WEBVTT - Carlyle Group's Jeff Currie Talks Global Supply Chain, Oil

0:00:02.520 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.760 --> 0:00:11.080
<v Speaker 2>Jeff Carry of Carlile writing this, even if a ceasefires

0:00:11.119 --> 0:00:12.960
<v Speaker 2>reached in the coming days, it would take time to

0:00:13.039 --> 0:00:17.320
<v Speaker 2>restart the energy supply chain. A legend of energy research

0:00:17.360 --> 0:00:19.840
<v Speaker 2>joints around the table, Jeff joints is for Morejef go morning,

0:00:19.840 --> 0:00:21.840
<v Speaker 2>got to see great to be here. We've got time here.

0:00:21.880 --> 0:00:24.000
<v Speaker 2>So let's take a step back. You believe that even

0:00:24.040 --> 0:00:27.760
<v Speaker 2>if there's a ceasefire tomorrow, right now, the next five minutes,

0:00:28.040 --> 0:00:28.800
<v Speaker 2>the world's changed.

0:00:30.080 --> 0:00:33.600
<v Speaker 3>What's changed. For one, you've disrupted global supply chains. This

0:00:33.760 --> 0:00:37.400
<v Speaker 3>is not just a disruption oil. It's gas, it's fertilizers,

0:00:37.479 --> 0:00:40.280
<v Speaker 3>it's metals, it's petrochemicals. The list goes on and on,

0:00:40.680 --> 0:00:43.159
<v Speaker 3>and then you've disrupted supply chains in countries all over

0:00:43.200 --> 0:00:45.960
<v Speaker 3>the world. The ships are in the wrong places, the

0:00:46.040 --> 0:00:49.479
<v Speaker 3>insurances are being canceled. You've taken the pressure out of

0:00:49.520 --> 0:00:52.600
<v Speaker 3>the fields that you've shut in in places like Saudi

0:00:52.640 --> 0:00:57.200
<v Speaker 3>Arabia or Iraq or even in the uae I can

0:00:57.240 --> 0:00:59.160
<v Speaker 3>just the list goes on and on. The damage is

0:00:59.160 --> 0:01:02.320
<v Speaker 3>going to take months unwined, but I want to bring

0:01:02.320 --> 0:01:06.880
<v Speaker 3>it to the immediate. There is no policy response that

0:01:07.040 --> 0:01:10.000
<v Speaker 3>can stop this assent and crude none and yes you've

0:01:10.200 --> 0:01:13.600
<v Speaker 3>paid this four hundred million barrel headline flow rate is

0:01:13.640 --> 0:01:17.080
<v Speaker 3>what matters. You know, the maximum sustainable flow rate is

0:01:17.120 --> 0:01:20.000
<v Speaker 3>two million barrels per day, so four hundred That will

0:01:20.080 --> 0:01:23.840
<v Speaker 3>take them two hundred days to get that out. And

0:01:23.920 --> 0:01:26.720
<v Speaker 3>you put that in the context of a disruption of

0:01:26.880 --> 0:01:28.800
<v Speaker 3>you know, let's net it out of disrupt house. It's

0:01:28.840 --> 0:01:31.200
<v Speaker 3>got to be somewhere around eighteen million barrels per day

0:01:31.240 --> 0:01:35.400
<v Speaker 3>right now. You're just a minuscule in terms of offsetting it.

0:01:35.480 --> 0:01:37.640
<v Speaker 3>So again, there's not any options here.

0:01:37.720 --> 0:01:40.039
<v Speaker 2>What would you call this then a pan campaign.

0:01:40.560 --> 0:01:42.800
<v Speaker 3>In terms of doing this. It's all they have. They're

0:01:42.800 --> 0:01:44.560
<v Speaker 3>going to do whatever they can't. But I think the

0:01:44.640 --> 0:01:48.040
<v Speaker 3>key issue here keep the hoarding down because we know

0:01:48.080 --> 0:01:50.440
<v Speaker 3>what happened in the nineteen seventies when you got the hoarding.

0:01:51.200 --> 0:01:54.320
<v Speaker 3>You know, it created an increase of demand somewhere around

0:01:54.360 --> 0:01:57.000
<v Speaker 3>two million barrels per day in the size of this market,

0:01:57.000 --> 0:01:59.360
<v Speaker 3>try three million barrels per day on top of the

0:01:59.360 --> 0:02:01.840
<v Speaker 3>disruption of somewhere around eighteen.

