1 00:00:05,840 --> 00:00:09,119 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:09,200 --> 00:00:12,280 Speaker 1: I'm Tracy Allaway and I'm Joe. Isn't the Joe. Have 3 00:00:12,480 --> 00:00:15,440 Speaker 1: you looked at the price of oil recently? No? Is it? 4 00:00:15,480 --> 00:00:18,200 Speaker 1: Is it doing something? Has oil been moving lately? I 5 00:00:18,200 --> 00:00:21,840 Speaker 1: don't know, you hadn't noticed. Yes, it has. Um I 6 00:00:21,880 --> 00:00:25,119 Speaker 1: think you know. We're recording this on March tenth. But 7 00:00:25,320 --> 00:00:28,000 Speaker 1: just in the past couple of days, oil spiked almost 8 00:00:28,880 --> 00:00:32,599 Speaker 1: and then came down by almost as well the next day. 9 00:00:32,680 --> 00:00:37,680 Speaker 1: So just incredibly volatile times for commodities across the complex. Yes. 10 00:00:37,800 --> 00:00:41,000 Speaker 1: In fact, I think within the last week we both 11 00:00:41,040 --> 00:00:44,040 Speaker 1: had the biggest update for the Bloomberg Commodity Spot Index 12 00:00:44,120 --> 00:00:46,800 Speaker 1: its two thousand eight and the biggest down day for 13 00:00:46,840 --> 00:00:50,760 Speaker 1: the same index's two thousand eight. Unreal volatility because you 14 00:00:50,840 --> 00:00:54,840 Speaker 1: have the combination of an extremely tight market across the board, 15 00:00:55,520 --> 00:01:00,720 Speaker 1: combined with geopolitical events that of course are inherent the uncertain, 16 00:01:00,760 --> 00:01:03,960 Speaker 1: non linear, and unpredictable. Yeah, and you kind of have 17 00:01:04,040 --> 00:01:07,160 Speaker 1: to wonder what it's actually like to be trading commodities 18 00:01:07,240 --> 00:01:09,600 Speaker 1: at the moment, because not only do you have this 19 00:01:09,760 --> 00:01:12,800 Speaker 1: massive price volatility, but you also have everything that's going 20 00:01:12,840 --> 00:01:17,880 Speaker 1: on in the background with financing and exchanges, them having 21 00:01:17,920 --> 00:01:20,520 Speaker 1: to deal with this intense volatility and sometimes you know, 22 00:01:20,640 --> 00:01:23,400 Speaker 1: sort of um canceling trades, which is something we saw 23 00:01:23,400 --> 00:01:26,800 Speaker 1: from the London Medal. Exchange of financing has become an 24 00:01:26,840 --> 00:01:30,840 Speaker 1: issue people taking physically physical delivery of stuff. Is there 25 00:01:30,840 --> 00:01:33,920 Speaker 1: actually going to be enough to settle some of these contracts. 26 00:01:34,120 --> 00:01:36,480 Speaker 1: There's so many questions around the space right now, in 27 00:01:36,520 --> 00:01:40,360 Speaker 1: addition to actually what's going on with Russia and Ukraine. Yeah, 28 00:01:41,600 --> 00:01:45,000 Speaker 1: the degrees of uncertainty or the vectors of uncertainty, just 29 00:01:45,360 --> 00:01:48,720 Speaker 1: because there's the pure price question. Then as you mentioned, 30 00:01:49,000 --> 00:01:52,920 Speaker 1: the physical availability, the ability to move the oil, the 31 00:01:52,960 --> 00:02:00,560 Speaker 1: interaction between oil and sanctions or self sanctions unbelievably complicated times. Well, 32 00:02:00,600 --> 00:02:02,240 Speaker 1: I am very pleased to say that we are going 33 00:02:02,280 --> 00:02:04,520 Speaker 1: to be talking about all of this with really I 34 00:02:04,560 --> 00:02:06,520 Speaker 1: know we say this all the time, but really the 35 00:02:06,600 --> 00:02:10,400 Speaker 1: perfect guest, someone who has basically made a career out 36 00:02:10,440 --> 00:02:14,480 Speaker 1: of trading oil and other commodities at very volatile times 37 00:02:14,600 --> 00:02:17,600 Speaker 1: and has been very good at it um in recent years. 