WEBVTT - Goldman’s Jeff Currie: It’s a Commodities Supercycle, and We Still Haven’t Hit Max Pain 0:00:10.640 --> 0:00:14.520 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.600 --> 0:00:19.040 I'm Joe Wisn'tal And I'm Tracy Halloway. So, Tracy, you see, 0:00:19.079 --> 0:00:22.439 we just got the latest CPI report I did. Indeed, 0:00:23.200 --> 0:00:27.760 looks like cp I came in slightly hotter than expected, 0:00:27.880 --> 0:00:30.960 like not a huge deviation from the forecast. But of 0:00:31.000 --> 0:00:33.839 course everyone's talking about the idea that, well, all of 0:00:33.880 --> 0:00:36.640 this was supposed to be transitory, and yet you know, 0:00:36.840 --> 0:00:39.960 here we are almost two years into the global pandemic 0:00:39.960 --> 0:00:43.320 and it doesn't seem like any of this is going away, right, 0:00:43.520 --> 0:00:46.680 And so of course there's this debate about what transitory means, 0:00:46.920 --> 0:00:50.360 doesn't mean pandemic related or does it mean brief. So 0:00:50.400 --> 0:00:53.600 we're sorry to split hairs on that. And then there's 0:00:53.640 --> 0:00:57.200 also you know, of course, the deviation between headline CPI, 0:00:57.320 --> 0:01:02.000 which includes energy prices core which doesn't. But the degree 0:01:02.040 --> 0:01:05.120 to which you could really ever like separate out commodities 0:01:05.200 --> 0:01:07.880 from the fact that commodity to go into everything is 0:01:07.959 --> 0:01:12.360 kind of impossible. And with the exception of a few things, 0:01:12.920 --> 0:01:16.600 I mean, we are on a massive commodity slash energy 0:01:16.600 --> 0:01:20.080 bull run. Yeah. So the crazy thing here is that 0:01:20.160 --> 0:01:25.680 people were worried about higher inflation, even before the commodities 0:01:25.720 --> 0:01:29.479 market really started going nuts, like just in the past 0:01:29.720 --> 0:01:32.160 month or so. I mean, I'm looking at some of 0:01:32.200 --> 0:01:35.959 the energy headlines that have just come over the Bloomberg today, 0:01:36.080 --> 0:01:39.760 and it's stuff like, you know, European zinc smelters cutting 0:01:39.760 --> 0:01:44.480 production by as much as fifty because of higher energy costs, 0:01:44.480 --> 0:01:47.640 and you know, a flood in a major Chinese mine 0:01:47.760 --> 0:01:51.639 and the Chinese government ending its intervention in the coal market, 0:01:51.680 --> 0:01:55.120 so basically liberalizing that entire market, which isn't something that 0:01:55.160 --> 0:01:58.080 you tend to see that much in China, but is 0:01:58.120 --> 0:02:00.680 something that is sort of needed given the energy pressures 0:02:00.800 --> 0:02:03.880 right now. So things have just gotten like to a 0:02:03.880 --> 0:02:07.840 whole new level when it comes to commodities. Yeah, and 0:02:07.880 --> 0:02:10.080 it's interesting you framed that really well, because you know, 0:02:10.120 --> 0:02:13.360 sometimes we do our logistics episodes and one of the 0:02:13.360 --> 0:02:16.960 themes is the way these sort of pressures compound. Right, 0:02:17.280 --> 0:02:19.760 So something that happens at the Port of Los Angeles 0:02:19.840 --> 0:02:22.799 ends up affecting warehouses, which ends up affecting truckers, which 0:02:22.880 --> 0:02:26.839 ends up affecting rail and Chicago. And it feels like 0:02:27.000 --> 0:02:30.760 on the raw commodities front, you see the same thing 0:02:30.880 --> 0:02:34.000 where it's like, oh, some energy price spikes, and then 0:02:34.040 --> 0:02:37.600 the zinc smelters and the fertilizer companies have to pairback 0:02:37.639 --> 0:02:40.640 production because their production is no longer is profitable, and 0:02:40.680 --> 0:02:43.680 then that feeds into you know, some other, some other 0:02:43.720 --> 0:02:46.840 commodity or something like that. And so it feels like 0:02:46.880 --> 0:02:50.600 there is a similar compounding effect, and it's probably you know, 0:02:50.600 --> 0:02:54.560 it seems like a combination of demand supply obviously, and 0:02:54.560 --> 0:02:57.160 then there's sort of like all kinds of idiosyncratic factors, 0:02:57.160 --> 0:02:59.880 like whether it's droughts or whatever. Yeah. Well, the other 0:03:00.120 --> 0:03:02.160 big thing that people are talking about now is how 0:03:02.280 --> 0:03:05.480 much of this is caused by the transition to clean energy. 