Hello, and welcome to the Hydrocarbon Engineering Podcast.

I'm your host, Callum O'Reilly, and today I have the pleasure of sitting down with Susan Bell, senior vice president within commodity markets Oil at Rystad Energy.

Susan joined Rystad Energy in September 2023 and has over twenty five years of experience in the energy industry, having held numerous positions within the upstream and downstream petroleum industry.

Her experience includes refinery operations and optimization, longer term strategic planning, and oil market analysis for both crude oil and refined products.

Today, I'm going to be picking Susan's brain about the implications of the trade war that we have been witnessing over the last few weeks and getting Susan's opinion on what all of this means for global oil demand and oil prices.

It's sure to be a fascinating conversation.

So without further ado, let's talk to Susan.

The Hydrocarbon Engineering Pod cast is brought to you by Owens Corning Foam Glass Insulation.

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Hi, Susan, and welcome to the Hydrocarbon Engineering Podcast.

Thank you so much for taking the time out of your really busy schedule to talk to us today.

We're really delighted to have you join us.

Thank you so much.

It's my pleasure to be here.

Now Susan, we've got lots to talk about today, but before we begin, can you perhaps introduce yourself to our listeners and tell us a little bit about Rystad Energy's role in the sector?

Certainly.

I have been involved in the energy industry for many years and I began my career as a chemical engineer in the refining industry.

And I've worked in oil markets for a number of years, both on the downstream and upstream side.

And I joined Rystad Energy several years ago and Rystad's focus is really to cover the entire energy ecosystem.

My role within the organization is to provide clients with insights and data on the oil markets and Rystet Energy covers oil supply, gas supply, NGL supply, we have very highly granular data on all of this supply side.

We cover markets for both oil and gas from demand to pricing and then we provide high quality insights and analytics to our clients.

Great, thank you Susan.

So there has obviously been a lot of talk regarding the Trump administration's global trade tariffs and I'm really eager to dive into some of the specifics on that shortly with you.

But perhaps it might be helpful to begin our conversation with a general overview of how trade wars have historically impacted global oil demand pricing trends?

Right, well tariffs if targeted and very specific can benefit a nation in terms of industrial development and national security of course, but trade wars typically are a headwind for oil demand, for energy demand in general, just because trade wars ultimately end with passing on the cost to the consumers which impacts the consumers purchasing power of their dollar And when consumption goes down, particularly in an economy like The U.

S.

That is so heavily driven by consumption, when consumption goes down, you typically do see lower oil demand.

So Susan, what were some of the key trade tensions that were shaping the oil markets prior to the recent tariff upheaval?

There were a number of trade tensions that were shaping the market.

If you think about what was happening prior to the global pandemic in The US shale industry that was causing OPEC an awful lot of concern because the shale oil production was growing so rapidly and it was starting to eat into OPEC's market share.

There are other trade tensions.

There's always been contention between Canada and US with regards to the dairy industry in Canada and how protectionist Canada has been.

There's been trade tensions between Canada and The US on softwood lumber.

There has been an ongoing issue in trade tensions between really the world and China with regards to the low cost electric vehicles that China is able to produce with solar voltaic panels for the solar power generation industry.

There are a number of trade tensions that have existed prior to the US Liberation Day on April 2.

Okay, Susan.

So let's take a deep breath because we're about to dive into the specifics of President Trump's Liberation Day tariffs.

Now these were announced in early April, and I think it's important before we go any further to have a quick disclaimer that we're discussing this in mid May twenty twenty five.

And as we all know by now, things can change very quickly.

But can you perhaps tell us a little about the immediate aftermath of the tariff announcement and the impact that the subsequent pause brought about?

Well, the immediate aftermath was a switch to very bearish sentiment in the oil industry.

Oil markets, crude oil prices fell over $10 a barrel following the announcement of tariffs on April 2, and they really have yet to recover.

There's deep concern of the potential for a recession in The United States.

There is concern on a significant slowdown in China's economic recovery, and really global market participants have become very concerned with global oil demand in 2025.

So the immediate aftermath has been a sell off in crude oil which has caused a significant decline in the price of crude oil.

