U.S. markets close in 1 hour 36 minutes
  • S&P 500

    4,258.15
    +50.88 (+1.21%)
     
  • Dow 30

    33,622.09
    +285.42 (+0.86%)
     
  • Nasdaq

    12,978.45
    +198.54 (+1.55%)
     
  • Russell 2000

    2,007.63
    +32.37 (+1.64%)
     
  • Crude Oil

    92.63
    -1.71 (-1.81%)
     
  • Gold

    1,816.10
    +8.90 (+0.49%)
     
  • Silver

    20.75
    +0.40 (+1.95%)
     
  • EUR/USD

    1.0268
    -0.0057 (-0.55%)
     
  • 10-Yr Bond

    2.8550
    -0.0330 (-1.14%)
     
  • GBP/USD

    1.2141
    -0.0061 (-0.50%)
     
  • USD/JPY

    133.4500
    +0.4510 (+0.34%)
     
  • BTC-USD

    24,001.27
    -166.07 (-0.69%)
     
  • CMC Crypto 200

    570.42
    -0.86 (-0.15%)
     
  • FTSE 100

    7,500.89
    +34.98 (+0.47%)
     
  • Nikkei 225

    28,546.98
    +727.65 (+2.62%)
     

Yahoo Finance Presents: Amos Hochstein

President Biden's Special Coordinator for International Energy Affairs sits down with Akiko Fujita to discuss where things are going with oil prices, a possible cap on Russian oil prices, and the transition to green energy.

Video Transcript

AKIKO FUJITA: Welcome to Yahoo Finance Presents. I'm Akiko Fujita. And today, I'm joined by Amos Hochstein. He is President Biden's special coordinator for international energy affairs. It's good to talk to you today.

AMOS HOCHSTEIN: It's great to be here. Thank you for having me.

AKIKO FUJITA: Let's start by talking about gas prices, on the minds of all Americans. We have seen a pretty dramatic decline over the last month or so. In some states, we're looking at an average of under $4 a gallon. What do you attribute that decline to, and to what extent do you think the President can actually take credit for this?

AMOS HOCHSTEIN: Well, just like I said when the prices were going up, I'll say the same when the prices go down. There's always a multiple of factors that go into gasoline prices at the pump. One is, of course, the most important is the oil prices that fluctuate. And then it's the availability of refining capacity and finally, the price that the refiner sets and the price that the gasoline station sets. So there are all these factors that come into the price.

And then there is, of course, the environment around it. So what are what are driving each of those components? And what we saw was that post-COVID-- and remember, just about eight months ago, we were talking about new lockdowns. Omicron is going to be the new Delta and so on. So there was really this fear of shutting down and nobody was going to drive again. But instead, we saw a resurgence in the economy, remarkable growth. And therefore, demand started growing. People started flying and driving a lot more. Prices of oil started rising because of the demand.

But also, at the same exact time that we were coming out of Omicron and growing so rapidly, that's when Putin started amassing troops around Ukraine. The United States came out at the time with-- declassifying intelligence and saying we believed that he was actually going to do a major, massive ground invasion in the middle of Europe. So additional costs started coming in to the oil markets for the risk premium of the war in Europe, and that only accelerated. So we went from around $75 a barrel to about $120 a barrel on these risk premiums of both supply and demand and the Russian war. Then the sanctions came in and drove up the price.

And now, what we-- we have the culmination. And by the way, those things take time, right? They didn't go overnight over to $120, just kept on going up, creeping up and the same thing with coming down. The President took a number of-- President Biden took a number of steps. One, we release 1 million barrels a day from the Strategic Petroleum Reserve. That's the largest that we've ever done. We negotiated with international allies to release another 60 million barrels into the oil markets from international-- on the global market, not in the United States. And so that started putting a lot more oil onto the market but not overnight. On June 1, OPEC+, ahead of the President's announced trip, announced that they were increasing supply in July and August.

So culminating all those things, we started seeing a precipitous decline in oil prices. So we've gone from $120 to $100, so we've really gone down-- I think WTI today, the American price, is at $95 or so. So that's a $27 decline in oil price. That's enormous.

AKIKO FUJITA: Let's talk about the--

AMOS HOCHSTEIN: And prices have followed suit.

AKIKO FUJITA: I mean, let's talk about the expectation of where things can go from here. All expectations are that prices won't remain in this pullback for-- going into later this year. You had the IEA coming out and warning about a supply crunch going all the way into next year. As you pointed out, 1 million barrels a day being released at Strategic Petroleum Reserve, that's expected to dry up in October, though. I mean, do you have enough to extend beyond that, if prices do come back to the record levels that we saw earlier this year?

AMOS HOCHSTEIN: So the intention behind the reserve release of 1 million barrels a day was because we met with the private sector in the United States, who have said that they will be adding additional investment in CapEx into their drilling profiles and platforms and that they will increase production by about 800,000 to 1 million barrels a day and that will only come on towards the end of the year.

