Transcripts For CSPAN AEI Discussion Focuses On OPEC And Energy Policy 20170108

Potential impact it has on the United States and global markets. This is about an hour. [inaudible] thank you all for joining today. Happy new year. Have you here at aei. With the clock running, i want to kind of moved into a broader discussion. We had the opec deal reached in november, and this comes after watching the price go up and down over the year. 2017, the question is will the price hold . The newon for president elect donald trump and his administration, and also for you producers and nonopec producers. It is an interesting moment. I thought of looking at the price of oil before coming to the event, and it is at about 55. That is about the range they were hoping for back in november. It is an interesting moment to watch. Discussion,t with we will give a few moments for opening remarks, and then we e the full that one moment moment. The full one i believe you also served at one point in the Bush Administration in the white house. The reagan administration. And we have the coordinator for International Energy affairs. He has the bureau Energy Resources for the department of state. And has become a sort of focal point for International Energy diplomacy. , curtailingadership oil off the market, iranian oil sanctions, to navigating the apartment of Transnational Energy issues, and also looking at notably counter i sold operations isil op erations. It is quite a broad range. Onhink you have been more the road then probably most in the past couple of years. It is in honor to have you here. Thank you again. Would you like to begin . Sure, how long should i . Only a couple of minutes. Let me first offer some thoughts about the priceline annex in the world of the oil market in the wake of the opec agreement from last month. Briefi want to offer a one or two what we think about the house view on the hold of power. Second, what i would like to call the sabotage model. Is prospectspic thinkl prices, and i there are four points to be made. , goingst of which is straight forward, i think the agreement is unlikely to hold the Production Cut of about 2 Million Barrels a day, or 2 of Global Production, depending on what you want to put on the done nominator. Cutrussian agreement to through hundred thousand barrels a day i think is particularly , i 300,000 barrels a day think, is particularly more implausible to me. The idea to cut you can give more than the credits. You can sell higherquality blends. Price, etc. Hmark etc. Realityortant it is the that even if the production agreement holds, the response from the rest of the market is overy to erode prices time. I have done simulations of this under reasonable sets of assumptions and what you get our production increases of something on the order of 200,000 barrels a day from new investment and increased efficiencies as a response to this initial increase in prices from 35 to 55 now. That is at the end price situation, you get reductions of about one dollar or two dollars a barrel each year moving forward. Expectation only. There is a further matter of two factors that are underappreciated in the popular discussion. One, if there is an important tax reform that cuts the effect income fromon capital, the effect of that will be the increase of Capital Investment in the u. S. And therefore the demand more generally for dollar denominated assets and that will have the effect of strengthening the dollar and putting downward pressure on the dollar price of oil. The minimally implemented fed tightening or increases in the federal interestrate in general. An increase in interestrate will result from that and from forincrease in demand investment that i just mentioned. Both of those affects will increase Interest Rates. Modelns out in a sensible of a price of resource, oil in this case, that is substitutable over time, it turns out that an ratesse in interest drives the current price of those resources down. So i think as Interest Rates rise, pressure on oil prices will be downward notwithstanding the opec action agreement from last month. Let me turn briefly to two ancillary topics. I did another simulation. Of saud threats are serious, they will grab all of the revenue that they can and head for the airport and then fly to their villages in switzerland. The fact that they have agreed to cut production in their case by not quite 500,000 barrels, suggests to me that they view threats to their role as less serious than otherwise would be the case notwithstanding the bombings in riyadh and all of the rest. Onyou look at the data disruptions as a proportion of global output and this will be the final point that i will make, there has been monotonic decline in disruptions in proportion of global output 2012ing in the summer of through november of this year. I have seen the data after two months ago. Decline andt disruption, the importance of disruptions is what we have observed is a decline in world market prices. I am starting to think about this but i think it is reasonable to believe that for want of a better term, a market for pipeline bombings that would have the effect of moving prices towards the cartel