0:03:05.680 --> 0:03:08.920 So this idea that we've had years of structural under 0:03:08.960 --> 0:03:12.320 investment in traditional fossil fuels and now we're sort of 0:03:12.360 --> 0:03:15.320 reaping the consequences of all of that. You know, we 0:03:15.360 --> 0:03:18.440 don't have enough renewable energy to satisfy demand just now, 0:03:18.480 --> 0:03:22.240 but we also don't have enough traditional fuel. So there's 0:03:22.280 --> 0:03:25.480 just so much going on in the space. Yeah, and 0:03:25.520 --> 0:03:28.200 that that seems particularly salient in Europe, where they sort 0:03:28.240 --> 0:03:32.080 of pretty aggressively phased down nuclear and now the natural 0:03:32.120 --> 0:03:34.560 gas bills are storing anyway. Wait, wait, I just gotta 0:03:34.600 --> 0:03:38.119 say now, some people are talking about reclassifying nuclear as 0:03:38.320 --> 0:03:41.040 e s G, so something that would fit under the 0:03:41.200 --> 0:03:45.120 Environmental and Social and Governance friendly mantle, which is something 0:03:45.160 --> 0:03:47.240 that you know, if you suggested that a few years ago, 0:03:47.280 --> 0:03:51.680 people would have gone absolutely nuts. Anyway, go ahead, anything 0:03:51.760 --> 0:03:55.040 to fit anything within e s G is probably like 0:03:55.080 --> 0:03:58.160 its own it's own storry. Anyway, we have the perfect 0:03:58.160 --> 0:04:00.920 guest on because not only is he probably the best 0:04:00.960 --> 0:04:04.520 person to um talk about commodities with period, but we've 0:04:04.560 --> 0:04:07.240 had him on before. We had him on earlier this year, 0:04:07.280 --> 0:04:11.800 actually in January, and he was very bullish on commodities then, 0:04:11.960 --> 0:04:16.680 so being very knowledgeable, yes exactly. In addition to be 0:04:16.760 --> 0:04:20.440 extremely knowledgeable, he also has the benefit of having been correct, 0:04:20.760 --> 0:04:24.359 which a lot of people weren't. And so now we 0:04:24.440 --> 0:04:27.200 are we'll see what's next. Excited to bring our guests. 0:04:27.200 --> 0:04:29.359 We're gonna be speaking again with Jeff Curry, here's the 0:04:29.360 --> 0:04:33.279 global head of Commodities research at Goldman Sachs. A real 0:04:33.320 --> 0:04:35.320 treat to have him on. Jeff, thank you so much 0:04:35.360 --> 0:04:38.599 for coming back on odd lots. Great pleasure to be 0:04:38.680 --> 0:04:42.200 here again. So it's been I guess like nine months 0:04:42.200 --> 0:04:44.960 since we had you on in January and you were 0:04:45.040 --> 0:04:47.080 sort of called, you called you were bullish, and you said, 0:04:47.080 --> 0:04:49.240 this is like a big one that used a big 0:04:49.279 --> 0:04:52.839 cycle coming. And obviously if you just look at the Beacon, 0:04:53.000 --> 0:04:57.080 the Bloomberg Commodities Index or numerous you know, other headline measures, 0:04:57.640 --> 0:05:00.320 that was right. And so what what's your take on 0:05:00.480 --> 0:05:04.480 what what happened? What how did How does what happen 0:05:04.520 --> 0:05:08.480 to compare to what you foresaw? It's far more bullersh 0:05:08.480 --> 0:05:11.840 than you know, we could have ever envisioned. Let's take oil. 0:05:12.240 --> 0:05:15.919 The deficit that we can measure at the end of 0:05:16.000 --> 0:05:19.840 last month was running somewhere around four point five million 0:05:19.839 --> 0:05:22.640 barrels per day. That's nearly five percent of the market. 