About this episode
WATCH the video on Substack by clicking the play button above or on YouTube (here).STREAM audio only on Apple Podcasts (here), Spotify (here), or your favorite podcast player app.DOWNLOAD a pdf of a lightly edited transcript and the slide deck using the blue Download buttons below.We recorded this video podcast on Wednesday, March 18. This week we address five questions that have arisen regarding our views on the potential long-term impacts of the war in Iran.* Does our Super-Spike oil demand destruction framework need adjusting for an abrupt geopolitical spike?* What advance warning signs are we watching to assess economic damage and risks to capital markets?* How does Iran impact our view of the traditional energy profitability cycle and terminal value recognition?* Does the war change which regions we prefer for future CAPEX?* How does Iran impact our Power Surge (power super-cycle) view?Subscribe to receive all content. Also available at Veriten.com.SLIDE 3: Super-Spike Framework In A Geopolitical Event?Key points:* Our March 2005 “Super-Spike” framework was used to assess how high oil prices could reach in order to slow oil demand growth to levels of available supply in an environment of structurally strong global GDP growth (BRICs expansion).* We chose “super” to indicate the oil upcycle was multi-year in nature. We chose “spike” to remind ourselves and our clients that inevitably oil would surely rollover as cycle dynamics ensured a future period of oversupply (or under-demand).* At the end of the day, the super-cycle is always one of sector profitability, with oil prices just one (important) component along with costs and capital intensity.Current environment:* The War in Iran and closure of the Strait of Hormuz is not analogous to that 2004-2014 period. This is an acute geopolitical disruption.* Therefore, the framework we used over 2004-2014 has its limitations. Most notably, the sudden, dramatic jump in oil prices could mean that absolute levels do not need to reach the heights implied in the table on the right.* It also suggests that “Super Vol” remains the better framing for energy commodity markets, including crude oil, oil products, and global spot LNG prices.* Be wary of perma bears and perma bulls! For the bears: cycles have to play out. For bulls: it is always a cycle.Exhibit 1: “Super-Spike” oil demand destruction frameworkSource: Bloomberg, EIA, Federal Reserve, Veriten.SLIDE 4: What Advance Warnin