In terms of the pause that occurred on, I believe it was April 9, recognize that the pause improved the position of every country with regards to trade to The U.

S.

Except for China.

The subsequent pause was also an escalation of the trade war between China and The U.

S.

And 145% tariff on imports into The U.

S.

From China is as damaging to consumer prices to the American consumers as the April 2 tariffs as announced.

It just means it's more concentrated on China and the rest of the world has a bit of a benefit relative to China.

So we didn't see the subsequent pause as something that has been very positive.

It's not very positive news with regards to the oil markets.

Great.

Thank you, Susan.

I want to come back to China in a moment, but obviously these changes have caused a lot of uncertainty globally.

And as we talk now, there are still a lot of question marks surrounding The US's trade position with a number of countries.

I I'm here in The UK and we've got a I think we were the first to get a, a trade agreement with with The US.

But but aside from that, there's a lot of uncertainty on the market.

So how is this impacting the market in the short, medium, and long term?

In the short term it's adding an awful lot of volatility because of the uncertainty.

I think oil markets are searching for the floor in terms of prices and I think that on a day to day basis it's difficult to gauge where the markets are going to go because it's not as simple as straightforward supply demand fundamentals.

The rhetoric out of the US White House does have an undue influence on markets these days and so we are seeing very extreme volatility.

In the short term as well we do expect to see some demand declines in oil because of the disruption in trade flows around the world.

And you're correct that both The UK and China actually have announced talks with The US.

I believe The UK's talks have landed on a 10% tariff which is still substantially higher than what it was prior to April 2.

The China talks are a ninety day pause I guess you could say where tariffs for imports into The U.

S.

Have returned to 30 which is still substantially higher than the pre April 2 announcement.

So even though there has been advancements in discussions between nations, landing point is still going to be quite damaging to The US economy.

So that means that in the short term we do expect to see demand declines in the medium term.

You may see some investment coming back to The US for manufacturing, but I think that ship has sailed.

A lot of those manufacturing jobs are jobs that even China is exporting to other nations that are even lower cost than China.

So I'm not sure that The US is going to be as successful in establishing manufacturing again through the action of these tariffs.

In the longer term, because the consumer is so challenged from a cost perspective, we expect to see a slowdown in energy transition so even though the short term impact is lower oil demand we expect the long term impact is more sustained oil demand because energy transition can tend to be very expensive for economies and if your economy is in austerity measures you don't have the money to spend on energy transition.

That's really, really interesting, Susan.

So as you mentioned, the tariffs are likely to result in weaker commodity demand and prices and I've seen that Rystad Energy recently cut its US shale growth view on the back of these tariffs.

So how can the oil and gas sector cope with lower prices?

Well the oil and gas sector is really quite flexible and prices support development and you think of it as true supply and demand, the last barrel into the market is what is effectively setting prices and for a number of years now since OPEC instituted its voluntary supply cuts, OPEC has been managing the floor of oil prices to keep some of these higher cost supply streams viable and what's happening now is a reshuffling of investments.

So if oil prices are going to stay in the low sixties, we're at $61 or $62 a barrel for WTI.

I think we're at $64 a barrel for Intercontinental Exchange Brent today.

So there has been a bit of a sell off recently.

Then we do expect to see lower investment in U.

S.

Shale.

And so shale is not going to grow at the rates that we had originally expected, which was in the order of, you know, four or 500,000 barrels a day.

We've knocked that back to about 300,000 barrels a day for 2025.

Some of the riskier deep water investments that require high upfront costs, but some certainty on the long term price of oil to pay back that capital.

We could see investment decisions deferred on those projects.

So ultimately the lower oil prices are going to reduce supply globally which then will drive the incremental cost of supply back up to a level that then encourages that investment again, but it shifts that curve several years down the road.

That's really interesting, Susan.

So do you think that we are likely to see a delay to new projects as a result?

I do think so.

I think the tariffs are one thing but the recent actions by OPEC plus are another.

So yes, the tariffs are potentially quite damaging.

Tariffs in their original form, the April 2 form are potentially quite damaging to global oil demand and that in itself is going to drive oil prices lower and reduce investment in oil development.

