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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Slationary pressures. But let's begin with a focus on the

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Speaker 2: oil markets.

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Speaker 1: Now.

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Speaker 2: Prices have rallied since late last year and escalating tensions

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Speaker 2: in the Middle East. Some analysts say that one hundred

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Speaker 2: dollars a barrel is back on the cards. While joining

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Speaker 2: us now I'm delighted is Jeff Curry, chief strategy officer

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Speaker 2: of the Energy Pathways at Carlisle, a former head of

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Speaker 2: Kamanti's research at Golden Sachs. I mean, you understand, welcome

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Speaker 2: to the program. Great, Jeff, you understand these Kamanities really

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Speaker 2: like no one else. I want to get your thoughts

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Speaker 2: on oil off the highs. Does that reflect the fact

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Speaker 2: that traders are less worried about the Middle East and

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Speaker 2: has escalating conflict or is it supplying demand issues?

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Speaker 3: Well, obviously if you look at the pullback recently, we're

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Speaker 3: back to the levels before the events of what happened

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Speaker 3: between Iran and Israel a week and a half ago.

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Speaker 3: But more importantly, everything's off. Commodities are going through a

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Speaker 3: consolidation period. You know, we were beginning to price in

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Speaker 3: equities every thing. This idea of rates being higher for longer.

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Speaker 3: But let me remind everybody we're talking about rates being

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Speaker 3: higher for longer because growth is so good. I mean,

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Speaker 3: I just the things you just went over just now,

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Speaker 3: private sector activity in Europe the highest level in the year.

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Speaker 3: We're seeing a reacceleration of growth across the board. And

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Speaker 3: so when I think about what's going on oil specifically

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Speaker 3: in commodities and they I'll put bitcoin in there, and

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Speaker 3: all the physical assets is they're going through a consolidation period.

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Speaker 3: These assets, these physical assets are tied to underlying growth

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Speaker 3: and inflationary pressures. In the bottom line, retail sales was

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Speaker 3: smashing that we saw that. You know last week, you

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Speaker 3: have unemployment still at very low levels, CPI surprise to

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Speaker 3: the upside, Chinese manufacturing beginning to accelerate, Europe, Germany accelerate,

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Speaker 3: and the list goes on.

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Speaker 4: This is classic late cycle expansion that you and I

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Speaker 4: were talking about three months ago.

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Speaker 2: So what you're telling me is that there's a shift

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Speaker 2: basically in the supply demand equation.

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Speaker 1: Is that right?

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Speaker 3: Well, I wouldn't say it's so much a shift today

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Speaker 3: as it was when we were talking three months ago.

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Speaker 3: What we went through in twenty twenty two and twenty

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Speaker 3: twenty three is your classic mid cycle pause. The economy

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Speaker 3: adjusts to the higher rates and the higher energy and

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Speaker 3: commodity prices. It went through that adjustment, manufacturing slowed down.

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Speaker 4: Now we're coming out of it.

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Speaker 3: And is this thing any different than a previous cycles.

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Speaker 4: No?

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Speaker 2: But Jeff, if you look at so the rates expectations

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Speaker 2: for the FED right higher for longer, and I know

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Speaker 2: this is because growth is wrong, but does it have

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Speaker 2: a harmful effect on commodities at all?

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Speaker 3: Look, well, this is why why I'm always why you

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Speaker 3: want to own commodities in this environment, because if the rate,

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Speaker 3: if you don't have a situation in which you're raising

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Speaker 3: rates because of strong underlying growth, means commodities are going higher,

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Speaker 3: and that's what's going to force their hand to raise rates.

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Speaker 3: And if they do cut rates, you're adding more liquidity

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Speaker 3: into the system, which means higher commodities. So commodities are

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Speaker 3: a win win in this situation. That's why they nearly

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Speaker 3: always outperform all other asset classes in this environment.

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Speaker 2: But I'm looking at the IA they're predicting for the

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Speaker 2: slow down and oil demand growth next year, it's just

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Speaker 2: one point one million barrels a day. Right, as we

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Speaker 2: get closer to peak demand, do you agree with process.

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Speaker 3: By the way, when we look at late cycle commodities,

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Speaker 3: there's a really important point. It's not the growth that matters,

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Speaker 3: it's the level that matters.

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Speaker 4: And why do I say that.

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Speaker 3: Is because as the level of commodity demand goes up,

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Speaker 3: it stresses the underlying supply level.

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Speaker 4: So yes, the growth rates are going to slow.