0:02:01.840 --> 0:02:05.840
<v Speaker 2>That word comes up in your research repeatedly. Holding China

0:02:05.880 --> 0:02:09.520
<v Speaker 2>has been rewarded for doing absolutely over the last twelve months,

0:02:09.560 --> 0:02:11.520
<v Speaker 2>you think count this will follow now.

0:02:11.360 --> 0:02:14.359
<v Speaker 3>They already are, you know where there's places like Japan

0:02:14.440 --> 0:02:16.600
<v Speaker 3>and Korea. They're hoarding anything they can get their hands

0:02:16.639 --> 0:02:19.160
<v Speaker 3>on at this point. And it even happens down to

0:02:19.200 --> 0:02:21.440
<v Speaker 3>people driving. Keep your tank filled up, by the way,

0:02:21.680 --> 0:02:25.200
<v Speaker 3>that's meaningful in terms of the demand pulls. You know,

0:02:25.280 --> 0:02:27.440
<v Speaker 3>most people drive and they take it down to about

0:02:27.440 --> 0:02:29.680
<v Speaker 3>a quarter filled and then refill it. Now they're going

0:02:29.760 --> 0:02:31.600
<v Speaker 3>to be going into the gas station filling it back

0:02:31.680 --> 0:02:33.320
<v Speaker 3>up every time it gets to a half or even

0:02:33.360 --> 0:02:34.000
<v Speaker 3>three quarters.

0:02:34.080 --> 0:02:35.760
<v Speaker 1>So what kind of premium Mary talking about?

0:02:35.800 --> 0:02:36.399
<v Speaker 3>Longer term?

0:02:36.480 --> 0:02:39.240
<v Speaker 1>We were just speaking with Steve Ath, a Federated Hermes

0:02:39.240 --> 0:02:41.760
<v Speaker 1>earlier saying that if oil prices goobe of ninety dollars

0:02:41.840 --> 0:02:43.720
<v Speaker 1>for a prolonged period of time, that will cause real

0:02:43.800 --> 0:02:45.560
<v Speaker 1>damage to the underlying economy.

0:02:45.880 --> 0:02:47.359
<v Speaker 3>Is that a base case for you, by the way,

0:02:47.480 --> 0:02:51.239
<v Speaker 3>is the one thing? And we're going through a regime change.

0:02:51.240 --> 0:02:53.640
<v Speaker 3>This is not a trade. This is a regime change.

0:02:53.639 --> 0:02:57.040
<v Speaker 3>We're moving from that world that was defined from twenty

0:02:57.040 --> 0:03:00.480
<v Speaker 3>fourteen to twenty twenty four you know. Is the new

0:03:00.480 --> 0:03:04.360
<v Speaker 3>economy boom driven by mag seven is a technology boom

0:03:04.400 --> 0:03:07.920
<v Speaker 3>asset light somewhere to what wesaw the dot com boom?

0:03:07.960 --> 0:03:09.720
<v Speaker 3>What came after the dot com boom? I remember, it

0:03:09.840 --> 0:03:13.239
<v Speaker 3>was the exact same thing. You had a geopolitical event

0:03:13.560 --> 0:03:16.400
<v Speaker 3>switched you in two thousand and one. And then actually

0:03:16.440 --> 0:03:20.640
<v Speaker 3>directly connected to the nine to eleven was China's admission

0:03:20.639 --> 0:03:24.480
<v Speaker 3>a WTO. By the way they were connected, George Bush

0:03:24.560 --> 0:03:27.040
<v Speaker 3>Junior needed to use force in the Middle East. He

0:03:27.080 --> 0:03:30.040
<v Speaker 3>needed a vote in the UN Security Council. He traded

0:03:30.120 --> 0:03:33.480
<v Speaker 3>a mission of China into the WTO to get that vote. Boom,

0:03:33.480 --> 0:03:35.680
<v Speaker 3>You're off to the races. You were in an asset

0:03:35.720 --> 0:03:38.840
<v Speaker 3>heavy boom that lasted for over a decade of twenty fourteen.