But with OPEC plus now coming out and saying that they're less interested in managing the floor and more interested in garnering more market share and punishing the over producers within the OPEC cartel.

I think that is causing perhaps more concern to markets over the short and medium term because OPEC has in the order of 8,000,000 barrels a day of spare capacity and can really shift change the game in terms of the oil supply demand balance.

Now, what we're seeing with OPEC is we think that they're being quite careful in their actions and in their increases in production.

It doesn't appear like they're interested in an all out price war.

They're more interested in replacing the Iranian and Venezuelan volumes that have been sanctioned out of the market, but they also want to make sure that the oil prices stay low enough that Russia's funding of its war with Ukraine is more challenging and that the shadow fleet that is moving oil around the world doesn't see as strong of economics because the legal price for oil is below the cap price for oil.

Great.

Thank you for that, Susan.

So I was wondering what you think the impact of all of this is likely to have on the refining and petrochemical sector specifically.

The refining industry is somewhat agnostic to the price of oil just because the consumer is what sets the pump price of gasoline and diesel.

And that those are the predominant products that come out of the refining industry.

If gasoline and diesel demand is strong, then the crack spread, which is the price differential between the gasoline and diesel and crude oil will be wide and that ensures a strong refining margin regardless what the price of oil is.

What we saw in 2022 when oil prices were really high and crack spreads were also really high because refining capacity globally was constrained, we actually saw some demand destruction because of the high oil prices.

Consumers talked with their pocketbooks and said, we can't afford to pay for this gasoline and diesel so we're going to reduce our consumption, and that started to normalize prices to a certain extent.

So in a low oil price environment there still is opportunity for refiners to make money so long as the demand is there.

And what we're seeing right now is the softening of a demand.

We're not in an environment yet where we are forecasting global oil demand to decline.

We still see global oil demand growing to the tune of 700,000 barrels a day in 2025.

We have softened that we were at 1,100,000 barrels a day of growth before Liberation Day.

So we have stripped out a fair amount of growth from the forecast, but that growth is on almost a million barrels a day of growth that occurred in 2024 and we did not see any refinery throughput increases in 2024 and so far 2025 is shaping up to be similar to 2024 in terms of throughput.

So what we're seeing is actually a slight strengthening in refining margins because the balance for products is getting a bit tighter and what we have also seen and this is really a feature of the market that began during the COVID pandemic is refiners are being very careful about how they plan their crude runs and they're making sure that they don't allow supply and demand of refined products to get out of balance.

So our view is that the refining industry is going to weather these turbulent times quite well.

We do see cracks staying positive through 2025 and potentially even strengthening in 2026 As we see refining capacity get slightly more constrained in 2026.

The petrochemical industry is a bit of a different story though.

The petrochemical industry is the margins for that industry are very closely tied to consumer demand.

And consumer demand is not demand for transportation fuels it's demand for goods and when consumers are struggling with their household budgets they don't necessarily cut the amount of money they spend on gasoline because they still have to get to work, they still have to get their kids to school and to activities, and they still find money for recreation.

What they do stop spending money on though is durable goods And we're seeing a surge in durable goods spending in The U S right now to get ahead of the tariffs.

But eventually that spend is going to mean a significant decline in spending on durable goods.

And so when you see durable goods spending go down, it directly impacts petrochemical demand and petrochemical demand margins in that sector right now are not very strong and we do expect to see margins remain really quite weak over the next year or so because of the impact on consumer demand.

And what about LNG, Susan?

Obviously this is an interesting area because there's an opportunity for some importers in Europe and Asia to mitigate some of their trade deficit with The US by buying more LNG.

So how do you see this market developing?

Yes, and the LNG market in theory should be really quite liquid because the volumes move on the water and we do expect to see a reshuffling of trade.

The U.

S.

Volume that was designated for China could eventually be reshuffled and go to other nations, sent to Europe instead, and then The Middle East will supply into China as a way to avoid the tariffs.

Now what this means though is the supply demand balance doesn't necessarily change globally but the global supply system gets less efficient and so it's a higher cost system.

So it ultimately does mean higher cost to the consumer of that LNG and potentially lower revenue flowing back to the suppliers of that LNG.