equilibrium or the cartel optima. It will be interesting to see that if i am right, the prices new cartel goal start to erode over time as result of increased production internationally or by cheating by participants in the agreement. It would be interesting to see if price declines yield an increase in disruptions as a proportion of global output. And that jury remains out on that. So, thank you. You, good morning and thank you for having me in the new building. It is a pleasure. To be here. I should say my kids certainly agree with you in your assessment of my travel over the that iseral years and the problem with a global position. But i think that what i want to thank you most for is for the recognition of where the role of energy and Foreign Policy and National Security which have come into play over the last several years. I do not believe that the creation of and and Energy Bureau first by senator lugar at the time and the Senate Foreign Relations Committee and turning was thoughtbureau about as a visionary thing. It is actually a late response to what was the rail quality lpolitik. As the rea we needed to address that. When you walk into a room and the other side has a calculus that youre not familiar with, not understanding, and not hitting into the general Foreign Policy equation, and you will not get the optimum results of that negotiation. I think that is what we have been trying to do over the years the iranis why sanctions opec decision the from last month in this light. We have gone through a process in the oil market over the last several years that was very different than the previous 100 years. We have always had peaks and and we in oil prices have had cycles and i do not believe that this cycle that we have gone through in the last couple of years is the same as previous cycles in a couple of ways. It has similarities in the rhythm to previous cycles but here is where i think the differences. Like in otherjust sectors affected by technology, that advances in technology are faster and more immediate. Here also the oil industry is no different and it had a transformable transformative effect on the oil market. Here is what i mean. In the United States we went from 5. 5 Million Barrels per day in production to a peak of 9. 6 Million Barrels a day in 2015. That is unbelievable. Is not a lot of examples in history of an increase of war Million Barrels a day from one market, one country. That does not happen. In the 20102015 timeframe, where the Global Demand for oil grew at roughly a million day, the entire demand was met by only one country. The United States. That is unbelievable. The increase, the delta of the United States, was just the delta, was the second producer at opec. Think about that. That is remarkable. It also changes everything. Because if the United States can increase, one market can increase production at that rate at that level. Remember, when we were at 9. 6 Million Barrels a day, the projection by the iaea was at the United States would grow another million the next year. That was a 2014 projection that we would increase by another million. In fact he decreased by 1. 2 Million Barrels a day from peak to valley. But that meant a number of things. Responsecartels normal is that if prices are too low, you increase you decrease production and you have an immediate effect or you fight it out. Latest producer, the United States, the list expensive producer, to drive out. Reserves. I have i can ride out a 28 or 45 oil price. Every expert has told me that the u. S. Production of shale oil can only be profitable at 80 or 85 a barrel. That was common wisdom. As the prices were falling, everyone tells you on wall street do not try to catch a falling knife and everyone was trying to predict the rate of the falling knife. The Playing Field for Oil Production in shale in the United States that Tipping Point was 80. Well, then it became five dollars or around the number of whatever it was that day when the analyst went on tv. You watched people go on tv and because nobody could fathom the changes in the United States. The resiliency. In fact we declined a lot from nine six to 8. 6 barrels a day. Best Million Barrels a day. Shale production was not going away. Letting it ride low was not the answer so what was the answer . The mistake opec made and continues to make is trying to deal with the future based on the past. Only. Looking at what happened in the past and looking at the paradigms in the oil market in the past. It is all about market share and price and how do i navigate between how long i can take a longer a longer price in order to maintain my market share. Here is where i think the reality actually is. In doha, the decision was to freeze. Doha fell apart and it did not happen. In algiers, they made progress. At the end of november, they got the cut. The cut was 1. 2 Million Barrels a day. That was the agreed cut. Let us break that down because it was not a cut. If you look at production levels at the doha meeting when they wanted to freeze, they were roughly the same as the levels of the 1. 4 Million Barrels below. As they were negotiating a cut, everybody ramped up production at opec so we had a 18 4 million search and a cut of 1. 