0:03:39.120 --> 0:03:41.400
<v Speaker 3>And then we went into the current light asset one

0:03:41.680 --> 0:03:44.760
<v Speaker 3>and look where again in one of these huge geopolitical events.

0:03:44.760 --> 0:03:46.920
<v Speaker 3>And I think the big thing to watch is when

0:03:47.080 --> 0:03:50.960
<v Speaker 3>she and President Trump meet at the end of this month,

0:03:51.000 --> 0:03:53.040
<v Speaker 3>and that's going to be where the negotiation happens.

0:03:53.080 --> 0:03:55.760
<v Speaker 1>You could argue that twenty twenty was a real jump

0:03:55.760 --> 0:03:59.560
<v Speaker 1>start to the readultableization the world because people realize, oh,

0:04:00.120 --> 0:04:03.520
<v Speaker 1>and the physical world actually takes time, unlike sending things digitally.

0:04:03.600 --> 0:04:06.120
<v Speaker 1>I just wonder how much still needs to be priced

0:04:06.120 --> 0:04:09.040
<v Speaker 1>in to the physical world. And we've just been highlighted.

0:04:09.200 --> 0:04:11.120
<v Speaker 1>We've just been shown the risk in the oil markets,

0:04:11.160 --> 0:04:14.880
<v Speaker 1>but more broadly, how much are we underpricing.

0:04:14.320 --> 0:04:16.280
<v Speaker 3>Some of what I don't think we know what can

0:04:16.320 --> 0:04:18.240
<v Speaker 3>happen here and what's going to happen is we're going

0:04:18.279 --> 0:04:20.440
<v Speaker 3>to reprice everything. I mean, it started and by the way,

0:04:20.480 --> 0:04:22.600
<v Speaker 3>metals since twenty twenty or just a straight line going up.

0:04:22.600 --> 0:04:24.440
<v Speaker 3>Everybody looks at the last couple of months, but it's

0:04:24.480 --> 0:04:26.680
<v Speaker 3>just and when here's a point I like to say

0:04:26.839 --> 0:04:29.400
<v Speaker 3>is that you looked at the returns of companies in

0:04:29.400 --> 0:04:31.200
<v Speaker 3>two thousand, when we were at twenty dollars oil, they

0:04:31.200 --> 0:04:33.560
<v Speaker 3>were like twenty or thirty percent. By the time we

0:04:33.600 --> 0:04:35.680
<v Speaker 3>were around two thousand and five or six, you're at

0:04:35.720 --> 0:04:37.840
<v Speaker 3>sixty three times on the oil price. What do you

0:04:37.839 --> 0:04:40.479
<v Speaker 3>think the returns were? They were going down because the

0:04:40.520 --> 0:04:43.760
<v Speaker 3>overall cost structure the industry was rising. So we ask

0:04:43.839 --> 0:04:46.480
<v Speaker 3>about how high it can go. Metals are going up,

0:04:47.160 --> 0:04:50.839
<v Speaker 3>you know, your cost of capital's going up, the currencies weekend,

0:04:50.880 --> 0:04:53.320
<v Speaker 3>your labor goes up. All of this begins to happen,

0:04:53.360 --> 0:04:55.920
<v Speaker 3>you repriced. I don't want to speculate. I like to say,

0:04:56.040 --> 0:04:58.479
<v Speaker 3>get long, buckle your seat belt, hang on for the ride,

0:04:58.520 --> 0:05:01.320
<v Speaker 3>and we're going to reprice this thing where it reprices.

0:05:01.400 --> 0:05:03.279
<v Speaker 3>I got in trouble back in you know, the two

0:05:03.320 --> 0:05:05.520
<v Speaker 3>thousands with I'm not going to repeat the numbers again,

0:05:05.760 --> 0:05:07.840
<v Speaker 3>but I think the key point here what do you

0:05:07.880 --> 0:05:11.039
<v Speaker 3>want to own? Own the hard assets, own the halos,

0:05:11.160 --> 0:05:13.120
<v Speaker 3>own the anything that you know. And I love that

0:05:13.200 --> 0:05:15.120
<v Speaker 3>two term. The term we called it in the two

0:05:15.200 --> 0:05:17.960
<v Speaker 3>thousands was the revenge of the old economy because it

0:05:18.080 --> 0:05:20.640
<v Speaker 3>was coming off the back of the dot com boom.

