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Speaker 1: Jeffrey Curry's going to come out with his version of

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Speaker 1: fooled by randomness on oil, Goldhead of Commodity at Research

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Speaker 1: at Golden Sex jeff Curry, I say this with a

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Speaker 1: men's respect for your bulletproof University of Chicago microeconomics and econometrics.

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Speaker 1: How did oil fool you by its randomness in the

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Speaker 1: last twelve months?

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Speaker 2: Well, I have to say, we have never been this

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Speaker 2: wrong for this long without seeing evidence to change our views. Now,

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Speaker 2: obviously some of the upside has been taken away by

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Speaker 2: recent events with you know, the sanctioned oil surprising to

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Speaker 2: the upside, whether if it's Iran, Russia, Venezuela and more

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Speaker 2: de stocking, But the core thesis still very much remains intact.

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Speaker 2: And I think one of the big drivers is, you know,

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Speaker 2: you've lost two hundred and fifty million barrels of paper

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Speaker 2: linked in this market. We're back to where the market

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Speaker 2: was as is, as short as it was during COVID

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Speaker 2: when we saw negative prices, and you've erased the overall

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Speaker 2: length going back into the early two thousands. And I've

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Speaker 2: choked this up to you know, ultimately a broad what

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Speaker 2: we call the Great d Stocking high interest rates are

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Speaker 2: forcing d stocking of physical barrels, d stocking the sanctioned barrels,

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Speaker 2: d stocking of sprs, d stocking of finished goods, even

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Speaker 2: de stocking of financial paper barrels. So we have been

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Speaker 2: just continuously selling for about six months to nine months.

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Speaker 3: Now, can you allabor a little bit, because for people

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Speaker 3: who are not in the nitty gritty, a lot of

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Speaker 3: what you said was perhaps a bit opaque, the connection

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Speaker 3: of high interest rates to a lack of interest in

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Speaker 3: buying oil on a whole range of areas, or a

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Speaker 3: lack of sort of stockpiling physical or paper crude.

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Speaker 2: Let's just go yeah, let's go through the economics. Let's

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Speaker 2: say to borrow money today to buy a barrel of oil,

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Speaker 2: because you got to have, you know, finance your your

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Speaker 2: physical inventory. Let's say it's seven eight percent somewhere like that.

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Speaker 2: Live Or is paying you five and a quarter. That's

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Speaker 2: your opportunity cost of putting your money into a risk

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Speaker 2: free investment. So your net cost of holding physical inventory

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Speaker 2: run somewhere around thirteen potentially even fifteen percent in this environment.

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Speaker 2: Why are you going to do that? You've got Navidia

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Speaker 2: and Nasdak going up. There's so many better places to

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Speaker 2: put your money. And I think the other point too,

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Speaker 2: Oil copper and the rest of these markets don't have

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Speaker 2: a positive carry, so they cost you to own it,

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Speaker 2: cost you to store it. You're going to drain down

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Speaker 2: these inventories as much you can. So oil copper, they

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Speaker 2: are a liability right now. They are not an asset,

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Speaker 2: and until they become an asset, no one's going to

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Speaker 2: want to hold them, hold them in an inventory, or

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Speaker 2: hold them in a pay per form. And so you

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Speaker 2: could just think about that the cost of holding these

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Speaker 2: these commodities has risen so much that ultimately are d

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Speaker 2: stocking the waiting nearly a decade for the Iranian floating

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Speaker 2: storage to discharge. It's finally discharging right now, which schells you.

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Speaker 2: Nobody really wants to hold this commodity. We think that's

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Speaker 2: going to change, and I think it has to start

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Speaker 2: with lower inventories forcing what we call a backwardation, which

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Speaker 2: is a positive carry in the curve. Then somebody will

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Speaker 2: want to own it.

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Speaker 3: This is fascinating because for years people were decrying the

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Speaker 3: financialization of crude as sort of a bet on the

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Speaker 3: macro economy. Are you saying that it is no longer

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Speaker 3: in the same kind of way that this is basically

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Speaker 3: where it is traded, but it's actually a liability now

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Speaker 3: that the financialization has come to such a place where

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Speaker 3: people look at it as comparable to an interest bearing

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Speaker 3: type of instrument, and you're waiting for some sort of

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Speaker 3: not I want to say crisis, but a complete lack

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Speaker 3: of inventory to spur prices in such an extreme way

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Speaker 3: that you get a violent shift up that really forces

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Speaker 3: a hand of people who are left kind of in

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Speaker 3: the dust.

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Speaker 2: Thought, I'm not going to say it's one hundred percent

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Speaker 2: interest rates of recession and why people don't want to

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Speaker 2: own these the government discharge their reserves do over fears

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Speaker 2: of inflation. So there's other factors at play here, but

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Speaker 2: I think your broader point is absolutely right. We think

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Speaker 2: about when was oil financialized in the two thousands when

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Speaker 2: interest rates you know, is right after September eleventh in

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Speaker 2: two thousand and one, when interest rates first went to

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Speaker 2: near zero. That's when you started to see the explosion

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Speaker 2: in the financialization of oil and commodities. And we stayed

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Speaker 2: into this loose money environment for nearly fifteen twenty years,

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Speaker 2: and now money costs something.