2 which brought us back essentially to the freeze of doha. Why did we have the discussion about freeze in doha . Because we had and oversupplied market. If we are freezing production at an oversupplied market rate, and we are still in an oversupplied market. So we had a rally. Here is where the 1. 2 breaks down further. The iranian cut is about 200,000 barrels above what they are producing today. A ron did not cut. They agreed to cut the level of hoping what they hope cut the level of what they hoped their production could rise to. Since october when this agreement was negotiated, the United States increased production by 300,000 barrels a day. To 8. 7. Ack up that is 300 taken away from the cut. Or when at 200 above hundred 50 from october but from their low, they are rising. Nigeria has increased about 150,000. And nigeria and libya are exempt from the deal. Here is what happened. Which is really one, half of that was cut. Replaced bydy been new oil. Here is where the mistake has dramatic consequences. Because of this process, what has happened is that traders normally react to headlines. Oil prices fluctuate by headlines. We announce a freeze, potential talks about a freeze, Oil Price Goes up. Gon they fall apart prices down. When they got the cut, headlines were all about the cuts taking hold and saudi arabia tells its customers they are going to have less oil and in the meantime prices went up to 55 a barrel. Production is humming again. That is why we are at a. 7. Do you want something i think could scare opec more than anything else . 2014, we were producing a. 7 Million Barrels a day and rising ultimately 29. 6. 8. 7. To do that, we used 1600 rigs. Today, we are producing 8. 7 Million Barrels in the United States and we are using 525 rigs. That is one third. The you know what that means and you have a free market of oil in the United States and we are the only ones that have that, you get efficiencies when the price collapses. You do not get subsidies. You do not get government coming in and bailing you out. You get efficiencies and everyone shares the sufferings. The Oil Companies and the Service Companies that that means when the prices rise again, the efficiencies are there. The pricesif we keep at 55 dollars or 60 as opec , opec loses and the United States wins because production will continue to rise because we have the ability to produce shale oil at 32 a barrel and in some formation, 40 a barrel. Giving this window a cushion for American Companies to increase production that is the result of the opec decision. The short term gain of a few hundred Million Dollars a month in the increased price if you calculate the loss of production, they get it gets a raise. When does it fall apart . Starts gettingre affected in the next couple of years. We lifted the ban. At some point, if these denominations the export ban on crude oil. Then all of a sudden, countries are going to say wait a minute now i am taking a lower price or a higher price but only five dollars and a losing market share. The u. S. National security interests around the world is in contrast right now to what opec once to do and not because of oil prices. As the United States, i want libya to produce and export as much oil as possible because , the government of national accord, to take hold and keep stability of that coalition of militias, i need money and the only money in libya is out of oil. If they can continue to increase exports and have revenue to pay soldiers and Civil Service and spur investment, that is a good thing. Libya to to encourage continue and that is why the war in libya against dash is going well. It allows ports to reopen and that is why they are up 200,000 barrels a day. And that is why i think they will continue to rise. Nigeria, you cannot beat boko haram if you do not have oil revenues. That is the heart that bump pumps all of the vessels in nigeria. That is our interest. It we want to liberate mozilla and make itmosul successful, who is going to pay for that the villages have to be rebuilt. With what money . Here is no money in iraq nothing. Only oil. How does kurdistan go back to growth . Through oil and gas. Thes in our interests as United States for these countries to increase production. It is not that i care about your cartel. I actually have a Foreign Policy disagreement. Think there is a mismatch between understanding the longterm affects of the market that opec needs to face versus what is actually happening in the market. Sorry to take longer than i should have. Point, if youat look at the shift in the markets and the geopolitical imperatives in saudi arabia or iran, or take it is realtime if the reforms go anywhere. And the point he was reaching in january as the austerity cuts are allowed and you to have more budget room in the saudi budget which allows more domestic constituency support for the deputy crown prince. ,hat makes the case for libya iraq, and nigeria. Iran,r saudi arabia or for them to achieve their own Economic Reforms and have that buyin, it strikes me that the imperatives that we needed to get more effectiveness of opec in terms of moving the market