So this was really a stopgap measure. The United States government cannot be the supplier-- we can't be an oil supplier. It's a reserve, and so we have to keep that. So the idea behind it is that we've seen the record profits that oil companies are making that they will invest in it.

So look, I know that experts are saying oil price will go up, but I'll remind you something. About a month ago, the same experts said that we were reaching-- we were going to reach $180 this summer of oil prices, they said by the end of July. JPMorgan said we're going to $350. And we saw some-- a lot of reports saying now-- when we reached $5 a gallon, what did they say? They said we're going to $6, $7, $8. Instead, we've gone the other direction.

So I would caution a little bit. There's a little bit of a hysteria at the moment in the analysis of oil markets. So I-- we're focused on trying to bring the price down. We think we can continue to maintain a lower price-- can't guarantee that. There are all kinds of external factors on that. And we think that the companies should consider additional investments into additional production.

AKIKO FUJITA: Just to confirm, though, I mean it sounds like you're saying the SPR release was done in conjunction with conversations with the private sector. Have you received assurances from the private sector that they will, in fact, expand drilling come year end?

AMOS HOCHSTEIN: We received assurances from the private sector that they would begin the investments so that by the time the end of the year rolls around, there will be an additional-- their production will increase. So it's not that they will start increasing, start investing at the end of the year. They're investing now, is when they need to make those investments to get the drill rigs in place and to be able to increase production. But yes, we did have those conversations. I, myself, had those conversations with the leadership of several of the companies.

Now, some say they'll increase. Some say they don't care if it's $200 a barrel or $300. They've said it publicly in the press, one of the CEOs. He doesn't care what the price is. And we think that's wrong. We think that is-- at a time of a war in Europe when Americans are paying this kind of a price post-pandemic-- and you'll see.

Just in a couple of days, we're going to have the second quarter earnings results. And look at those results, and tell me if the American people think these companies should be reinvesting that money back into the economy, back into increased production. So some of the major companies have told us they will increase. That's part of the reason we did the SPR release the way we did it.

AMOS HOCHSTEIN: Let's talk about your recent trip to Saudi Arabia. Obviously, you accompanied the President. On the back of that trip, you said that you're confident OPEC+ has a few more steps in the coming weeks, sort of alluding to the fact that you got kind of a wink and a nod saying that they will expand capacity. Number one, do the Saudis have enough spare capacity to increase supply in a meaningful way? And what's the expectation on your end?

AMOS HOCHSTEIN: So the Saudis are a-- one of the leading voices in OPEC, obviously, but they're not the only player in OPEC. So I want to keep reminding people. When you go-- it's a collection of countries, of producers that really all have to play along and all have to come to an agreement. So it's not just about Saudi Arabia.

I'll be very careful. I don't-- I'm not referring to Saudi's capacity. Their capacity to produce is their number. They've been talking publicly-- the Crown Prince has talked publicly about the fact that they're going to expand their capacity to 13 million over the next several years. But in the meantime, I think they do have room to grow their production before they reach their max capacity. That's true for other countries in-- not many, but a couple of other countries in OPEC. And I think that-- when we were in Saudi Arabia, we met with many of the OPEC countries but not with OPEC.

So what I was trying to suggest is they need to make a decision through their structures, through OPEC, not in a visit with the United States. We're not a member of OPEC, and we didn't meet with them. So they need to have that conversation ahead of their next meeting on August 3, and we'll see what they do.

I think that what-- if you look at the joint communique that we released with Saudi Arabia, we agreed on the concept that the market needs to have additional oil barrels in order to make sure that global economic growth can continue. That's the levels we want to see. If oil prices come down a lot further, obviously, that will change, whether that means we need more or they should hold back.

AKIKO FUJITA: I know the administration is engaged in ongoing conversations with other countries of a potential price cap on Russian oil. Obviously, the biggest buyers, China and India. What kind of buy-in have you gotten from those two countries? Take us inside some of those conversations you've had.

AMOS HOCHSTEIN: Yeah. So what we want to do is we want to-- this is a direct continuation of the questions that you were just asking me. We want-- gasoline prices in America today are about-- the average is somewhere in the low $4, and we're seeing even-- in some states, it's already in the mid 3's, $3. So we're very happy about that. We want to keep things that way.

What we don't want to do is increase the revenues for Putin because he's using the revenues from oil directly for his war campaign in Ukraine and you've seen in the last several days, really attacking schools, hospitals, and residentials. So we want to take the revenue away while not taking away the oil on the market. So we want-- what we've suggested is that we would put a ceiling, a cap on how much revenues he can get. He can sell the oil. We're not taking that away from him, but there would be a price limit to how much he would take.

