Chevron CEO says it's "very hard to predict" the Iran war's lasting impact on energy prices

[0:00] President Trump met with oil executives this past Tuesday at the White House, and we spoke to one of the attendees, the chairman and CEO of Chevron, Mike Wirth, a few days prior to that meeting, and we asked him to describe the global energy shock we're all experiencing. [0:14] The way I would frame it is the energy system has lost an incredible amount of flexibility. The global economy consumes about 100 million barrels of oil every day. A barrel is 42 gallons. About 20 percent of that moves through the Strait of Hormuz, so that's been significantly disrupted. [0:35] Normally, the energy system has shock absorbers in it, so we have inventory in tanks at facilities. We've got inventory on the water in ships. We've got inventory in strategic reserves. [0:50] All of those have been pulled down over the last couple of months as these events have unfolded, and what it's done is it's taken those shock absorbers and made them much less effective in the system. [1:00] And so disruptions normally are met by moving these inventories around, and price response can be muted. As the shock absorbers are withdrawn, the shocks translate a little bit more directly. [1:14] And so I think what he's referring to is we're in a period where there's been significant supply taken out of the system, and we are facing this upward pressure on prices and volatility that has manifested itself thus far and likely to continue. [1:32] If there is an actual negotiated end to the war, do prices come down, or is just a truce enough to give relief? [1:40] Well, what's really needed is for flow to resume through the Strait of Hormuz. You can't take 20% of the energy out of the system, and some of it's finding its way around to the Red Sea. [1:50] But there's still a substantial amount of world energy supply that is not able to flow. And so that's the key thing, is to restore that flow. [1:59] It allows markets to begin to rebuild these inventories. It allows us to get products to where they're needed and to alleviate some of the pressure. [2:06] But that all will take time. It's a world where we get logistics of ships and pipelines and moving things around to markets around the world. [2:15] And so that's why I say I think it's going to be with us for some time, because even if the Strait were to open today, getting supplies to where they're needed and resuming the normal functioning of the system is going to take some time. [2:28] It's not just the Strait. Twelve refiners in the Middle East were hit by a missile or a drone attack, according to Clearview Energy. [2:36] So the infrastructure itself has been damaged. How long does it take to get production back as well? [2:43] Well, it's going to take, in some cases, weeks and months, in some cases, years. [2:47] There have been oil fields that have been just shut in because there's no place to store the oil. [2:53] Sometimes these fields, it's not like turning the tap on your faucet. [2:58] These are complex reservoirs with a lot of subsurface dynamics. [3:01] So those have to be brought back carefully. [3:03] There has been damage to upstream, midstream and downstream infrastructure like refineries. [3:08] When it comes to the price, when we look at what's happening out there on the markets, that's one thing. [3:15] That's traders placing bets. The American people are looking at the cost when they, you know, gas up their car. [3:23] When will things return to pre-February 28th and the start of this conflict? [3:28] Yeah, it's one of the things I've learned in over 40 years in this industry is predicting price is extremely difficult, even in normal times. [3:35] Markets can surprise you. This is not a normal time. [3:38] The dynamics that are affecting supply are quite unusual. [3:42] The potential for that to flow through into the economy and maybe slow demand is, I think, increasing. [3:50] And so- [3:50] People use less gas, you're saying, because of the higher price. [3:52] Certain parts of the world, it's not just gas. It's LPG for cooking in South Asia. [3:58] It is jet fuel in Europe. [4:00] A number of products are becoming very short in supply. [4:03] Behavior changes in a couple of ways. [4:06] One, people will use less energy. [4:08] Second one is people will hoard energy. [4:11] Back in the 70s, I recall during the embargo of the U.S., in my family, we would drive around with a car as full as we possibly could. [4:22] Normally, people drive around, they're comfortable with a half a tank or a quarter tank of gas. [4:25] And so you'll see people will hold on to supplies that otherwise they might not, they may use less. [4:31] And so predicting both demand and supply in a market that's this dynamic is very difficult. [4:38] I think the key thing is, as I said before, the shock absorbers are being drained out of the system, which means there's this upward pressure on price because supply is getting tighter and the ability to resupply is getting more difficult. [4:50] And that increases the likelihood of volatility as well. [4:54] So we can't say that gas prices have peaked, for example. [4:58] I think it's very hard to say that because you have to make a bunch of assumptions about that. [5:02] And it depends on what you assume. [5:06] We'll be back with more of our conversation with Chevron CEO Mike Wirth in a moment. [5:09] Stay with us. [5:15] Welcome back to Face the Nation. [5:17] Here's more now of our conversation