38 00:02:17,840 --> 00:02:20,440 Speaker 1: We're going to be speaking with Pierre and Gerund, the 39 00:02:20,480 --> 00:02:25,640 Speaker 1: founder of Anderond Capital Management, big commodities hedge funds. So, Pierre, 40 00:02:25,760 --> 00:02:28,079 Speaker 1: thank you so much for coming on my pleasure. High 41 00:02:28,120 --> 00:02:31,239 Speaker 1: Joe High, Tracy, Hi, So I'm trying to think where 42 00:02:31,280 --> 00:02:34,079 Speaker 1: to begin, but maybe maybe we just ask you, how 43 00:02:34,120 --> 00:02:36,600 Speaker 1: have the past couple of weeks been for you? Well, 44 00:02:36,639 --> 00:02:38,760 Speaker 1: I mean it's been a lot of work men. Clearly, 45 00:02:39,200 --> 00:02:43,120 Speaker 1: it's a new it's a market that's driven by geopolitical events. Um, 46 00:02:43,520 --> 00:02:46,720 Speaker 1: there's been a lot of reading trying to understand, you know, 47 00:02:46,760 --> 00:02:48,440 Speaker 1: how the war will turn out and the kind of 48 00:02:48,560 --> 00:02:51,800 Speaker 1: sanctions and that that that that will happen and they'll 49 00:02:52,160 --> 00:02:54,880 Speaker 1: keep on being added every day. So it's been, you know, 50 00:02:55,120 --> 00:02:58,239 Speaker 1: lots of work and very stressful and also obviously very 51 00:02:58,280 --> 00:03:00,960 Speaker 1: sad to witness that we have such a war now 52 00:03:01,000 --> 00:03:04,080 Speaker 1: in the twenty one century. Um, we don't expect that, 53 00:03:04,440 --> 00:03:07,920 Speaker 1: you know, we don't tell you very unnecessary war and 54 00:03:07,919 --> 00:03:11,720 Speaker 1: and really tragic. So, Um, a lot of emotions and 55 00:03:11,720 --> 00:03:13,640 Speaker 1: and a lot of work and a lot of stress. Actually. 56 00:03:14,600 --> 00:03:18,320 Speaker 1: So obviously we've seen this incredible well we've seen this 57 00:03:18,639 --> 00:03:21,760 Speaker 1: huge surge in the price of oil that goes without 58 00:03:21,800 --> 00:03:28,240 Speaker 1: saying this steep contango, which signifies the market is extremely tight. 59 00:03:28,760 --> 00:03:31,680 Speaker 1: Are there any historical periods maybe let's start there, like 60 00:03:31,800 --> 00:03:35,080 Speaker 1: how novel does this feel in terms of the market 61 00:03:35,680 --> 00:03:37,840 Speaker 1: or is this does it feel like the sort of 62 00:03:37,880 --> 00:03:41,680 Speaker 1: general conditions are something you've seen before, Like how much 63 00:03:41,760 --> 00:03:44,240 Speaker 1: is everyone in new territory here? Yeah, I think it's 64 00:03:44,240 --> 00:03:47,200 Speaker 1: a new territory. I can't speak of an event that 65 00:03:47,240 --> 00:03:50,240 Speaker 1: will seemed over the last few decades really, um, So 66 00:03:50,280 --> 00:03:53,800 Speaker 1: we started the year already with very low inventories, with 67 00:03:54,000 --> 00:03:56,280 Speaker 1: the low spec capacity in the hands of Opeque and 68 00:03:56,320 --> 00:04:01,560 Speaker 1: in general low production cacy production capacity, a low expected 69 00:04:01,960 --> 00:04:06,520 Speaker 1: supply goes and high expected demand goes thanks to you know, 70 00:04:06,560 --> 00:04:09,240 Speaker 1: the week of we from COVID. So we already started 71 00:04:09,280 --> 00:04:12,560 Speaker 1: the year before the invasion with very very strong fundamentals 72 00:04:12,600 --> 00:04:15,800 Speaker 1: and the level of inventories are very low. The level 73 00:04:15,840 --> 00:04:19,160 Speaker 1: of backqualation so actually, you know, the stronger backqualation and 74 00:04:19,240 --> 00:04:22,680 Speaker 1: needs backqualation means the content the first contracts are much 75 00:04:22,720 --> 00:04:24,880 Speaker 1: higher than the back contracts and and it means that 76 00:04:24,880 --> 00:04:28,279 Speaker 1: the market is very tight physically. So we were already 77 00:04:28,320 --> 00:04:32,800 Speaker 1: at two dollars a months backqualation before Russia invaded Ukraine 78 00:04:33,279 --> 00:04:35,920 Speaker 1: and night between four and five dollars depending on the 79 00:04:36,000 --> 00:04:39,880 Speaker 1: day for for the first three months, and gas all 80 00:04:40,000 --> 00:04:43,400 Speaker 1: went to crazy backualation. At some point it was above 81 00:04:43,440 --> 00:04:46,520 Speaker 1: fifty dollars the bubble in one month, you know, between 82 00:04:46,560 --> 00:04:49,400 Speaker 1: the March and April contracts. So we've never seen this 83 00:04:49,600 --> 00:04:53,000 Speaker 1: type of backqualation and and and such a strong felical market. 