will increasingly become more difficult which then presents its own challenges probably to u. S. Foreignpolicy objectives as well. I am not going to presume to give advice to the deputy Saudi Crown Prince but i think the that every member of opec and every oil producer understands that the tenants of tenets of the market has have changed. And using the toolkit from the early 2000s is not going to work. I applaud the deputy crown prince for having the willingness to put the effort in the work and the time into moving the and into country into that direction because that is exactly what im trying to hope exactly what i hope they will do and that is reform the basics of the economy so that youre not having this total dependency on a commodity that you no longer have the same ability to control as you once did. Producer of the Global Oil Market that they have been for the last several decades, that status is not there anymore. They are not the key producer anymore. The swing producer of the new world is the United States and more importantly the free market in the United States. How much is produced in the United States will not be determined why any individual, it will be determined by the price. We have 4000 producers in the United States. They do not make decisions in you and in unison. They make their decision on l, for their stock price or the price they hedged at. The swing producer versus saudi arabia there are some obvious steps saudi can do including stop burning your oil your own oil for power generation. You should be selling that barrel at 55 on the market and not burning it for two dollars in your own country. Natural gas, because of the revolution in natural gas, it is so cheap, there is no reason saudi arabia should not be converting to exporting natural gas. Renewable energy should be part of the mix. Small what it should have the ability to grow into that mix. There should be a diversification of their own internal Energy Market which will allow them to cut subsidies. That is what will help you. Prices may rise at the pump from a couple of cents a gallon to something more marketbased but the uae did it and it is working but you have to get to that economy that drives investments to other places. You have both remarked on opec and the effectiveness of opec as a cartel. Obituary ofg the opec . Hand, there are the market shifts. On the other hand, you can look at the failure in doha where the deputy crown prince pulled the plug on the agreement and going towards the agreement from algiers and onwards but the concessions saudi arabia had to make to iran and working with russia. Ss this a sign that opec effectiveness as an organization is greatly diminished . , opec has never been a cartel in the classic sense of allocating production shares in order to minimize the aggregate cost of production. Opec has always been one big guy, the saudis and a bunch of little fish that hang on for the ride. Sense, given that saudi production and opec production are now a good deal smaller as a proportion of world production and the substantial part is because of u. S. Shale and the revolution there, the ability of opec and the saudis in particular to prop up prices up has been substantially reduced. Thatt is still the case, the saudis by cutting production can affect prices. Back in the 80s, when the saudis decided that their on productionel capacity was simply unacceptable, they started pumping in 1986, prices fell 11. 36 down to Something Like that. The ability of the saudis to engineer those kinds of shifts are dramatically reduced particularly given their need social peaceto buy. I think i disagree with him as a little bit on the advisability of earning 55 oil domestically it does not strike me as entirely obvious or rational for to buy socialaud peace by subsidizing consumer goods particularly given the potential problems with the shiites in the east. Although i agree it is costly. But it may not be rational. It has always been very difficult for any cartel to preserve a cartel price unless they are propped up by government regulations and opec is not and it has always been difficult for opec to make price increases stick ever since the early 1970s when opec became important. And i think that ability has been reduced as you have suggested but i do not think it is zero. They can certainly affect prices but not as much as used to be the case. Imagine yourea i probably witnessed firsthand was the evolving russiansaudi. Nderstanding i believe it was Vladimir Putin who called the Supreme Leader and there was a lot of direct news as well by Vladimir Putin within his own energy space in russia. Russiansaudi rush Energy Cooperation team . Energy cooperation theme . You also have qatar recently. Is this a sign that the russian is on the Energy Dimensions going somewhere or was this a onetime agreement . Energy is often not about energy. When you hear about these conversations, it is not about energy or oil. Or what is good about market policy. It is not a dissertation on free markets or not. Is about is that russia is becoming closer and closer to becoming and opec style country from its economic design. As the rest of the russian