0:05:22.720 --> 0:05:26.839 Isn't a deficit that is such a large hole that OPEQ, 0:05:27.200 --> 0:05:30.080 the US administration, nobody's going to fix this. This is 0:05:30.120 --> 0:05:32.240 like you know, the train is off the track and 0:05:32.279 --> 0:05:36.200 you're watching it in slow motion. But it's not just oil. Uh, 0:05:36.279 --> 0:05:40.760 you see it in copper. Copper inventories dropping eight percent, 0:05:40.960 --> 0:05:43.880 ten percent week after week. These are numbers I have 0:05:44.040 --> 0:05:47.200 never envisioned or never seen before. You know, and you 0:05:47.240 --> 0:05:49.600 can think about what is going on here, and I think, 0:05:49.720 --> 0:05:51.720 you know, it goes back to Tracy's point about that 0:05:51.800 --> 0:05:56.640 zinc smelter shutting down in Europe, that problems in one 0:05:56.720 --> 0:05:59.920 market create problems in the other. So we think about 0:06:00.120 --> 0:06:02.640 you know, you know, first it was coal in China, 0:06:02.680 --> 0:06:05.719 then it became gas in Europe. Um, then it became 0:06:05.760 --> 0:06:09.640 aluminum in China, which then impacts copper elsewhere in the world. 0:06:09.680 --> 0:06:12.560 And it keeps this chain reaction going, and each one 0:06:12.600 --> 0:06:14.680 of these markets get tighter and tighter. So what is 0:06:14.720 --> 0:06:18.160 it about oil that makes this deficit so much larger 0:06:18.160 --> 0:06:21.040 than we could have ever envisioned. It's because you now 0:06:21.200 --> 0:06:25.400 have oil being used in lieu of both coal and 0:06:25.560 --> 0:06:28.599 gas because of the shortages in those markets. So bottom 0:06:28.600 --> 0:06:31.560 line is, you know, we see a lot of upside 0:06:31.640 --> 0:06:34.480 risk from these price levels which are far greater than 0:06:34.520 --> 0:06:37.159 the price levels we were forecasting when we spoke not 0:06:37.440 --> 0:06:40.560 you know, nine months ago. So bottom line, the underlying 0:06:40.600 --> 0:06:43.400 picture is far more bullish than what we had expected 0:06:43.480 --> 0:06:46.960 nine months ago. But the drivers of it are pretty 0:06:47.040 --> 0:06:49.960 much in line exactly what we thought, just in a 0:06:50.040 --> 0:06:53.920 much larger degree than what we thought. Yeah, if I 0:06:53.960 --> 0:06:56.280 could just press on that on this point, So I 0:06:56.320 --> 0:07:01.080 remember when when you unveiled your bullish commodities pieces, UM, 0:07:01.080 --> 0:07:02.840 you know, around the start of the new year or 0:07:02.839 --> 0:07:05.719 at the end of you sort of had like a 0:07:05.839 --> 0:07:09.960 trifecta of reasons UM that you thought were going to 0:07:10.080 --> 0:07:12.560 drive the market. And one was the idea of this 0:07:12.880 --> 0:07:17.880 redistributional demand, so basically, you know, people getting stimulus checks 0:07:17.880 --> 0:07:20.680 and going out and buying new things and buying steak 0:07:20.720 --> 0:07:23.240 dinners and things like that. And the second one was 0:07:23.520 --> 0:07:27.440 I think structural under investment in traditional energy like oil. 0:07:27.600 --> 0:07:30.880 And then the third was this idea of supply chains 0:07:30.920 --> 0:07:34.080 and stockpiling, so people just sort of trying to build 0:07:34.120 --> 0:07:38.280 up their own energy independence or resiliency. And I'm curious, 0:07:38.320 --> 0:07:41.720 just looking back at that framework, is there a particular 0:07:41.840 --> 0:07:44.680 thing that that has surprised you or stood out, Like, 0:07:44.840 --> 0:07:49.040 is there one leg of that sort of tripod analysis 0:07:49.160 --> 0:07:53.120 that has UM really like caused the big spike that 0:07:53.160 --> 0:07:59.480 we're seeing. Actually, all three are far more important than 0:07:59.480 --> 0:08:01.280 what we ever envision, and I actually want to go 0:08:01.360 --> 0:08:04.040 with the one that predates COVID, and the one that 0:08:04.120 --> 0:08:08.280 predates COVID is the under investment thesis. You know, the 0:08:08.280 --> 0:08:11.840 theme that we termed it is the revenge of the 0:08:11.880 --> 0:08:16.480 old economy put bluntly poor returns in the old economy, 0:08:16.720 --> 0:08:20.240 saw a capital redirected away from the old economy and 0:08:20.280 --> 0:08:23.480 towards the new economy, basically taking from the exxons of 0:08:23.480 --> 0:08:25.880 the world and given to the netflix of the world. 