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Speaker 3: Yeah, and that's what will happen late, but the level

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Speaker 3: could continue to grow. Stresses the system puts upward pressures

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Speaker 3: on prices. So that and by the way, the equities,

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Speaker 3: which are tied to growth rates, they begin to come down.

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Speaker 3: So this is what I always argue over and over

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Speaker 3: with commodities. They are tied to the level of activity,

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Speaker 3: while financial markets are tied to the growth rates of activity,

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Speaker 3: which is why you get the outperformance.

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Speaker 1: Opek plus has kept supply tights. Yes, is this about

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Speaker 1: the backfire?

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Speaker 3: No, when we look at where you know that plus.

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Speaker 3: First of all, everybody's talking about all the spare capacity

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Speaker 3: in the system. It sits in Saudi Arabia, in UAE,

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Speaker 3: that's it. And they have more market power today than

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Speaker 3: they've ever had because of a lack of investment in

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Speaker 3: many of the different non OPEC countries.

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Speaker 4: And yes, you're going to respond back that, you.

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Speaker 3: Know, rapid growth in the US, but that compared to

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Speaker 3: what's going on more broadly, it's relatively small. And then

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Speaker 3: I think the other issue that gives them market power

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Speaker 3: is that you have in elastic demand because we've taken

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Speaker 3: out all the low hanging fruit, so that so that

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Speaker 3: group that sits on that spare capacity has more market

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Speaker 3: power today than they have had since the existence of OPEC.

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Speaker 1: So does oil. You know, is it eighty dollars or

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Speaker 1: one hundred? Next we were far.

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Speaker 3: Closer to one hundred. I'm not in the forecasting business anymore. Wow,

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Speaker 3: we're going to hit one hundred. By the way, the

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Speaker 3: one thing I learned in all my time, I'm looking

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Speaker 3: at these commodities trade the wings. This thing's gonna when

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Speaker 3: it goes, it goes, and when it drops, it drops.

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Speaker 3: And you've been doing this as long as I have,

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Speaker 3: you know, so the odds of this thing going over

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Speaker 3: one hundred or extraordinarily high. The question is how high

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Speaker 3: can you get before you start to see OPEK begin

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Speaker 3: to adjust the system.

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Speaker 4: By the way, I want to say this and This

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Speaker 4: is just history.

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Speaker 3: In the forty years of OPEK history and where we

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Speaker 3: are in the cycle. Never has OPEK ever been able

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Speaker 3: to bring on supply as we go into the final

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Speaker 3: stretches of an economic expansion and tame the oil price.

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Speaker 4: What happens go back? Were they able to do it

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Speaker 4: in twenty eighteen.

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Speaker 3: No, we got up to eighty eight dollars a barrow,

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Speaker 3: and then we had the waivers on Iran. We could

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Speaker 3: talk about that later. That's a very similar risk here.

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Speaker 3: But I think it works to the upside this time

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Speaker 3: around seven eight and then you can go back to

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Speaker 3: one two thousand. I can keep going back all the

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Speaker 3: way back to the distance they never because here's the point.

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Speaker 3: If the rise in production misses by just.

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Speaker 4: Five days, what are you gonna do. You're gonna get backgradation.

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Speaker 3: You got to get that pinpoint, that accuracy, which is

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Speaker 3: all by the way, If there was a group in

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Speaker 3: OPEC that could actually get this right this time around,

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Speaker 3: you know, I will say this, You know that this

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Speaker 3: leadership can get it right. But again I'm gonna say

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Speaker 3: you missed by five days, because think about what happens.

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Speaker 3: We know that tankers out there in the Gulf wherever

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Speaker 3: it is, it's coming into the refinery.

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Speaker 4: I don't have crew today.

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Speaker 3: I'm short by Let's say my inventories are five days,

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Speaker 3: it's going to be six days late.

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Speaker 4: I got a problem.

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Speaker 3: I'm buying crued and the backwardation goes up. Also on

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Speaker 3: the back gradation, another point, I want to emphasize. Everybody's

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Speaker 3: talking about backgradation as an indication of a political risk.

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Speaker 3: For geopolitical risk premium, it can't be. I always say

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Speaker 3: time spreads don't lie. They tell you this market is tight.

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Speaker 3: And another point, the market went off the board in backwardation.

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Speaker 3: That means there's no investors in it. It's all physical.

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Speaker 3: You really have a tight market here.