84 00:04:53,120 --> 00:04:57,000 Speaker 1: And it's only the start, you know, so far there's 85 00:04:57,040 --> 00:04:59,320 Speaker 1: you know, they haven't been like massive dis options yet. 86 00:04:59,400 --> 00:05:02,120 Speaker 1: It's just the the fears of how the sanctions will 87 00:05:02,200 --> 00:05:05,880 Speaker 1: bite that that keeps the market tight. So it could 88 00:05:05,880 --> 00:05:08,320 Speaker 1: be only the beginning, like it could be the end. 89 00:05:09,200 --> 00:05:11,400 Speaker 1: We don't know, So it makes it difficult to to 90 00:05:11,400 --> 00:05:14,480 Speaker 1: to make strong calls like Tracy, did I say contango 91 00:05:14,720 --> 00:05:18,080 Speaker 1: or vagradation? Of my question? I always get I always 92 00:05:18,400 --> 00:05:20,440 Speaker 1: I always slip and say the wrong one, even if 93 00:05:20,440 --> 00:05:23,279 Speaker 1: they're all these years of trying to memorize it. But 94 00:05:23,360 --> 00:05:25,240 Speaker 1: I do know that the front month oil is far 95 00:05:25,279 --> 00:05:27,960 Speaker 1: more expensive than the oil further out. Yes, I only 96 00:05:28,000 --> 00:05:30,640 Speaker 1: remember the term because of that oil buying a barrel 97 00:05:30,680 --> 00:05:33,000 Speaker 1: of oil peace and then trying to buy a barrel 98 00:05:33,000 --> 00:05:34,720 Speaker 1: of oil back when it was in contango and we 99 00:05:34,760 --> 00:05:36,560 Speaker 1: could all store it under our beds and wait for 100 00:05:36,640 --> 00:05:39,040 Speaker 1: prices to increase. But that is not the case. Anymore, 101 00:05:39,120 --> 00:05:42,479 Speaker 1: we are firmly in backwardation. Um, let me ask a 102 00:05:42,640 --> 00:05:46,279 Speaker 1: very basic question, which is I feel like your fund 103 00:05:46,640 --> 00:05:50,479 Speaker 1: is often described as having bullish bets on commodities, but 104 00:05:50,600 --> 00:05:52,760 Speaker 1: I actually don't have a very good grasp of what 105 00:05:52,839 --> 00:05:55,599 Speaker 1: those look like. How do you know how do you 106 00:05:55,600 --> 00:05:59,200 Speaker 1: actually invest without revealing all of your trades and the book, 107 00:05:59,720 --> 00:06:02,440 Speaker 1: but how do you actually invest in commodities? And what 108 00:06:02,520 --> 00:06:06,280 Speaker 1: did your positions you know, generally look like going into 109 00:06:06,360 --> 00:06:09,719 Speaker 1: I guess the recent turmoil. Sure, so actually, you know, 110 00:06:09,800 --> 00:06:13,320 Speaker 1: I'm quite agnostic to you know, over time if places 111 00:06:13,440 --> 00:06:15,559 Speaker 1: go up or down. So I'm not a producer of oil. 112 00:06:15,960 --> 00:06:18,479 Speaker 1: So for me, I just you know, study the fundamental 113 00:06:18,839 --> 00:06:22,359 Speaker 1: of the market, studies the growth of demand relative to 114 00:06:22,360 --> 00:06:25,880 Speaker 1: the growth of supply, and as the wizard, uh, you know, 115 00:06:25,920 --> 00:06:27,720 Speaker 1: have an idea if inventories are going to go up 116 00:06:27,720 --> 00:06:30,599 Speaker 1: on or done it, and what kind of price would 117 00:06:30,640 --> 00:06:33,400 Speaker 1: actually balance the market that we don't run out of 118 00:06:33,440 --> 00:06:38,160 Speaker 1: inventories or we don't run out of of storage to 119 00:06:38,160 --> 00:06:41,320 Speaker 1: to to put that inventory in. So actually I have 120 00:06:41,560 --> 00:06:43,839 Speaker 1: not always been bullish. You know. There are period of 121 00:06:43,839 --> 00:06:48,120 Speaker 1: time where we had big based positions, such as second 122 00:06:48,120 --> 00:06:51,479 Speaker 1: half of two thousand and eight, we were short. The 123 00:06:51,640 --> 00:06:53,520 Speaker 1: end of two thousand and fourteen, we were shot the 124 00:06:53,520 --> 00:06:56,680 Speaker 1: world of two thousand and fifteen. We were shot before COVID. 