0:08:26.360 --> 0:08:29.680 And as a result, you starve the old economy of 0:08:29.760 --> 0:08:33.800 the capital base it needed to grow production and hence 0:08:33.840 --> 0:08:36.200 the problems with today. So if it's trucking in the US, 0:08:36.280 --> 0:08:39.839 which is old economy, chip manufacturers for autos which is 0:08:39.880 --> 0:08:44.120 old economy, energy and gas in Europe, or coal in China, 0:08:44.200 --> 0:08:47.040 they're all the same story. Now you can argue with 0:08:47.080 --> 0:08:50.000 the hydrocarbons, as you pointed out that you know the 0:08:50.040 --> 0:08:52.960 E S G factor turbo charges this story, and it 0:08:53.000 --> 0:08:55.680 clearly has in places like Europe. But I want to 0:08:55.720 --> 0:08:59.600 emphasize at its core is that these companies have failed 0:08:59.600 --> 0:09:02.560 to delt over good returns over the last five to 0:09:02.640 --> 0:09:04.640 ten years and investors have had enough. And I like 0:09:04.679 --> 0:09:06.440 to point out, you know, we got a lot of 0:09:06.480 --> 0:09:10.000 investors back into the commodity and old economy space, you know, 0:09:10.040 --> 0:09:12.920 and when we were talking last January, but prices went 0:09:13.000 --> 0:09:16.120 up to eighty this summer on on oil. I remember 0:09:16.120 --> 0:09:18.920 it was late August, round August there was a Friday 0:09:18.960 --> 0:09:21.839 Oil collapsed back down to six five, and these investors going, 0:09:22.200 --> 0:09:24.640 you lured us back in there, You said the coast 0:09:24.720 --> 0:09:27.480 was clear, We got in here and we just got 0:09:27.520 --> 0:09:31.920 completely hammered in terms of the volatility. They left. Then 0:09:31.920 --> 0:09:33.880 oil prices, where are they getting their back up to 0:09:34.240 --> 0:09:36.960 eighty three? And that there's something inherent about the investments 0:09:37.000 --> 0:09:40.040 in here that make it difficult to attract capital. It's 0:09:40.080 --> 0:09:43.240 not gonna be a smooth ride, you know, like it 0:09:43.280 --> 0:09:45.360 is in tech stocks where you just trended up. Instead, 0:09:45.400 --> 0:09:47.360 it's going to be very volatile. So the bottom line, 0:09:47.640 --> 0:09:51.920 we're sitting there eight four dollar barrel oil um today 0:09:52.000 --> 0:09:55.840 and there's no evidence of big increases in capex drilling, 0:09:55.920 --> 0:09:59.920 greenfield capex in in in metals or you know, new 0:10:00.040 --> 0:10:02.600 eight re gen agriculture. I can keep going down the list. 0:10:02.840 --> 0:10:05.120 So not only are the C suites of the corporates 0:10:05.160 --> 0:10:08.400 not spending on capex, but the investment dollars in this 0:10:08.480 --> 0:10:11.360 space is quite low um. And as a result, if 0:10:11.360 --> 0:10:13.560 you get the investors to come back into space, which 0:10:13.559 --> 0:10:15.520 we think could happen if we go into year end, 0:10:15.760 --> 0:10:20.160 it could catapult the situation on relatively tight fundamentals that 0:10:20.200 --> 0:10:22.720 I started this discussion with. So I would say that's 0:10:22.760 --> 0:10:24.240 the one I want to point out the startk But 0:10:24.360 --> 0:10:27.520 just quickly on the redistribution story that that you bring up. 0:10:28.280 --> 0:10:32.120 The redistribution story is much broad based around the world. 0:10:32.520 --> 0:10:35.400 Then then what we initially thought and if we think 0:10:35.480 --> 0:10:37.880 about you know, in the US when we were talking 0:10:37.920 --> 0:10:41.560 to January, we have ever envisioned the three point five 0:10:41.760 --> 0:10:47.600 trillion dollar US Human Infrastructure Fund. Absolutely it was. I mean, 0:10:47.640 --> 0:10:52.400 it shows you how much larger these redistribution policies have become. Also, 0:10:52.559 --> 0:10:55.960 you know the one point nine trillion dollar Recovery Act 0:10:56.000 --> 0:10:58.360 back in you know, March then we thought it's going 0:10:58.400 --> 0:11:00.720 to be one point one trillion. It shows you just 0:11:00.760 --> 0:11:04.720 how much bigger these redistribution policies. China has its common 0:11:04.760 --> 0:11:08.400 prosperity green leveling. Here in the UK, um, so it's 0:11:08.480 --> 0:11:12.319 very you look at Germany's government um going moving left, 0:11:12.360 --> 0:11:14.680 you know, Latin America's move left since we last talk. 0:11:14.800 --> 0:11:18.080 So the bottom line is, you know, the redistribution policies 0:11:18.520 --> 0:11:20.640 are also bigger than what we thought. And then finally 0:11:20.640 --> 0:11:23.360 just point on you know about the call it deglobalization. 