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Speaker 2: Jeff type market plus do you political risks? So let's

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Speaker 2: talk about her on I mean, could this actually fly

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Speaker 2: through the roof if something happens.

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Speaker 4: Oh? Absolutely, because I mean the market doesn't prepared.

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Speaker 1: Priced in the market is unprepared.

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Speaker 3: But we look at more broadly, I don't care if

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Speaker 3: it's energy equities, Energy commodities are more like it. There's

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Speaker 3: not a large investor participation. And also money today chases trends.

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Speaker 3: They don't make bets, they don't trade, and.

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Speaker 4: So there's no real trend here.

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Speaker 3: By the way, when it started trading, a look at copper,

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Speaker 3: copper overshot the fundamentals near term, they'll trade that trend.

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Speaker 3: But when we look at more broadly, most of the

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Speaker 3: discretionary money can't sit there and hold a position of

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Speaker 3: geol political risk premium betting. For the thing that said,

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Speaker 3: there is activity and out of the money options and

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Speaker 3: you go up to that one fifty two dollars range.

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Speaker 3: People are buying it because they're heading geopolitical risk, inflation risk,

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Speaker 3: and you know equity risk type premiums. So there is activity,

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Speaker 3: but it's relatively small and it's located in the options markets.

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Speaker 2: Jeff, I think Jpmorrian is saying that it's time for

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Speaker 2: a reality check on the energy transition. It's slow, costly,

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Speaker 2: and not rewarding for investors.

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Speaker 1: I mean, is that how we should see it?

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Speaker 3: Well, I think we're going through that reality check right

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Speaker 3: now and people are making reassessing it. When we look

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Speaker 3: at the returns in the green sector, there's two things

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Speaker 3: that are driving it. One, there's a hangover from the

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Speaker 3: big spike we had in twenty twenty two. Let's remember

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Speaker 3: that when everything exploded in twenty twenty two, coal production

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Speaker 3: went up the size of Saudi Arabia, by the way,

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Speaker 3: that's how much coal we added in that environment. Gas

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Speaker 3: prices went negative in Europe and you know US n

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Speaker 3: imax natural gas and power prices reached an all time.

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Speaker 4: Low what's six weeks ago.

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Speaker 3: That's creating a headwind to the sector. And by the way,

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Speaker 3: cause because we ramped up coal production. The second factor

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Speaker 3: that's had a big impact on this is China.

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Speaker 4: What is China doing.

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Speaker 3: About their property market problem. They're rotating growth into manufacturing

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Speaker 3: of green capex goods and they're pushing them onto the

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Speaker 3: global market. And by the way, the returns aren't that great,

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Speaker 3: which is the problem that the equity market has had

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Speaker 3: in China. But I think the key key message here

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Speaker 3: is there there's two drivers of that weakness.

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Speaker 4: One a hangover from that spike.

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Speaker 3: In twenty twenty two in what China is currently doing.

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Speaker 3: Both of these are temporary, you know, longer term there

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Speaker 3: is a story here.

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Speaker 1: And temporary a couple of years or temporary ten years.

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Speaker 4: By way, it's been temporary for two and a half years.

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Speaker 4: If you look at the.

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Speaker 3: Peak, you know, you know, in fact, by the way

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Speaker 3: that report Christian did I thought was phenomenal, but you

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Speaker 3: know he has a chart in there.

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Speaker 4: Ye.

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Speaker 3: This has been going on for two and a half years.

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Speaker 3: It's not something just cropped up in the last couple

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Speaker 3: of days. So you know that we're going through that

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Speaker 3: rough patch. But I think the longer term outlook is

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Speaker 3: still very positive for the sector.

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Speaker 2: Okay, we'll talk about that longer term outlook, could Jeff?

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Speaker 2: Thank you so mu Jeff Curry from Carlisle stays with

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Speaker 2: us for a look at some of the broader Kamaniti

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Speaker 2: themes and sectors, including also the rating.

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Speaker 1: Gold and medals. This is Bloomberg.

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Speaker 2: Welcome back to our deep dive from the energy and

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Speaker 2: commanity sector.

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Speaker 1: We've looked at oil. Let's now talk about the routing

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Speaker 1: golden medals.

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Speaker 2: Now, the index of all six base metals on the

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Speaker 2: LME has gained more than thirteen percent this month on

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Speaker 2: a better global manufacturing outlook, Investors will remain cautious on

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Speaker 2: future moves by the Fed. Meanwhile, gold extending losses after

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Speaker 2: its biggest daily decline in almost two years following a

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Speaker 2: stunning rally in the haven asset. Now let's bring back

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Speaker 2: Jeff Curry from Carl, Jeff, I want to talk to

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Speaker 2: you about copper gold.

