Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Jeff Carry of Carlile writing this, even if a ceasefires
Speaker 2: reached in the coming days, it would take time to
Speaker 2: restart the energy supply chain. A legend of energy research
Speaker 2: joints around the table, Jeff joints is for Morejef go morning,
Speaker 2: got to see great to be here. We've got time here.
Speaker 2: So let's take a step back. You believe that even
Speaker 2: if there's a ceasefire tomorrow, right now, the next five minutes,
Speaker 2: the world's changed.
Speaker 3: What's changed. For one, you've disrupted global supply chains. This
Speaker 3: is not just a disruption oil. It's gas, it's fertilizers,
Speaker 3: it's metals, it's petrochemicals. The list goes on and on,
Speaker 3: and then you've disrupted supply chains in countries all over
Speaker 3: the world. The ships are in the wrong places, the
Speaker 3: insurances are being canceled. You've taken the pressure out of
Speaker 3: the fields that you've shut in in places like Saudi
Speaker 3: Arabia or Iraq or even in the uae I can
Speaker 3: just the list goes on and on. The damage is
Speaker 3: going to take months unwined, but I want to bring
Speaker 3: it to the immediate. There is no policy response that
Speaker 3: can stop this assent and crude none and yes you've
Speaker 3: paid this four hundred million barrel headline flow rate is
Speaker 3: what matters. You know, the maximum sustainable flow rate is
Speaker 3: two million barrels per day, so four hundred That will
Speaker 3: take them two hundred days to get that out. And
Speaker 3: you put that in the context of a disruption of
Speaker 3: you know, let's net it out of disrupt house. It's
Speaker 3: got to be somewhere around eighteen million barrels per day
Speaker 3: right now. You're just a minuscule in terms of offsetting it.
Speaker 3: So again, there's not any options here.
Speaker 2: What would you call this then a pan campaign.
Speaker 3: In terms of doing this. It's all they have. They're
Speaker 3: going to do whatever they can't. But I think the
Speaker 3: key issue here keep the hoarding down because we know
Speaker 3: what happened in the nineteen seventies when you got the hoarding.
Speaker 3: You know, it created an increase of demand somewhere around
Speaker 3: two million barrels per day in the size of this market,
Speaker 3: try three million barrels per day on top of the
Speaker 3: disruption of somewhere around eighteen.
Speaker 2: That word comes up in your research repeatedly. Holding China
Speaker 2: has been rewarded for doing absolutely over the last twelve months,
Speaker 2: you think count this will follow now.
Speaker 3: They already are, you know where there's places like Japan
Speaker 3: and Korea. They're hoarding anything they can get their hands
Speaker 3: on at this point. And it even happens down to
Speaker 3: people driving. Keep your tank filled up, by the way,
Speaker 3: that's meaningful in terms of the demand pulls. You know,
Speaker 3: most people drive and they take it down to about
Speaker 3: a quarter filled and then refill it. Now they're going
Speaker 3: to be going into the gas station filling it back
Speaker 3: up every time it gets to a half or even
Speaker 3: three quarters.
Speaker 1: So what kind of premium Mary talking about?
Speaker 3: Longer term?
Speaker 1: We were just speaking with Steve Ath, a Federated Hermes
Speaker 1: earlier saying that if oil prices goobe of ninety dollars
Speaker 1: for a prolonged period of time, that will cause real
Speaker 1: damage to the underlying economy.
Speaker 3: Is that a base case for you, by the way,
Speaker 3: is the one thing? And we're going through a regime change.
Speaker 3: This is not a trade. This is a regime change.
Speaker 3: We're moving from that world that was defined from twenty
Speaker 3: fourteen to twenty twenty four you know. Is the new
Speaker 3: economy boom driven by mag seven is a technology boom
Speaker 3: asset light somewhere to what wesaw the dot com boom?
Speaker 3: What came after the dot com boom? I remember, it
Speaker 3: was the exact same thing. You had a geopolitical event
Speaker 3: switched you in two thousand and one. And then actually
Speaker 3: directly connected to the nine to eleven was China's admission
Speaker 3: a WTO. By the way they were connected, George Bush
Speaker 3: Junior needed to use force in the Middle East. He
Speaker 3: needed a vote in the UN Security Council. He traded
Speaker 3: a mission of China into the WTO to get that vote. Boom,
Speaker 3: You're off to the races. You were in an asset
Speaker 3: heavy boom that lasted for over a decade of twenty fourteen.
Speaker 3: And then we went into the current light asset one
Speaker 3: and look where again in one of these huge geopolitical events.
Speaker 3: And I think the big thing to watch is when
Speaker 3: she and President Trump meet at the end of this month,
Speaker 3: and that's going to be where the negotiation happens.
Speaker 1: You could argue that twenty twenty was a real jump
Speaker 1: start to the readultableization the world because people realize, oh,
Speaker 1: and the physical world actually takes time, unlike sending things digitally.
Speaker 1: I just wonder how much still needs to be priced
Speaker 1: in to the physical world. And we've just been highlighted.
Speaker 1: We've just been shown the risk in the oil markets,
Speaker 1: but more broadly, how much are we underpricing.
Speaker 3: Some of what I don't think we know what can
Speaker 3: happen here and what's going to happen is we're going
Speaker 3: to reprice everything. I mean, it started and by the way,
Speaker 3: metals since twenty twenty or just a straight line going up.