economy collapses and continues to collapse, what holds russia of float are things that come out of the ground including minerals, diamonds, oil and gas and the militaryindustrial complex. And then the money that is used from that to infuse into the economy. The rest of the russian economy is not exactly humming. And therefore the dependency on direct oil revenues plus indirect oil revenues meaning revenues that come into the treasury of russia from things that are themselves financed by energy revenues, that becomes a bigger part of the mere existence of the russian economy and ability to operate in the world. There is starting to be a more the worldseeing through a lens regarding what i can afford to do. I am engaged in extensive efforts in my Foreign Policy and i need to make sure that might population that the declining economy does not affect the population to much. There is a lot of similarity in facing the crisis. Russia has a secondary problem. They sit on an enormous reserves but declining production threatened in the coming years and the the plan was to replace the decline in through areas that have now come under sanctions. They had to stop. The exxon discovery is not being produced. For example. How do ifacing continue to afford this . And i think that is part of the reason for the cooperation it was necessity. Question restate the if i may. In the narrow context of the oil are russian incentives which are the same for all producers to cheat on an agreement the cousin by increasing production and cutting prices you can increase revenues and profits question mark that is true of any producer. Are those incentives stronger or weaker than the ability of the Vladimir Putin regime to threaten given individual Oil Producers in western siberia . Yukosfect of you goes is interesting. Ken Vladimir Putin enforce it domestically . I think the agreement he cut he can enforce because he did not really agree to anything. What did he agree to . The projected increase in production they will not increase as much. Russia basically agreed to in the russiaopec agreement. It is a fairly easy agreement to. Ulfill if you actually believe that they were going to increase the amount that they were which i am , then yes,bout they cut a little bit of their projected growth. This agreement is a six month agreement. If you do a little maintenance and the year, they are pretty much free to do whatever they want in the second half of the year. He did not agree to that much. Is ability to enforce it total and complete if he wants to but i am not convinced he wants to put into much effort. Igor inption of istanbul where he said publicly we will not come to an agreement with opec and we will not cut production. Putine next day president said we will reach an agreement with opec. But if he wants to enforce it he cam. But i dont think that will be that relevant. What the most important part of the russiaopec agreement was a headline that it generated. This was affecting Market Sentiment far more than it was market balances. A final question before opening to the audience, in looking at iran. Elections in may. We have a new administration that may or may not care up enforce the sanctions. The pressures that president onhani is facing at home meeting to deliver on some economic reform. And there are also the structural limitations in irans own oil sector. Over 60 billion to redevelop that number may be off. Producingou see iran but do you see a run producing in this current range for the for fee of a future question mark you mentioned russias economy and this is the only momentum at the moment. As someone who spent a bunch iran oilenforcing the sanctions and spending and a normas amount of time taking Iranian Oil Exports down, i had question of a they could rise to after the jcpoa. My view is and my remarks at the time were too bullish. I thought about a million they would increase and they have increased by about 850,000. I think they will continue to increase their production. But with a ceiling until they can do real work. And Real Development of the fields. They have to put in a lot of money there. And otherran and iraq similar economies through our own halliburton lens. Say you the manuals should do with the field in this condition . You shut it down. That is not how it works in the field in large parts of the world. You produce as much as and you use whatever you have whether it is chicken wire and duct tape and you do that and that is why they have been able to increase. I have excellent engineering capability. They managed the sanction period from an engineering perspective in a smart way so therefore i think they were the winner on the opec deal. Because they were free to increase production. They signed and will use they total and other companies. The challenge for around down the years the challenge for years hasng down the been the ability to get a consensus position between the hardliners in the more reform oriented on what kind of contract to allow. If they can get to the point where they offer contracts that western companies can accept in the new environment where there iran is stille high risk and low oil prices, you will not see that kind of growth in iran. I think they still have room to grow before they reach the ceiling of where they will need the real infusion of cash. But that is really important. They got what they needed out of this opec deal. Whatuestion becomes happens at the sixmonth mark. It could be renewed. If they reach the quota of 3. 