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Speaker 1: What is gold? Right now?

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Speaker 4: By the way, gold is a mystery.

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Speaker 3: I'm i going to say I got it, you know,

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Speaker 3: and understand it because if you look at the drivers fundamentally,

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Speaker 3: usually what drives higher gold are lower reel rates or

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Speaker 3: a weaker dollar.

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Speaker 4: What are we actually seeing. We're seeing higher real rates.

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Speaker 3: And a stronger dollar, and typically gold goes down that

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Speaker 3: when we look at it, clearly there's a mysterious buyer

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Speaker 3: out there. You can see it in the physical premia.

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Speaker 3: It's most likely coming through Dubai. You see it in

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Speaker 3: the OTC market. Historically, when we see that and you

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Speaker 3: get the data three or four months down the road,

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Speaker 3: you find out it was an emerging market. You know,

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Speaker 3: probably unlikely Russia is they just dig up their goal

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Speaker 3: put it into the central bank because they got so

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Speaker 3: much underneath the ground. But you know, you know, is

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Speaker 3: it China, is it India or somebody like that?

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Speaker 2: Who knows what fly Is this a play against treasuries

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Speaker 2: or trying not to buy treasury or could it be complexe.

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Speaker 4: I would argue it's probably an inflationary hedge.

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Speaker 3: I want to emphasize gold traded like this in the

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Speaker 3: nineteen seventies, So what we're seeing here in this dynamic

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Speaker 3: is not completely unfamiliar territory. You just got to go

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Speaker 3: back four decades to see a period similar to this.

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Speaker 3: So I would argue, you know, and you and you

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Speaker 3: look at bitcoin too. Both of them are, you know,

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Speaker 3: the strongest performers out there. I argue they're pricing in

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Speaker 3: inflation risk. But the other thing both they're pricing in

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Speaker 3: is liquidity problems. Liquidity risk, particularly in the financial markets, Yeah.

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Speaker 2: Which which have come to fruition, or it's something that

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Speaker 2: they're just happy.

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Speaker 3: You know, one thing I can say, it's bitcoins a

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Speaker 3: measure of liquidity out there. And you know, part of

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Speaker 3: the reason the volatility you've seen across the space, not

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Speaker 3: only in commodities, but in financial markets.

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Speaker 4: You know, liquidity still remains low.

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Speaker 2: Deeff talking to me about copper, so it's had quite

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Speaker 2: a strong run. I think it's right on the cost

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Speaker 2: of ten thousand dollars a ton. We talked about the

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Speaker 2: energy transition. I mean, is this a signal that we

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Speaker 2: could be there? I know you said, you know, we've

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Speaker 2: been waiting for two years and a half.

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Speaker 1: Yeah, yeah, had time it.

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Speaker 2: You know.

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Speaker 3: By the way, I want to point out, we got

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Speaker 3: bullish on corn in two thousand and six off of

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Speaker 3: the biofuel story. Corn didn't perform till twenty twelve, but

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Speaker 3: it went straight up, by the way. But copper typically

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Speaker 3: trades like a stair step, and we just went through

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Speaker 3: one of the stairsteps. So now the difference between copper

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Speaker 3: and oil oil has bagradation.

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Speaker 4: That's telling you it's fundamentally tight on the front end.

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Speaker 3: And again I'm going to emphasize it off the board

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Speaker 3: and back gradation. There's no investors going off the board

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Speaker 3: and back gradation. In copper, we're a little bit of

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Speaker 3: contango on the front end, which is telling you it's

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Speaker 3: pricing medium to longer term stories.

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Speaker 4: So yes, you've.

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Speaker 3: Had the upward draft of everything under this higher for longer.

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Speaker 3: You know, grows surprise that we're dealing with. I'm not

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Speaker 3: going to call it a surprise. It's your typical lates.

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Speaker 1: You call it, not others.

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Speaker 3: But in terms of thinking about what copper and the

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Speaker 3: metals are pricing, it's pricing a more medium, longer term story,

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Speaker 3: which brings us back to the whole question around energy transition,

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Speaker 3: because you know, we've all been making the argument, you know,

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Speaker 3: going back, copper is the new oil, and stand by

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Speaker 3: that that that view. Because we're going to electrify everything,

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Speaker 3: you're gonna need need the copper to do it.