0:11:23.840 --> 0:11:26.080 I'd like to argue the trucking problem in the US 0:11:26.160 --> 0:11:30.440 exemplifies the problems around d globalization. Is because you have 0:11:30.720 --> 0:11:34.720 too much stuff being produced locally at home in the US, 0:11:34.880 --> 0:11:40.240 which overwhelms the transportation, warehousing, trucking, rail system, which has 0:11:40.280 --> 0:11:42.040 helped create some of the problems there. So when we 0:11:42.080 --> 0:11:46.960 can think about United States exemplifies the problems with de globalization. 0:11:47.400 --> 0:11:51.040 Europe exemplifies the problems with de carbonization with what's going 0:11:51.080 --> 0:11:53.680 on in its gas crisis. Anyway, that's a long answer 0:11:53.679 --> 0:11:56.199 to your question about all th surprise to the up side. 0:11:56.720 --> 0:11:59.120 I mean, we want to hit all these topics more, 0:11:59.200 --> 0:12:01.440 but let's go little bit more into this sort of 0:12:01.480 --> 0:12:07.200 like decarbonization E. S G stuff, because I think there 0:12:07.240 --> 0:12:09.200 are a lot of people who are like, ah, we 0:12:09.320 --> 0:12:12.439 told you so. You had your like you politicians had 0:12:12.440 --> 0:12:14.880 your visions of like a green economy where at all 0:12:14.960 --> 0:12:18.120 like how everything with windmills and solar panels and now 0:12:18.200 --> 0:12:20.880 look and now look at the price we're paying and 0:12:20.920 --> 0:12:22.720 maybe we won't even be able to heed our homes. 0:12:23.120 --> 0:12:25.000 But the way you described it as a little bit 0:12:25.040 --> 0:12:29.000 as like maybe some of that, but also like politics society. 0:12:29.040 --> 0:12:32.959 A lot of these traditional fossil fuel investments were not 0:12:33.200 --> 0:12:37.760 great period. So how much is it sort of as 0:12:37.800 --> 0:12:42.520 you say, decarbonization policy, they've contributed to the that's contributing 0:12:42.520 --> 0:12:47.760 to this revenge of the old economy versus decarbonization economics 0:12:47.840 --> 0:12:51.040 where people just weren't making the investments because the numbers 0:12:51.040 --> 0:12:55.199 weren't good. Yeah. That the bottom line is the returns 0:12:55.200 --> 0:12:58.440 in this sector were abysmal. And I don't care if 0:12:58.440 --> 0:13:00.880 it is oil again. When you say this sector, you mean, 0:13:01.160 --> 0:13:05.720 we're just to be clear about oil prices were negative 0:13:05.800 --> 0:13:09.439 last year. You couldn't create a more hostile environment, you know. 0:13:09.600 --> 0:13:12.040 So when you look at the investors that I try 0:13:12.080 --> 0:13:14.320 to get to come back in this space, they're going, no, 0:13:14.640 --> 0:13:17.000 I've been there, I've done that. I know how painful 0:13:17.040 --> 0:13:19.480 this sector is. Um And so the way you could 0:13:19.559 --> 0:13:22.920 argue is E s G. The binding constraint. Show me 0:13:23.160 --> 0:13:27.160 a great company with fantastic returns. It's not getting capital 0:13:27.440 --> 0:13:29.360 due to E s G. Right now, they don't get 0:13:29.400 --> 0:13:34.000 returns because they've demonstrated a very difficult environment to generate 0:13:34.040 --> 0:13:36.360 returns on average. In fact, you know, you look at it, 0:13:36.400 --> 0:13:38.720 they've shrank down to two and a half percent of 0:13:38.760 --> 0:13:41.439 the SMP five, which show to give you an idea, 0:13:41.440 --> 0:13:45.120 in the late seventies they're running around. So it's a 0:13:45.160 --> 0:13:47.400 big shift here. And I think you know so you know, 0:13:47.440 --> 0:13:51.520 I spend time talking to many um, you know, energy specialists, 0:13:51.520 --> 0:13:53.120 and you get C