9 by the end of the six months, do they agree to stay with that now, ido they say need another bump up because they need that money going into elections and to grow the economy. We have about 15 minutes or questions. You talked about oil prices in the following way. Relating it to both your remarks about free markets and u. S. National interests. How discuss whether High Oil Prices are good and bad for the u. S. Economy and National Interests number one. Number two, to what degree can National Policymakers take whatns that correlate price is good for them with what the market reality is. On the second question, in the United States . It moreow, to make political, particularly the donald trump administration. I think it is hard to have a conversation about what is good for the United States. I think when you i think the government should let it go as long as you do not go to the extremes. When the libya war started and we lost 1. 6 Million Barrels a day of production overnight and panic ensued and we had a massive increase in price, we had just been in the Second Quarter of a weak recovery from a recession and that drove us back into recession. Prices rose so fast that it affects our economy and that is when we at the time had an enormous amount of meetings about what we can do about it. Not much. We released from the Strategic Petroleum reserve at the time and we did it in a coordinated fashion with the iaea and our other partners and we had conversations with other producers about what their intentions were as far is increasing production. But that is a very extreme level that happened as a result of an extraordinary event that changes the market not from market forces. Opec tried major interventions had prices dip into the single digits. Where the headlines were will we ever see 20 oil again . Say is is hard to 55 high, is 40 low . That gets into a dynamic conversation. The u. S. Economy is so diversified we would have winners and losers. If you are a service company, 40 is terrible. And if you are an employee of a company that has to do layoffs because of the boom bust problem , they can the towns in north was forever this and built schools, clinics, hospitals to support these new communities that did not exist before because of the oil workers and then production false and efficiency rates rise, only 500 breaks now and now these employees are gone and the school and the clinic in the hospital were built for nothing because there is no community there. There are a lot of dynamics. On the other side, food prices go down, consumers pay less. You have petrochemicals, manufacturing can come back that are high Energy Intensive for manufacturing i can give you winners and losers outside of the extremes. I far as government policy, think there has been a lot of discussion because it we have been going through and interminably long clinical environment of discussion on energy and a lot of it had little to do with reality on both sides. We operate in washington in one of the worst Energy Conversations i can think of because it is entirely detached from reality. It is all about if you talk about renewables, then you are perpetrating a war on fossil fuels if you talk about fossil fuels you are a and are thought that does not understand you are a neanderthal that does not understand the reality about renewables. Texas is traditionally our oil leading state. It is also our wind Energy Leading state. Mid 40 ofer, we had all Electricity Power generation from wind in texas. It is not in oregon or washington state. This is where we are going. A much more diversified economy in energy that the policy will have an effect on so you can roll back which i expect they will a number of regulations. I think that what people are told will be the impact is far from reality. Coal is not coming back because it is not dying in america because or declining rapidly because of regulation. It is declining for the same reasons that we do not have vcrs anymore. We have a shale gas industry that is displacing coal. A huge number of coal power plant retirements over the last several years. No one is building new ones. Will Renewables Grow if we trim the subsidies . Ofi think the competition coal is gas. To come backoal but they also want to drill more. If you drill more, you will have cheaper natural gas which means cold will decline which means coal will decline further. Againstbe for fracking but also celebrating the reduction in the emissions of coal. They go together. That both sides, the tot and the right, demagogue the extremes. The reality of Energy Policy of will be policy affected, i dont think very much. You can open federal grants to leases for drilling and people can take the leases. I dont believe you will see any drilling though because as long wci. E are at 52 for there are some things the federal government can do