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Speaker 4: And so most likely it's pricing that in.

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Speaker 3: But even there, like oil, that's going through a consolidation

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Speaker 3: period because the price got ahead of the fundamentals. But

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Speaker 3: longer term, absolutely believer in that. And by the way,

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Speaker 3: underlying demand for copper, despite the weakness in the property

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Speaker 3: market in China, is still healthy because think about what

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Speaker 3: we were just talking about, all of those green CAPEX

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Speaker 3: goods in China that are being subsidized, and then you

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Speaker 3: have all the investment that's occurring in the West and

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Speaker 3: it really starts to accelerate in twenty six and twenty seven.

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Speaker 1: If you have the energy transition and you have AI.

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Speaker 2: So as we use AI, our mobile phones get more complicated,

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Speaker 2: we're also going to be you know, using some of

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Speaker 2: the rare earths or even some of the things that

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Speaker 2: you follow very close, some of these metals, like how

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Speaker 2: do you see that complex.

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Speaker 3: All AI is chips and copper, and what are the

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Speaker 3: chips gallium and germanium so it is basically critical.

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Speaker 4: Metals and copper.

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Speaker 3: So you know, you know it's in the that is

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Speaker 3: the bottleneck to really be able to make the investment

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Speaker 3: in in AI. In fact, you know everybody goes well,

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Speaker 3: AI and energy are the two most investible themes. Well,

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Speaker 3: energy is more investible than AI because you need the

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Speaker 3: energy to get to the AI.

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Speaker 4: Here's a stat for you.

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Speaker 3: One GPU, one of the Vidio GPUs, consumes as much

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Speaker 3: electricity as the average American household. Now let's go start

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Speaker 3: building enormous data centers. You could be up to one

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Speaker 3: hundred megawatts of for you know the demand out there,

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Speaker 3: So you know this is significant. And you know, I

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Speaker 3: really believe when we think about the forward demand or

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Speaker 3: the structural story, it's more bullish today post this AI

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Speaker 3: boom that we've seen over the last twelve months than

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Speaker 3: it was eighteen months ago.

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Speaker 2: But after decades of under investment, is there now danger

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Speaker 2: that they're over investing and actually we'll have too much

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Speaker 2: of it?

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Speaker 4: Absolutely not. And by the way, here's the point is.

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Speaker 3: You know people say to me, oh, look at all

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Speaker 3: the investment in green energy, and I'm going to cite

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Speaker 3: a number. I think it was two point three trillion

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Speaker 3: in the numbers that Christian you know, in that report

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Speaker 3: he did. You know, when you look at the need,

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Speaker 3: you know, like I know, Goldman put out a number

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Speaker 3: somewhere around between fifteen and twenty trillion dollars this decade alone,

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Speaker 3: You're not even scratching the surface of how much investment

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Speaker 3: we actually need to be able to achieve this. So

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Speaker 3: I stand by the under investment thesis. And also remember

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Speaker 3: greening represents somewhere around eighteen percent of the overall energy.

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Speaker 3: Brown represents eighty two percent, and we have not been

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Speaker 3: investing that we're under invested. And that's really the core

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Speaker 3: of the supercycle story or the revenge of the old economy,

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Speaker 3: is that lack of investment.

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Speaker 2: Finally, I mean I can speak to you for those

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Speaker 2: three hours, but I know you do have business to do.

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Speaker 2: Gasoline prices in the US are they critical in the

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Speaker 2: US election year?

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Speaker 4: Absolutely? Yes.

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Speaker 3: And you know, when you look at what are the

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Speaker 3: most important issues facing voters, particularly in the US, the

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Speaker 3: dominant one is the economy and inflation.

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Speaker 4: And by the way, the.

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Speaker 3: One thing nobody's been talking about that is in that

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Speaker 3: aid bill at ninety five billion dollars, Aid bill more

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Speaker 3: sanctions on Iran around vessels, refining and how they handle

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Speaker 3: the Iranian crewd I would say, the one way out

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Speaker 3: waivers and remember.

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Speaker 4: We started this twenty eighteen. What a Trump.

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Speaker 3: So Waivers will be able to manage it as you

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Speaker 3: go into that election.

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Speaker 2: So interesting, Jeff, thank you so much, as always for

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Speaker 2: giving us a little bit of your time. Jeff Curry,

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Speaker 2: there's chief strategy officer of Energy Pathways at Carlisle