I. O. S of these big 0:13:53.120 --> 0:13:56.520 asset managers on going, hey, I'll listen to him once, 0:13:56.600 --> 0:13:58.960 but I've been there and done that before, and I'm 0:13:59.000 --> 0:14:00.880 just not that interesting. And here's a point when you 0:14:00.920 --> 0:14:05.160 look at the two thousand's um that bull market prices 0:14:05.160 --> 0:14:08.520 spiked in oh three, but it wasn't an until oh 0:14:08.800 --> 0:14:11.760 six that the capex began to flow. Why because they 0:14:11.800 --> 0:14:14.080 had a couple of years of really good returns and 0:14:14.120 --> 0:14:16.160 the and the investors felt really good about it. But 0:14:16.160 --> 0:14:18.480 I think you know the key point here is first 0:14:18.480 --> 0:14:21.400 and foremost it is the revenge of the old economy 0:14:21.440 --> 0:14:25.680 and poor returns why the sector doesn't get money more recently. 0:14:25.680 --> 0:14:27.520 You can say that you know it's likely to be 0:14:27.800 --> 0:14:29.360 E S G. But I'm gonna give you an example 0:14:29.400 --> 0:14:31.880 in Europe where it clearly is E s G. You know, 0:14:31.960 --> 0:14:35.760 the courts in Europe the head ruled against Shell, made 0:14:35.880 --> 0:14:39.360 Shell liable for scope three emissions. That's what the users 0:14:39.680 --> 0:14:43.320 of oil created. You know, that's massive liability. UM. Yes, 0:14:43.360 --> 0:14:44.960 they all appeal. It is going to be you know, 0:14:45.120 --> 0:14:47.680 five ten years from now. I think the key point 0:14:47.720 --> 0:14:51.600 here is that UM with that kind of liability risk, 0:14:52.240 --> 0:14:54.840 nobody in the right mind is gonna make large scale 0:14:54.880 --> 0:14:57.800 investments in places like the North Sea again because they 0:14:57.840 --> 0:14:59.800 don't want to be associated with that kind of live 0:15:00.280 --> 0:15:02.840 So it is beginning to bite. But is that you 0:15:02.880 --> 0:15:05.960 know your standard E s G um investors And I 0:15:06.000 --> 0:15:08.160 do want to say, they've raised the cost of capital 0:15:08.240 --> 0:15:10.000 and we're going to find out. And this is where 0:15:10.000 --> 0:15:12.280 the E s G really comes into play, because we're 0:15:12.280 --> 0:15:15.120 going to find out what price of oil do you 0:15:15.200 --> 0:15:17.920 need to get capital to flow? I like Scott Sheffield 0:15:17.960 --> 0:15:20.520 of Pioneer, he said a few weeks ago. He goes, 0:15:20.760 --> 0:15:22.560 he I don't care if the oil price goes to 0:15:22.600 --> 0:15:24.480 a hundred dollars of barrel. I'm not going to drill. 0:15:24.800 --> 0:15:26.880 What's gonna make me drill? I need my stock price 0:15:26.920 --> 0:15:29.400 to double. And we're going to find out at what 0:15:29.560 --> 0:15:32.120 price of oil these investors will start to buy these 0:15:32.160 --> 0:15:35.360 stocks again. You may be maybe right, Joe, and maybe 0:15:35.520 --> 0:15:37.080 you know that they're just not going to buy it 0:15:37.080 --> 0:15:38.920 because of E s G concerns. I tend to think 0:15:38.960 --> 0:15:42.120 that's not the case. There is a cost of capital 0:15:42.120 --> 0:15:45.040 associated with de carbonization, and we're going to find out 0:15:45.080 --> 0:15:49.040 what that cost is. Just on the topic of oil, 0:15:49.080 --> 0:15:52.160 I mean, how much blame can you lay at OPEC 0:15:52.400 --> 0:15:56.680 for investor unwillingness to put money into stuff like US 0:15:56.840 --> 0:15:59.680 shill So you know, there was always the sense that 0:15:59.760 --> 0:16:03.520 if shale flooded the market, then OPEC would react in 0:16:03.560 --> 0:16:06.320 some way and boost their own production and drive a 0:16:06.320 --> 0:16:09.160 bunch of the shale producers out of business. And then now, 0:16:09.720 --> 0:16:12.600 even as we see oil prices pressured higher, I mean, 0:16:12.600 --> 0:16:16.920 OPEC is still being pretty disciplined in terms of production. 