with Chevron CEO Mike Wirth. [5:21] We're reading about airports running out of jet fuel. [5:25] What's the reality there? [5:26] What is the supply and what does that mean for Americans who might want to travel? [5:30] Yeah, inventories of jet fuel in certain parts of the world were at seasonally relatively low levels before the conflict began. [5:38] The Middle East refiners are significant exporters of jet fuel, particularly to Europe, where 75 percent of Europe's imported jet fuel tends to come from those refineries. [5:47] It's not flowing today. [5:48] So we are seeing jet fuel tighten very quickly in Europe, in Asia, and we're seeing airlines announce adjustments in their flight schedules. [5:58] We're seeing it flow through into to fares. [6:00] I think that's one of the first places it'll be felt most broadly. [6:03] I mean, we've seen some upward pressure on gasoline prices now. [6:06] I think aviation is clearly an area where it's going to probably get worse over the next few weeks. [6:12] Get worse over the next few weeks, but that still has a lag effect. [6:16] I mean, what you're saying is if you're buying a trip to Europe, expect to pay a heck of a lot more, even if it's months from now. [6:23] Yeah, again, I can't predict how the airlines are going to price their product, but I think the upward pressure that they're seeing on prices and the tightness in the market is likely to lead to further route optimization. [6:37] And so flights may not be as abundant as they otherwise would have been. [6:42] I think planes will probably be more full than they would have been. [6:45] And yes, fares could be higher. [6:47] You're saying we don't know enough to actually make hard predictions. [6:51] That's what I hear you saying. [6:51] Yeah, it's you know, there's a kind of an old axiom that, you know, I can tell you the price. [6:56] I just can't tell you when it's just it's very difficult to predict these things because markets are are dynamic. [7:02] They can respond to things that we don't anticipate. [7:05] And the one reality is that these these shock absorbers are not as effective as you get down to lower levels of inventory. [7:14] And so I think that's going to be with us for a period of time. [7:16] So the longer the conflict or this period we're in without resolution, it's going to continue to. [7:23] I think I think it can extend these market effects. [7:26] Can you just turn on production at a moment's notice? [7:31] What difference does this make to you? [7:33] Yeah, I you can't turn on production at a moment's notice. [7:37] It takes engineering, it takes supply chains, it takes contracts and workers moving and being mobilized. [7:43] So it takes time to to bring new production into the market. [7:47] Our company had record production in the U.S. last year, two million barrels a day, a million barrels a day in the Permian. [7:52] We're going to grow seven to ten percent again this year. [7:55] So we do have plans underway to deliver more oil to the market. [7:59] So the energy industry famously was at odds with the last administration and vice versa in this administration. [8:08] Are you and your fellow CEOs calling the White House and saying you're being too optimistic? [8:17] Are you telling them how much strain there is right now? [8:21] Well, one thing I will say is this is an administration that engages the business community very regularly. [8:27] And it's across the board from all different departments within the government. [8:33] They seek dialogue, they seek input, and they're available and accessible in a way that I think is very, very good, particularly at a time at a time like this. [8:41] We engage in discussions with them on a regular basis about the situation. [8:45] I had discussions as recently as today about the things we're doing to try to ensure reliable supplies into into U.S. markets. [8:52] And so, yes, we speak on a fairly regular basis. [8:55] Do you feel you can be honest and say because the president is telling the American people gas prices aren't that high? [9:01] His cabinet is telling the American people that prices are about to come down. [9:05] You're telling me that's not that certain at all. [9:09] Well, yeah, I'm telling you that the risks kind of skew to the upside right now. [9:14] And they know that. [9:15] And the opportunity is for us to, you know, see flow, resume through the strait. [9:20] And then at the same time pursue these policies, which I think the administration really does have as a priority to continue to encourage investment in infrastructure and our economy. [9:30] The IMF director recently told us that this is going to last likely through 2026. [9:36] You would say that's a fair assessment? [9:39] Well, this is a significant shock to the system. [9:41] It is reorienting trade flows, logistics, ships. [9:47] The entire system is in a state of disequilibrium right now that has emerged over the last several weeks. [9:55] And as we get to a resolution at some point in time to establish a new equilibrium means you're going to have to resume flows. [10:03] You're going to have to restart fields to our earlier discussion. [10:06] You're going to have to get ships repositioned in places that are optimal to establish supply. [10:11] So it will take some time. [10:12] It's not a light switch, as you said. [10:15] And the full conversation was taped on April 23rd. [10:18] It's available on our YouTube page, on our website, facethenation.com. [10:22] We'll be right back.