As far as the countries that we talk to, look, every country wants to pay as low a price as possible. It's not like India wants to pay the highest price. And we already are seeing evidence in the market that Russia is selling its oil at a significant discount. So we want to put that match. So we know that they're willing to sell it at a discount in order to be able to sell it because, frankly, they have cash in the bank. That is true. But they don't have anything else. Their economy has nothing else. They produce weapons, and they produce-- and they drill for oil and gas. So we want to put that cap.

As far as reaching an agreement, I think that's still a ways away. We're still working at that. We're trying to perfect the mechanism of how that would actually look and how it would work. We're not at a point where we have an agreement. We have an agreement in principle with the major economies of the G7--

AKIKO FUJITA: Yeah.

AMOS HOCHSTEIN: But not an actual agreement yet.

AKIKO FUJITA: Even as we talk about fossil fuels, we have continued to see the climate emergency play out-- record temperatures in Europe, 100 million Americans under heat warnings right now. As we see the surge in energy demand there, separate from increased drilling, what do you see as the energy mix?

AMOS HOCHSTEIN: Yeah.

AKIKO FUJITA: Do you increase nuclear in the absence of enough solar, enough wind?

AMOS HOCHSTEIN: I'll tell you. I think that what this era has shown us, this past year with this war and the conditions around the world, is that the climate emergency-- obviously, the crisis is getting worse. I mean, the heat wave in Europe is rather insane. We have 100-year heatwaves, 100-year fires, 100-year hurricanes all happening every two, three years.

And as far as energy mix, I think you're asking the exact right question. We can't move the transition with make believe that we can just turn off oil and gas today. We need the oil and gas today to sustain our economy, our global economy. And we see what happens when you don't have enough. Gasoline prices reach $5, and they could go up. Look at the price of natural gas in Europe and electricity today. They're at record highs where literally, governments are feeling the stress. People are feeling an enormous amount of pain and stress.

So we need the oil and gas today, but we have to make investments right now in wind and solar deployment. And most importantly, we have to get more electric vehicles to be able to be manufactured than they are now and to be deployed. We don't have an issue anymore of demand. People will buy them. We don't have enough cars. We don't have enough chips.

AKIKO FUJITA: Yeah.

AMOS HOCHSTEIN: We don't have enough materials to be able-- for batteries. So we have to invest enormously today to increase our reliance on cleaner and more renewable sources, and that includes nuclear. We haven't built a nuclear power plant in the United States in decades, and we need-- and we have a fleet that needs more support in order to be able to stay up. Look what happened in Germany by taking off nuclear. We're now burning coal in Germany. That's something we shouldn't be doing here.

So I think we have to do two things at the same time. We have to bring on more oil in the short and medium term, more natural gas in the short and medium term to have more gasoline and refining in the short and medium term. We need more than we have today. At the same time, we need to create more tax incentives and more-- and other kinds of financial incentives to increase the investment in renewable energy and electric vehicles.

AKIKO FUJITA: Final question to you, the President is facing a lot of pressure from within his party to declare a climate emergency. If he does, in fact, take that step in the next few days, does that make your job in ensuring energy security easier or harder in the immediate term?

AMOS HOCHSTEIN: Well, that's-- I'll let him make a decision whether he's going to declare an emergency or not, and I won't get ahead of him on that. I think that regardless, my job is to try to make sure we have enough supplies today. We're about to go into a hurricane season. We have to make sure we have enough supplies today and for the next several years. And to get a coalition together to accelerate the energy transition.

You know what's an amazing thing is? We're having this debate in the United States about climate and are you anti-fossil or pro-fossil or are you anti-renewables or not? You go to a country like Saudi Arabia this past weekend and you meet with countries like UAE, here are countries where 90% of their revenues are coming from oil. And they're making massive investments, far outpacing us in renewable energy, in solar, in hydrogen. They want to build nuclear power plants. They get that we are now in the middle of a transition.

They don't deny it. They just want to be part of the energy transition so that they are-- they have sources of revenue when the acceleration happens towards the end of that. We need to do the same. We need to catch up. And we have to-- there's one country that's sitting on the sidelines watching us, and that's China. And they are building massive capability in electric vehicle batteries and the components, and we have to battle that. We have to decide today.

The energy transition is happening no matter what anybody in Washington says. It is happening. Electric vehicles will be a significant part of our fleet in just 10 years from now. And we have to decide, do we want China to control and run and lead the energy world of the rest of the 21st century, or do we want it to be the United States? I think it should be the United States and the Western world with our values and our interests and our security. Because if you want to talk about security, I don't want China controlling every electric vehicle battery. I want us and our allies to do it so that we're secure, the American people are secure.

But there's no doubt that in the meantime, I also have to-- we also have to work to bring down gasoline prices so that people could-- so we don't go into facing these kinds of economic pressures. So doing the same thing at the same-- these two things at the same time, not easy but we all have to do it.

AKIKO FUJITA: It's a tricky balance that makes your job harder. Amos Hochstein, appreciate the time today. Thank you.

AMOS HOCHSTEIN: Thank you.

[MUSIC PLAYING]