0:16:17.000 --> 0:16:19.400 They haven't said they're going to ramp up output by 0:16:19.440 --> 0:16:22.600 that much. So I guess the question is, like, what 0:16:22.880 --> 0:16:28.240 role does OPEQ play in investors calculations? The current OPEC 0:16:28.400 --> 0:16:30.800 they got religion, they understand it, They've been through a 0:16:30.800 --> 0:16:33.480 lot of pain. They couldn't have a better business model 0:16:33.480 --> 0:16:36.480 than what they have today. They're focused on balance in 0:16:36.520 --> 0:16:39.320 the market on a near term basis, keeping inventory low, 0:16:39.680 --> 0:16:42.280 keeping the forward curve and what we call a backwardations 0:16:42.320 --> 0:16:44.480 are focused on what they can control, which is the 0:16:44.640 --> 0:16:47.800 very near term balance, and then they create a credible 0:16:47.840 --> 0:16:50.600 threat that will bring on in capacity, bring investment on, 0:16:50.800 --> 0:16:53.360 which keeps the back into the curve it depressed, so 0:16:53.400 --> 0:16:55.720 they got what we call a back redated curve. Spot 0:16:55.760 --> 0:16:58.960 prices are high, back end prices are low. But to 0:16:59.120 --> 0:17:01.440 get to that level, well, to get to this great 0:17:01.480 --> 0:17:04.399 discipline and that I would argue, you know, a great 0:17:04.920 --> 0:17:07.920 um policy structure which makes sense of given how much 0:17:07.960 --> 0:17:10.600 share they control in the market. It was a big 0:17:10.640 --> 0:17:15.280 policy mistake, and that policy from November sixteen till March 0:17:15.320 --> 0:17:19.199 of two thousand and twenty was utterly disastrous and created 0:17:19.200 --> 0:17:21.679 a lot of problems we have today. They didn't. They 0:17:21.880 --> 0:17:24.520 not a monopolist. They're not like the Federal Reserve, where 0:17:24.560 --> 0:17:26.800 they have a percent market share over the dollar. They 0:17:26.800 --> 0:17:29.800 don't have. They have, maybe you put them all together, 0:17:29.880 --> 0:17:33.399 a thirty three to market share over the barrels. And 0:17:33.400 --> 0:17:36.320 so for their ability to cut back production and maintain 0:17:36.400 --> 0:17:40.840 prices at six sixty five was always invariably unstable, and 0:17:40.880 --> 0:17:44.960 the investors that got lured into investing in the sector 0:17:45.040 --> 0:17:48.440 based upon that sixty dollar price had a high probability 0:17:48.520 --> 0:17:50.720 of having the problems that they ran into in late 0:17:50.800 --> 0:17:54.840 nineteen in um so, but I do want to say 0:17:54.880 --> 0:17:56.800 I think they've learned from those mistakes. You know that 0:17:56.880 --> 0:18:00.119 the new group of of energy ministers in particular, I 0:18:00.160 --> 0:18:03.440 think they understand all these issues, and so I'd argue 0:18:03.480 --> 0:18:06.080 that they're doing a fantastic job. But they're they're really 0:18:06.080 --> 0:18:07.960 sticking to what they're supposed to do, and what they're 0:18:07.960 --> 0:18:11.199 really good at is managing a near term imbalances in 0:18:11.240 --> 0:18:14.400 the market and focusing on providing capacity on a longer 0:18:14.520 --> 0:18:17.159 term basis, which has left the curve and the forward 0:18:17.200 --> 0:18:20.520 curve and a backgradation which makes it really difficult for 0:18:21.119 --> 0:18:23.680 you know, the e MP producers to hedge. Why because 0:18:23.720 --> 0:18:26.560 prices are a huge discount on the back end relative 0:18:26.640 --> 0:18:45.680 to where they are on the spot. So before we 0:18:45.720 --> 0:18:48.320 move off of oil, I want to talk about US 0:18:48.400 --> 0:18:50.600 oil a little bit more. And you know, I'm thinking 0:18:50.600 --> 0:18:55.600 back to like the good old years, and there was 0:18:55.680 --> 0:19:00.320 this perception, or there was this characterization of US shale 0:19:00.520 --> 0:19:03.000 as the swing producer that sort of kept a lid 0:19:03.000 --> 0:19:06.119 on prices because as soon as prices would rise a 0:19:06.160 --> 0:19:10.440 little bit, they could quickly ramp up production and that 0:19:10.480 --> 0:19:13.200 would bring prices down, and part of it was a 0:19:13.359 --> 0:19:17.080 rate story, maybe part of it was a technology story. 