0:05:20.680 --> 0:05:23.719
<v Speaker 3>This time around, I love that term halo heavy asset,

0:05:23.839 --> 0:05:27.279
<v Speaker 3>low obsolescence. Own those assets and hang on. And I

0:05:27.320 --> 0:05:29.440
<v Speaker 3>want to own metal. I want to own gold. I

0:05:29.440 --> 0:05:31.640
<v Speaker 3>want to own oil. And by the way, again this

0:05:31.800 --> 0:05:34.359
<v Speaker 3>is a huge disruption. It's just not isolated to oil.

0:05:34.480 --> 0:05:36.520
<v Speaker 4>What do you make though about central banks right now,

0:05:36.560 --> 0:05:39.080
<v Speaker 4>some of the dwindling reserves and some of their appetite

0:05:39.120 --> 0:05:40.120
<v Speaker 4>to buy gold.

0:05:40.360 --> 0:05:43.520
<v Speaker 3>I think what you're going to see is even more

0:05:43.640 --> 0:05:46.680
<v Speaker 3>demand for gold out of this, because ultimately you're really

0:05:46.720 --> 0:05:49.560
<v Speaker 3>going to abate question. What how is the financial situation

0:05:49.640 --> 0:05:51.560
<v Speaker 3>to the US. I'm going to go talk about what is

0:05:51.680 --> 0:05:54.920
<v Speaker 3>really different about this time versus any other time in

0:05:54.960 --> 0:05:58.120
<v Speaker 3>the last fifty years. In oil, anytime the oil price

0:05:58.160 --> 0:06:01.719
<v Speaker 3>would spike pre twenty two, before the US and Europe

0:06:01.760 --> 0:06:06.119
<v Speaker 3>froze central bank assets on Russia, anytime oil prices would spike,

0:06:06.520 --> 0:06:09.720
<v Speaker 3>you would have capital rotate into the US. The recycling

0:06:09.760 --> 0:06:13.240
<v Speaker 3>that was the petro dollars, that would act like QE buffer.

0:06:13.320 --> 0:06:15.159
<v Speaker 3>It is called a shock absorber to the rest of

0:06:15.160 --> 0:06:18.159
<v Speaker 3>the economy that goes into gold. Now so ever, since

0:06:18.200 --> 0:06:22.200
<v Speaker 3>twenty twenty two, commodity prices spike, these emerging markets get money.

0:06:22.200 --> 0:06:25.040
<v Speaker 3>What do they buy. They buy gold, they buy anything

0:06:25.160 --> 0:06:27.920
<v Speaker 3>but dollar denominated assets because they don't want to get

0:06:27.960 --> 0:06:30.600
<v Speaker 3>sanctions imposed on them, like what happened to the Russians,

0:06:30.720 --> 0:06:32.920
<v Speaker 3>And as a result, you don't have that money coming back.

0:06:33.000 --> 0:06:35.120
<v Speaker 3>One other point you got to keep in mind is

0:06:35.200 --> 0:06:38.240
<v Speaker 3>now transfer payments are bigger, the US debt is bigger,

0:06:38.279 --> 0:06:41.720
<v Speaker 3>the interest payments are bigger. So when oil prices go up,

0:06:41.760 --> 0:06:44.479
<v Speaker 3>headline inflation goes up, that gets much bigger. In fact,

0:06:44.480 --> 0:06:46.480
<v Speaker 3>we estimate you go to one twenty and stay there,

0:06:46.600 --> 0:06:48.559
<v Speaker 3>you're going to crowd out one hundred and fifty billion

0:06:48.680 --> 0:06:51.280
<v Speaker 3>dollars of private credit, because you're going to have to

0:06:51.320 --> 0:06:54.080
<v Speaker 3>be basically issue that in public credit.

0:06:54.279 --> 0:06:55.880
<v Speaker 4>If you think the world is more vulnerable now than

0:06:55.880 --> 0:06:57.840
<v Speaker 4>they were in nineteen seventy three, But the US right

0:06:57.880 --> 0:06:59.359
<v Speaker 4>now isn't an exporter.