on policy but not as much as the government believes it can affect. Over to the gentleman here in the second row. I am from Equatorial Guinea. I want to ask about the failsafe model. I propose it is a lack of good government. What will the u. S. Do when you have countries like Equatorial Guinea which has been devastated by the lowering of the oil prices. Now, they are desperate in selling uranium to the north koreans. When you bring that to the United States government, they say they were involved there before oil was discovered. Country is resorting to Desperate Measures which is contrary to National Security interests. When you have boko haram and other actors out there, i find it deplorable that the u. S. Is that theg and hoping bad guys will go away. It is a great question. I disagree with the flatfooted nests flatfootedness. Here is where i think we have to match a number of different issues. One is governance. I agree with you. The resource curse is a governance curse. Norway does not have one because it uses its resources in a smart manner. Let us stretch it out from angola to cameroon. Have ablem there is we bad governance that had no savings during the good days and all of a sudden a bunch of people in opec are getting together and saying it is a crisis. And these guys say it is a crisis . You have billions of dollars in reserves and i have two. You are trying to cut production and get me to cut production you have to be kidding me. Governance has to change in these countries. We tried through the iti. Comehard for the u. S. To into each country in this world and say you have to change the dynamics of your country. We tried. It is very difficult. Where we have looked at the gulf in guinea, it is more on the security side. I was afraid we would have a copy cap from east africa. We tried to do joint exercises. But i agree with you. If the Oil Price Environment does not change from 55 a barrel upwards, we are going to have by the end of 2017, social unrest. Civil unrest. It will return to civil war in countries around the world. I agree with you and i believe that. I have written every memo i can on that. From my team now and the next team. Dont ignore this. You talk about Equatorial Guinea and i worry about angola. Whammy of low oil lower investment as a result, and Foreign Companies employing fewer people because they are producing less and the output is less. Of wherection production is going to be is going down and that is the danger. If there is a social contract, a hidden social contract between these nondemocratic regimes and the people saying i know i do not live in a democracy and i have to accept your regime but at least i need my daytoday life to be normal. At the first thing that goes when the money goes away from Oil Production is the investment in the infrastructure. Now, the roads fall apart. The rainy season is gone, the roads do not get rebuilt. No new hospital. The school is gone. The electrification rate to the remote villages is not there. Now, i have a bad regime and i basic even getting the services. That is a recipe for disaster. That is why National Interests is not about what does this do for the u. S. Economy but what does this mean for stability around the world. And that is why this is a delicate balance. I do not believe in governments Controlling Oil price but i have to deal with the fact that i have governments around the world that did a really terrible job in managing the days and now they are dealing with the bust days. If this continues, that will be a disaster. He opec decision has an impact even if they are not members. If the u. S. Production shoots up because we artificially increase the price of oil through opec press releases, then what will happen is we will have a much faster increase in production in the United States then would have been allowed under a normal market condition which means the bloom of 55 or 60 in a year will go down to 40 in the countrys are talking about go back into crisis. And that is a problem i have with opecs decision. The panic of that decision that undermines the free market of the oil market. And accelerates the boom bust, boom bust process that did that devastates these countries. That is my tent that is my concern. We do not measure oil prices in cycles based on the daytoday checking. You look at it on an annual basis. Not what was it last month . Ago, it was at 52 and now it is at 55. On. N come that is why it is a concern. Will have one final question and then close. The gentleman in the back. Thank you both. Interested in the opening remarks on disruptions and the idea of a cartel optima result. If you could expand a little more on that. It is a timely remark in the yesterdays bombing in iran. To what extent do you expect to see it and as a followon point, to what extent does a rise in price increase or decrease the dynamic that you described. That is a good question. I am just starting a paper on this topic. Is getting data on supply disruptions it is surprisingly difficult 2010cularly before around or 2008, Something Like that. But it is pretty clear to me that any given oil producer has an incentive to see others cut their production