0:19:17.119 --> 0:19:20.600 What is the status of US production now and why 0:19:20.720 --> 0:19:24.040 is it not having that effect of being able to 0:19:24.560 --> 0:19:29.000 ramp up aggressively and sort of smoothly. I mean, I 0:19:29.000 --> 0:19:31.400 think there is some increase in the ring counts, but 0:19:31.480 --> 0:19:33.680 as you as you said, not that much. So why 0:19:33.680 --> 0:19:36.399 are we not seeing something greater out of the U 0:19:36.520 --> 0:19:40.200 s as a stabilizing for US? For one, back then, 0:19:40.560 --> 0:19:45.560 you know the companies were rewarded on volumetric growth, not 0:19:45.720 --> 0:19:49.840 on return on equity. The investors paid a terrible price 0:19:49.920 --> 0:19:52.879 for that period. You look at the industry and you 0:19:52.920 --> 0:19:55.280 know it destroyed a lot of wealth, like ten to 0:19:55.359 --> 0:19:57.760 twenty cents on every single dollar. I think the number 0:19:57.840 --> 0:20:00.000 is actually closer to thirty cents on every day super 0:20:00.000 --> 0:20:05.080 basically like every so basically that aggressive supply response it 0:20:05.160 --> 0:20:07.240 was just a mistake, Like it was just a bad 0:20:07.359 --> 0:20:09.560 it was it was in retrospect, it turned out to 0:20:09.600 --> 0:20:12.080 be a bad approach to business because they were they 0:20:12.080 --> 0:20:15.560 were operating at like a hundred and five hundred and 0:20:15.560 --> 0:20:18.960 fifteen percent of cash flow, So you know what they 0:20:19.000 --> 0:20:22.160 were doing is they're basically growing volumes on the expectation 0:20:22.280 --> 0:20:26.120 of future returns. But obviously when you grew all those volumes, 0:20:26.119 --> 0:20:28.640 you get crushed on the back end in terms of 0:20:28.680 --> 0:20:32.200 what was being delivered, and so the focus left being 0:20:32.680 --> 0:20:35.040 a focus on r o E and instead being a 0:20:35.160 --> 0:20:38.879 focus on growth. Today the focus is on r o E. 0:20:39.119 --> 0:20:41.000 They want to get those return on equity up. And 0:20:41.080 --> 0:20:43.320 by the way, the investors who owned this company, they 0:20:43.359 --> 0:20:45.960 want their money back, you know, the the the OPEC 0:20:46.080 --> 0:20:48.880 ministers want their money back. Everybody wants their money back 0:20:48.920 --> 0:20:52.000 from the disastrous experience over the course of the last 0:20:52.040 --> 0:20:54.920 call it, you know, five to seven years. So at 0:20:54.960 --> 0:20:57.720 this point you look at why aren't they drilling because 0:20:57.760 --> 0:21:00.960 for the first time in nearly a decade, in fact, 0:21:01.000 --> 0:21:02.720 you probably have to go back to oh yeah, you 0:21:02.760 --> 0:21:04.800 got to go back to oh seven oh eight, that 0:21:04.920 --> 0:21:08.120 these companies are finally getting free cash flow going up, 0:21:08.280 --> 0:21:12.320 they're not overspending um, they have returns moving higher, and 0:21:12.359 --> 0:21:15.560 so now they're getting rewarded on return on equity as 0:21:15.560 --> 0:21:17.720 opposed to growth. And it's gonna be a while. They're 0:21:17.760 --> 0:21:20.119 gonna get they want everybody wants to be made whole, 0:21:20.480 --> 0:21:22.200 and then they're going to get the green light to 0:21:22.280 --> 0:21:24.120 go out and invest. It goes kind of the point. 0:21:24.160 --> 0:21:27.440 I think Scott Sheffield got it right. The focus here 0:21:27.520 --> 0:21:30.280 is not on the dollar price of oil, but where 0:21:30.359 --> 0:21:32.600 is their stock price and their access to capital. Now 0:21:32.640 --> 0:21:35.080 here comes the whole E s G issue, which means 0:21:35.480 --> 0:21:37.280 that that hurdle rate is going to be higher and 0:21:37.359 --> 0:21:40.119 higher before that capital is going to come in and 0:21:40.160 --> 0:21:42.120 make that stock price go higher. I tend to think 0:21:42.240 --> 0:21:44.639 there's always somebody in the world out there who's going 0:21:44.720 --> 0:21:46.840 to buy this, which is why when you look at 0:21:46.840 --> 0:21:49.520 the you know, the investors that do pursue, you know, 0:21:49.560 --> 0:21:52.000