0:06:59.320 --> 0:07:03.080
<v Speaker 3>Oh net exporter at the income cash loaf level, meaning

0:07:03.080 --> 0:07:06.159
<v Speaker 3>they produce as much as they consume roughly, and I

0:07:06.200 --> 0:07:08.560
<v Speaker 3>think you get an access of around eighty billion dollars

0:07:08.560 --> 0:07:11.560
<v Speaker 3>on a thirty trillion dollar economy. But let's say put

0:07:11.600 --> 0:07:14.240
<v Speaker 3>it this way. I call it the paradox of energy dominance.

0:07:14.400 --> 0:07:16.240
<v Speaker 3>Let's go to the wealth level. Let's look at the

0:07:16.320 --> 0:07:21.800
<v Speaker 3>equity market energy three percent of the market. Three. How

0:07:21.800 --> 0:07:24.720
<v Speaker 3>big are the things that are short fifty three percent?

0:07:24.840 --> 0:07:27.640
<v Speaker 3>So you're long three. It's short fifty three at the

0:07:27.640 --> 0:07:30.120
<v Speaker 3>wealth level. And what is the multiple on that three?

0:07:30.160 --> 0:07:32.320
<v Speaker 3>It's like twelve or thirteen? What is the multiple on

0:07:32.360 --> 0:07:35.640
<v Speaker 3>the other one thirty six? You're in trouble at the

0:07:35.640 --> 0:07:38.520
<v Speaker 3>wealth level. You may be safe at the income level,

0:07:38.560 --> 0:07:40.760
<v Speaker 3>but you're in real trouble at the wealth level. Then

0:07:40.800 --> 0:07:43.040
<v Speaker 3>you get at the credit level. Now you got that.

0:07:43.400 --> 0:07:46.080
<v Speaker 3>Now you've taken your shock absorber because of the sanctions

0:07:46.120 --> 0:07:48.760
<v Speaker 3>you imposed on Russia Essential Bank and turned it into

0:07:48.800 --> 0:07:51.760
<v Speaker 3>a shock amplifier. So again I agree with you one

0:07:51.800 --> 0:07:54.360
<v Speaker 3>hundred percent energy dominance at the cash flow level, but

0:07:54.400 --> 0:07:56.240
<v Speaker 3>not at the wealth level and not at the credit level.

0:07:56.320 --> 0:07:59.080
<v Speaker 2>Jeff, final question, it's on Aisha refine its there have

0:07:59.120 --> 0:08:01.000
<v Speaker 2>clearly got a bit of a Can you tell us

0:08:01.080 --> 0:08:03.520
<v Speaker 2>how big that cushion is and how quickly before we

0:08:03.560 --> 0:08:06.160
<v Speaker 2>start to see headlines across the Bloomberg on shortages?

0:08:06.280 --> 0:08:09.480
<v Speaker 3>Oh you already are jet fuel in Singapore spiked to

0:08:09.600 --> 0:08:12.520
<v Speaker 3>over two hundred and thirty dollars a barrel. Yeah, you're

0:08:12.600 --> 0:08:14.800
<v Speaker 3>you're at that point, and that's that the hoarding is

0:08:14.800 --> 0:08:17.400
<v Speaker 3>only amplifying it. And you just took out a nine

0:08:17.440 --> 0:08:19.880
<v Speaker 3>hundred thousand barrel per day refinery that was bombed in

0:08:20.560 --> 0:08:23.080
<v Speaker 3>there in the in the Gulf. So the situation on

0:08:23.200 --> 0:08:26.080
<v Speaker 3>refined products is and I think the key point here

0:08:26.480 --> 0:08:28.080
<v Speaker 3>is it's Asia is going to be the one that's

0:08:28.120 --> 0:08:30.360
<v Speaker 3>going to be in the deepest problem big time.

0:08:30.440 --> 0:08:32.319
<v Speaker 2>Jeff is going to see it right than its sutuable

0:08:32.360 --> 0:08:35.280
<v Speaker 2>day always could. Jeff carried there of Carlisle on the

0:08:35.280 --> 0:08:38.240
<v Speaker 2>commodity market with corewth this morning around ninety dollars a

0:08:38.240 --> 0:08:38.520
<v Speaker 2>barrel