That being said though, the world does need that energy so we're not terribly pessimistic on the LNG industry because of the impact of the tariffs.

So just briefly returning back to the Liberation Day tariffs, Susan, and if we are to see tariffs actually imposed at anything like the kind of starting position that the Trump administration took up back in April, what impacts would such a trade war have on energy demand and the industry as a whole?

And give us some positive thoughts.

Is there any light at the end of the tunnel here?

Do any companies stand to benefit from such policies?

Well, if we went back to the April 2 tariffs as announced, I think it would be very economically damaging not just to The US and China but to many economies around the world.

And it could drive austerity measures in many economies.

Unfortunately, the one economy that would see the most damage would be The US because the rest of the world is in a trade war with The US.

The US is in a trade war with every nation.

And so the consumers in The US have the biggest price to pay unfortunately.

And if we take The U.

S.

President for his word, he said, I can't quote him exactly, but I think he said maybe instead of 20 dolls at Christmas, you get your child two dolls at Christmas.

That is an austerity measure and that's not how Americans have typically consumed for the past say twenty years.

It is a very consumption driven economy.

I do think that other nations will fare better than The US.

I think that other nations will be able to develop trade partnerships amongst themselves that largely isolate The US from those trade relationships.

And it potentially means less efficient global supply chains because the trade barriers are forcing trade connections that aren't necessarily natural and logistically efficient but are supported just because of the high tariffs with The US.

So in terms of other countries, I think that there may be some opportunity for those other nations to build up their own manufacturing industries and their own supply chain.

Ultimately that might be a benefit.

I also think that just in addition to The US's rhetoric on trade, their rhetoric on global defense, global security has created a change in individual nations and their view on how they have to support themselves from a national defense perspective and that in itself is going to support higher government spending on national defense which is positive to the economies and positive to manufacturing within each of those nations.

In terms of individual companies that might benefit from this, manufacturing within individual nations should benefit from this but it comes at a cost to the consumer and whether the consumer can afford this or not has yet to be seen and it's only if the consumer can afford the higher costs that the benefits will be seen by the individual manufacturing industries within the countries.

Take for example the auto industry in Europe, right?

They're faced particularly in Germany.

Germany is facing some pretty severe challenges with regards to their auto industry.

If they are challenged with exporting vehicles to The U.

S.

Perhaps they take a hard line on trade with China on autos and they can support a homegrown solution that supports demand for their vehicles within Europe.

That could ultimately be a benefit for Europe but it comes at a cost to the consumer because their automobile prices will go up substantially.

I don't think that imposing tariffs on the world is going to allow The US to rewind the clock on manufacturing in The US.

I think that ship has sailed A lot of those jobs are jobs that are going to go to other Asian nations and eventually go to Africa and allow Africa's economy to develop.

I think that The US probably needs to adopt a strategy of training their population into the higher value information age jobs rather than the manufacturing jobs of the eighties.

I'm somewhat bearish on the ultimate impact of all of this and I'm afraid I can't give you too many lights at the end of the tunnel except that for nations outside of The US there are opportunities abound to negotiate deals with each other.

Great.

Susan, thank you so much once again for joining us today.

Really fascinating to get your insights into some of the market turbulence that we've been witnessing and what all of this is likely to mean for the energy sector both now and into the future.

So thank you once again.

It's my pleasure.

Thank you for having me.

That's all for today's episode.

A big thank you once again to Susan and her team at Rystad Energy for sharing such valuable insights into how global trade tensions and particularly the recent wave of US tariffs are shaping the landscape for the oil and gas sector.

As always, thank you for listening.

If you enjoyed this episode, don't forget to subscribe, leave a review, and share it with your network.

We'll be back soon with more conversations that dig into the forces disrupting and defining the downstream industry.

The Hydrocarbon Engineering Podcast is brought to you by Owens Corning Foam Glass Insulation.

From managing vapor drive and mitigating corrosion risk to maintaining thermal performance and supporting safety on the job site, the insulating system plays a critical role in high performing hydrocarbon processing facilities.

Learn more about why closed cell impermeable foam glass insulation is installed at hydrocarbon processing facilities around the world at www.owenscorning.com.