or to prop up prices up. That is a standard result. In a world where Oil Producers the most scrupulous characters we have run across, it is easier to believe that you get a market for disruptions in which terrorist groups and others are subsidized to bomb result of thathe market is you get a permanent increase in prices. The question is, can we measure that affect question mark unplanned supply disruptions that are not simply accidents a Pipeline Leak has to be shut are and youmbings biquitious are a u feature of the oil market. I am not talking about a conspiracy. But it is like the wheat market. Engaging in this activity in order to prop up prices up on a permanent basis. How big is that effect . They cannot be zero. Thoughtthink anyone has this through carefully at all. I plan to try to examine that issue but i think the effect is not trivial. You are saying it is not a conspiracy per se. [indiscernible] it is below the cartel optima price. You would think there would be an incentive on the part of someone to arrange a bombing somewhere. If i am right, that the opec price now at around 55 tends to get eroded over the next few then you would expect to see supply disruptions as a proportion of the total Global Production as a process of propping the price up above where it otherwise would be. It will be interesting to see if that happens. I am just starting. This is one of the papers i have to write. Getting the data on supply disruptions going back to the 1950s is surprisingly difficult. Know, i live in the oil business so i live in conspiracy quite regularly. Become abombings has much more localized method of broadnce then it has market. Part of the reason for that is first of all, we had 100 in 2012 in southern iraq. We had a ton in afghanistan and pakistan. The egyptian Pipeline System has been bombed 32 times since 2011. It has become a sport. The result is the repair time from 2011, crisis of those pipelines, to today, it went from weeks to days. Unless you bomb the pump station which is a much more significant event, bombing the pipeline is easy. You have thousands of miles of a black pipe sitting on top of sand and you can just ram it with a truck. Fixing it has gotten very easy very fast. You can get it fixed in three days. I see the bombings of aboveground pipelines as much likelocalized grievances what is happening in afghanistan and iraq. I am sending the government a message. I know you will get it back but i can hurt you. You are seeing this a lot in turkey. Is not a method of longterm pain. I dont think it affects the oil price ultimately that much unless it is a massive pipeline or subsea pipeline or Something Like that can have that can have lasting effect. And thankou so much you to the bureau and to cspan and to you all for coming today. [applause] next to mother live, your calls and comments on washington journal. Northt newsmakers with carolina congressman mark walker, chair of the republican study committee. After that, the Senate Armed Services Committee Hearing on russian hacking and Cyber Threats with National Intelligence director james pper and nsc and director. When harding became president , he appointed charles extremelyjob he did well as director of the bureau of war insurance which then became wrapped into the much bigger Veterans Bureau and he was raised up to become director of the Veterans Bureau which is now the va. Rosemary stevens, Professor Emeritus at the university of pennsylvania discusses her book a time of scandal warren g. Harding and the making of the Veterans Bureau. No one has looked at the scandal before and it was a big scandal in the early 1920s. Most people have heard about teapot and the oil scandal in the early 1920s. In the Harding Administration but at the time, the veterans which charles, of ford was at the center, was equally important and get this man has come down from history into the present as a crook. It was never clear to me what he actually had done and i was intrigued. At 8 00 p. M. Eastern on cspans q a. Wired Senior Writer talks thet president elects president elects use of twitter to criticize businesses. Then philip joyce discusses Donald Trumps business background and to what extent the government can be run like a business. And later, Georgetown University Professor Robert gallucci, former lead negotiator during the north Korean Nuclear crisis in 1994 talks about the Nuclear Threat posed by that regime. As always, we will take your calls and you can join the conversation on facebook and twitter. Washington journal is next. Host good morning. With the president ial inauguration less than two weeks away, the confirmation process on capitol hill begins for a number of key cabinet positions in the trump administration, including the u. S. Attorney general and secretary of state. Yesterday the Senate Democratic leader, chuck schumer, charging that republicans are, in his words, jamming through the president elects nominees without the proper ethics screening. Well be covering those hearings beginning tuesday here on the cspan networks. Welcome to washington journal for this sunday, january 8. Our focus in the fist hour, the role of the democrats as the