out, typically with transponders off, typically at night and with some support from the U.S. military. And that has helped fundamentals in physical markets. And so, you know, we've seen price action that has been a little bit, I think, different than people expected. But what has been true through it all, and we can talk about a little bit more if you'd like, is the market's been pretty incredible in terms of how it's adjusted, both on the supply and the demand side to buy time and address the risks that exist.
What is the driving force behind that? Because most people thought we'd be higher than $150 a barrel.
Yeah. Well, early on you saw the paper markets trade on expectations and narratives. And early on there was a lot of fear that prices were gonna go that high. Paper markets really take off. Physical markets followed. And then things have reversed as the narrative has been we're closer to the end than the beginning. There's a peace deal that's just around the corner. And physical markets obviously have had to deal with the realities of supply constraints. Early on, demand was strong. And in fact, you saw people buy further out, particularly Asian refiners that typically might buy a couple months in advance, covered themselves further. And so you actually had demand pulled forward at the same time as supply was shut off. And so that's where you saw differentials get very wide. But subsequently, you've got supply from spares, you've had supply from ships on the water that were sanctioned and were then allowed to unload, using commercial inventories drawn down. You're seeing turnarounds and maintenance activities deferred in facilities that allow supply to keep flowing. Some movements now through the straits as supply responds, as you would expect, and there's been a demand response. China had been buying a lot of oil for their SPR that has come down. You've seen certain measures, primarily in Asian economies, to reduce energy intensity of their activities. You've seen some substitution into coal and other things that has taken some pressure off of markets. And so both supply and demand have responded. And I think the market has bought time now that the reality is inventories are a lot lower today. Other than in China, where there still are very healthy inventories, what do any of the products or you look at crude oil. We've moved from comfortable inventories under normal times to what would be, you know, soon to be uncomfortable. And I think that's the real question is how much longer can these measures kind of ameliorate the risk? And at some point, they may not be able to.
How much longer does Chevron think? Is it in July or it's probably in that time frame.
And that's a little later than I would have said if you asked me six weeks ago. And so particularly the reduced buying out of China is something that we didn't anticipate at the degree that we've seen now. And so I think that along with now, the fact that we are seeing some of these flows out through the strait probably have pushed that timeline out a little bit more.
So I heard your earlier comment about the president's remarks about Labor Day, or kind of towards the end of the summer, the market may be able to kind of hold things together out into that time frame, but not forever. How confident could an executive be that we are close to an agreement? If the president has said it dozens of times since the conflict began at the end of February?
Yeah. I mean, I think the evidence would say you shouldn't fully believe that until you see the agreement signed and you see the actions begin to come into effect. Iran has a long history of being a kind of a patient and immovable negotiating force. And so this has been hard to call. And, you know, markets are hard to predict. Words are hard to predict. I think negotiations with adversaries like that or counterparties like that are also hard to predict. And so the market seems to be somewhat discounting these things. I mean, you mentioned yesterday, I think used the term whiplash. The car guy statement didn't seem to send the market up the way it might have a month ago. And the we're close to a deal didn't seem to send the market down. I mean, softened maybe a little bit, but I think the reactions to these things are less and less the more it gets repeated.
You have mentioned to me, John and Lisa, a few weeks ago when you joined the show, that there are more clashes happening that not being reported. Are you still seeing that?
Yeah. I mean, there was, you know, the US hit a couple of ships just yesterday. That was not in the media initially. It's now out there that there were actually three fatalities on one of the vessels. And so there has been activity in both directions, and it usually gets out eventually. We tend to have sources that we see things pretty quickly. But yeah, there's been during the, since the ceasefire where the president said it's we're shooting at each other less or I forget the exact term that he used, but it's not a true ceasefire the way I think most people would think of a ceasefire. It's less shooting. Right. But they're not zero.
I did ask someone about this, though, and they said it is pretty good in terms of a ceasefire for the region, for the neighborhood, I guess. Do you expect them if the Strait of Hormuz was to open that the U.S. Navy would stay there for a longer period of time?
Yeah. I can't speak on behalf of what their strategy would be. I think that's obviously based in the context of how they assess the risk, how they believe the Iranians are behaving in a manner that's consistent with whatever the agreement would call for. And, you know, the administration has used our forces around the world. We've seen it in a number of different places to enforce sanctions, to interdict ships at sea that are alleged to be in violation of sanctions. And so, you know, I wouldn't be surprised to see a military presence there for some time.
JP Morgan said that 5 million barrels a day is coming out. The secretary says seven. You think maybe it's more like three? When do we get back to 20?
I think it's going to take time. You've got ships that are out of position, you've got production that's shut in. You've got, you know, it's a normally we've got a very efficient global energy system. It's massive, but it's also highly efficient. It has been put into a state of a different kind of an equilibrium right now. And for that to truly return, you've got to get inventories rebuilt in the Gulf and around the world. You've got to get production re-establishing ships repositioned. And that is weeks and months, not days.
What could be the lingering effects of this crisis on the industry?