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Speaker 1: There are a set of World Clubs leaders, and you're

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Speaker 1: one of them, Jeff Curry on this and with the

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Speaker 1: acuity of the what I'm going to call almost the

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Speaker 1: general equilibrium theory of hydrocarbons, you parachute into riod right

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Speaker 1: now and you have to advise the Saudis on the

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Speaker 1: elasticities of supply and demand around this new world, which

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Speaker 1: is the old world of a cost of money.

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Speaker 2: You advise Saudi.

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Speaker 1: Arabia in this new world of higher nominal and real

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Speaker 1: interest rates.

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Speaker 2: Their market power has never been higher. And one of

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Speaker 2: the reasons why is you combine the higher cost of

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Speaker 2: money combined with issues around the cost of funding hydrocarbon

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Speaker 2: type of investments. They're the only game in town. They

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Speaker 2: have no competition right now. When we look at the

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Speaker 2: cut they made in October, that was the very first

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Speaker 2: preemptive cut we've ever seen OPAK do, and we just

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Speaker 2: saw two more cuts announced in the last the last

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Speaker 2: three months. Why because they don't have fear of competition. Yes,

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Speaker 2: the oil that's coming on market is Russian, Iranian, in

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Speaker 2: Venezuelan sanctioned oil, and eventually you'll run out of it

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Speaker 2: and there's nothing behind it. But is there competition from

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Speaker 2: the rest of the world. The answer is really no.

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Speaker 1: Is the United States not ignorant but unaware of the

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Speaker 1: international dynamics of oil, of moving oil up to Japan,

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Speaker 1: across the Pacific RIM and all the dynamics of the

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Speaker 1: Middle East? Have we gotten lazy?

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Speaker 2: I think it was a bigger focus on immediate term issues,

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Speaker 2: things like inflation fighting, which is why we saw such

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Speaker 2: a sharp rundown in the SPR And you know you're talking.

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Speaker 2: You put all the sprs together, it was two hundred

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Speaker 2: and fifty million barrels drawn down. That is a lot

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Speaker 2: of oil. So I think the focus from a policy

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Speaker 2: perspective is get the inflation down and keep it down.

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Speaker 2: But here's a fact I like to throw out. You know,

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Speaker 2: you look at core CPI at somewhere around five point five.

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Speaker 2: It was at that level, you know, going back nearly

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Speaker 2: two years ago. What's changed is oil prices went down,

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Speaker 2: taking headline from nine down to four point five just quickly.

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Speaker 3: Jeff, Do you think that that's the reason why the

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Speaker 3: US is not refilling the SPR more aggressively because they're

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Speaker 3: still concerned about inflation and that that could on the

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Speaker 3: margins push prices up.

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Speaker 2: Well, I think it's you know, the showdown over the

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Speaker 2: debt ceiling. Getting money to go buy oil would be

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Speaker 2: really difficult to come by. But that aside, Listen to France,

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Speaker 2: listen to Germany. The focus now is building strategic reserves

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Speaker 2: of green metals, you know, like battery metals, like copper, lithium, cobol.

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Speaker 2: So if you're going to build strategic reserves, you're probably

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Speaker 2: going to do it in you know, the green economy commodities,

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Speaker 2: not in the old economy commodities.

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Speaker 1: Jeffer's oil in a year. I know it's an unfair

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Speaker 1: question given all the ambiguities out there right now, but

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Speaker 1: I've got to ask. I mean, we're down, down, down

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Speaker 1: right wrong whatever scope out where we are. In twelve months, yeah.

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Speaker 2: Our viewers are going to be seeing substantial physical inventory

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Speaker 2: draws because of these OPEC production cuts, particularly during the

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Speaker 2: third quarter as well as in fourth quarter. That's going

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Speaker 2: to push us up into the low nineties. Now, the

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Speaker 2: question is will you bring the investor back into this market?

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Speaker 2: And by the way, I put a question mark on

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Speaker 2: it because it'll have to be a new class of investor.

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Speaker 2: It takes that investor buying to push you back up

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Speaker 2: towards a hundred. We're not. I know a lot of

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Speaker 2: them have gone left and it'll be difficult to get

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Speaker 2: them back. But I think the key question fundamentally, we

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Speaker 2: can get this market higher, and I think we get

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Speaker 2: once you turn oil into an asset, you'll track capital

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Speaker 2: back to it. But I don't think it's going to

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Speaker 2: be the same cast of characters.

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Speaker 1: Jeffrey Curry, thank you so much. Just absolutely brilliant there

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Speaker 1: with Goldman, Sachs and Lisa. This really rolls over to

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Speaker 1: Shanelle Basket's conversation yesterday with mister Waldron of gold and Sachs.

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Speaker 1: They're both talking about what you've talked about so much.

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Speaker 1: Guess what the world's changed. There's now an interest rate.

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Speaker 1: It affects equities, bonds, currencies, commodities in West Street downtown.

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Speaker 3: It was just fascinating. I really want to spend some

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Speaker 3: time thinking about what he just said, the financialization going

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Speaker 3: into reverse of the crude market.

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Speaker 1: In the next hour, Mohammed el Arion is he's not

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Speaker 1: with Bloomberg's surveillance. He's with another show. Stay with US

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Speaker 1: Radio on television.

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Speaker 2: Good morning,