Speaker 3: Everybody looks at the last couple of months, but it's
Speaker 3: just and when here's a point I like to say
Speaker 3: is that you looked at the returns of companies in
Speaker 3: two thousand, when we were at twenty dollars oil, they
Speaker 3: were like twenty or thirty percent. By the time we
Speaker 3: were around two thousand and five or six, you're at
Speaker 3: sixty three times on the oil price. What do you
Speaker 3: think the returns were? They were going down because the
Speaker 3: overall cost structure the industry was rising. So we ask
Speaker 3: about how high it can go. Metals are going up,
Speaker 3: you know, your cost of capital's going up, the currencies weekend,
Speaker 3: your labor goes up. All of this begins to happen,
Speaker 3: you repriced. I don't want to speculate. I like to say,
Speaker 3: get long, buckle your seat belt, hang on for the ride,
Speaker 3: and we're going to reprice this thing where it reprices.
Speaker 3: I got in trouble back in you know, the two
Speaker 3: thousands with I'm not going to repeat the numbers again,
Speaker 3: but I think the key point here what do you
Speaker 3: want to own? Own the hard assets, own the halos,
Speaker 3: own the anything that you know. And I love that
Speaker 3: two term. The term we called it in the two
Speaker 3: thousands was the revenge of the old economy because it
Speaker 3: was coming off the back of the dot com boom.
Speaker 3: This time around, I love that term halo heavy asset,
Speaker 3: low obsolescence. Own those assets and hang on. And I
Speaker 3: want to own metal. I want to own gold. I
Speaker 3: want to own oil. And by the way, again this
Speaker 3: is a huge disruption. It's just not isolated to oil.
Speaker 4: What do you make though about central banks right now,
Speaker 4: some of the dwindling reserves and some of their appetite
Speaker 4: to buy gold.
Speaker 3: I think what you're going to see is even more
Speaker 3: demand for gold out of this, because ultimately you're really
Speaker 3: going to abate question. What how is the financial situation
Speaker 3: to the US. I'm going to go talk about what is
Speaker 3: really different about this time versus any other time in
Speaker 3: the last fifty years. In oil, anytime the oil price
Speaker 3: would spike pre twenty two, before the US and Europe
Speaker 3: froze central bank assets on Russia, anytime oil prices would spike,
Speaker 3: you would have capital rotate into the US. The recycling
Speaker 3: that was the petro dollars, that would act like QE buffer.
Speaker 3: It is called a shock absorber to the rest of
Speaker 3: the economy that goes into gold. Now so ever, since
Speaker 3: twenty twenty two, commodity prices spike, these emerging markets get money.
Speaker 3: What do they buy. They buy gold, they buy anything
Speaker 3: but dollar denominated assets because they don't want to get
Speaker 3: sanctions imposed on them, like what happened to the Russians,
Speaker 3: And as a result, you don't have that money coming back.
Speaker 3: One other point you got to keep in mind is
Speaker 3: now transfer payments are bigger, the US debt is bigger,
Speaker 3: the interest payments are bigger. So when oil prices go up,
Speaker 3: headline inflation goes up, that gets much bigger. In fact,
Speaker 3: we estimate you go to one twenty and stay there,
Speaker 3: you're going to crowd out one hundred and fifty billion
Speaker 3: dollars of private credit, because you're going to have to
Speaker 3: be basically issue that in public credit.
Speaker 4: If you think the world is more vulnerable now than
Speaker 4: they were in nineteen seventy three, But the US right
Speaker 4: now isn't an exporter.
Speaker 3: Oh net exporter at the income cash loaf level, meaning
Speaker 3: they produce as much as they consume roughly, and I
Speaker 3: think you get an access of around eighty billion dollars
Speaker 3: on a thirty trillion dollar economy. But let's say put
Speaker 3: it this way. I call it the paradox of energy dominance.
Speaker 3: Let's go to the wealth level. Let's look at the
Speaker 3: equity market energy three percent of the market. Three. How
Speaker 3: big are the things that are short fifty three percent?
Speaker 3: So you're long three. It's short fifty three at the
Speaker 3: wealth level. And what is the multiple on that three?
Speaker 3: It's like twelve or thirteen? What is the multiple on
Speaker 3: the other one thirty six? You're in trouble at the
Speaker 3: wealth level. You may be safe at the income level,
Speaker 3: but you're in real trouble at the wealth level. Then
Speaker 3: you get at the credit level. Now you got that.
Speaker 3: Now you've taken your shock absorber because of the sanctions
Speaker 3: you imposed on Russia Essential Bank and turned it into
Speaker 3: a shock amplifier. So again I agree with you one
Speaker 3: hundred percent energy dominance at the cash flow level, but
Speaker 3: not at the wealth level and not at the credit level.
Speaker 2: Jeff, final question, it's on Aisha refine its there have
Speaker 2: clearly got a bit of a Can you tell us
Speaker 2: how big that cushion is and how quickly before we
Speaker 2: start to see headlines across the Bloomberg on shortages?
Speaker 3: Oh you already are jet fuel in Singapore spiked to
Speaker 3: over two hundred and thirty dollars a barrel. Yeah, you're
Speaker 3: you're at that point, and that's that the hoarding is
Speaker 3: only amplifying it. And you just took out a nine
Speaker 3: hundred thousand barrel per day refinery that was bombed in
Speaker 3: there in the in the Gulf. So the situation on
Speaker 3: refined products is and I think the key point here
Speaker 3: is it's Asia is going to be the one that's
Speaker 3: going to be in the deepest problem big time.
Speaker 2: Jeff is going to see it right than its sutuable
Speaker 2: day always could. Jeff carried there of Carlisle on the
Speaker 2: commodity market with corewth this morning around ninety dollars a
Speaker 2: barrel