125 00:06:56,839 --> 00:07:00,040 Speaker 1: I mean when COVID started, we were shot down to 126 00:07:00,200 --> 00:07:04,080 Speaker 1: negative prices. Um. So I've not only been long, right, 127 00:07:04,160 --> 00:07:07,000 Speaker 1: we happened where we're long people where we were shot. 128 00:07:07,080 --> 00:07:09,479 Speaker 1: So for me, I'm trying to make money from the 129 00:07:09,640 --> 00:07:13,400 Speaker 1: large move in your market. So it means that sometimes 130 00:07:13,440 --> 00:07:16,280 Speaker 1: will bet that prices will go up for sometimes for 131 00:07:16,360 --> 00:07:19,280 Speaker 1: a few months or a few years, and and sometimes 132 00:07:19,280 --> 00:07:22,440 Speaker 1: will bet that they go down over generally a few months, um, 133 00:07:22,560 --> 00:07:26,440 Speaker 1: but actually like a year even um. So to to 134 00:07:26,600 --> 00:07:28,760 Speaker 1: bet on all prices going up, I mean what we 135 00:07:28,840 --> 00:07:31,680 Speaker 1: do is we buy if we think that if we 136 00:07:31,760 --> 00:07:34,360 Speaker 1: have a British view on the market, meaning that we 137 00:07:34,400 --> 00:07:37,040 Speaker 1: expect prices to work, what we do is that we 138 00:07:37,160 --> 00:07:41,360 Speaker 1: buy futures, and so for Apple brand futures or the 139 00:07:41,360 --> 00:07:45,160 Speaker 1: ability and futures, or we can be heating oil or 140 00:07:45,200 --> 00:07:50,120 Speaker 1: gas oil or gasoline futures, and we'll pick like a 141 00:07:50,160 --> 00:07:52,880 Speaker 1: month for Apple if we want to belong the front 142 00:07:52,880 --> 00:07:55,840 Speaker 1: month contracts for an Apple at the moment it's it's 143 00:07:55,960 --> 00:07:58,160 Speaker 1: May brand, or if we want to be long a 144 00:07:58,160 --> 00:08:00,040 Speaker 1: bit more default on the care for an applegies some 145 00:08:00,200 --> 00:08:03,480 Speaker 1: the brands UM and we also trade with options, so 146 00:08:03,760 --> 00:08:07,280 Speaker 1: generally like we don't sell options, we either flat options 147 00:08:07,360 --> 00:08:10,320 Speaker 1: or long options um so, meaning that they can be 148 00:08:10,400 --> 00:08:12,480 Speaker 1: longer call or longer puts. But I'm not going to 149 00:08:12,560 --> 00:08:15,600 Speaker 1: be short to call or short to put UM And 150 00:08:15,600 --> 00:08:17,920 Speaker 1: so when when we feel like the market is going 151 00:08:17,960 --> 00:08:21,120 Speaker 1: to you know, make a big move in a short 152 00:08:21,160 --> 00:08:24,080 Speaker 1: period of time, then we'll prefer to be UM to 153 00:08:24,240 --> 00:08:27,400 Speaker 1: express that view with options relative to two futures, it's 154 00:08:27,400 --> 00:08:30,000 Speaker 1: a way to have more leverage and have less risks. 155 00:08:30,760 --> 00:08:34,240 Speaker 1: But you don't trade physical are presumably you would always 156 00:08:34,240 --> 00:08:38,080 Speaker 1: try to avoid taking physical delivery of, you know, a 157 00:08:38,080 --> 00:08:41,760 Speaker 1: tankerful of oil. Sure, we don't do physical. I've never 158 00:08:41,800 --> 00:08:46,040 Speaker 1: done physical. Understand the rules and height works, but but 159 00:08:46,480 --> 00:08:49,120 Speaker 1: it's mainly to understand how it can impact the pricing. 160 00:08:49,440 --> 00:08:53,560 Speaker 1: But I myself never to delivere or delivery of dabble 161 00:08:53,640 --> 00:09:07,560 Speaker 1: for it. M It feels like the market at the moment, 162 00:09:07,920 --> 00:09:11,040 Speaker 1: you know, obviously the commodity space is very financialized. There 163 00:09:11,080 --> 00:09:13,040 Speaker 1: are a lot of traders such as yourselves who deal 164 00:09:13,040 --> 00:09:15,280 Speaker 1: in these things. But it feels like the physical is 165 00:09:15,320 --> 00:09:18,199 Speaker 1: becoming much more important. And I've seen some people talk 166 00:09:18,240 --> 00:09:21,719 Speaker 1: about the potential for a squeeze in the April contract, 167 00:09:21,960 --> 00:09:23,760 Speaker 1: you know, sort of the reverse of what we saw 168 00:09:23,960 --> 00:09:27,520 Speaker 1: in March or April of twenty when oil went negative. 169 00:09:27,600 --> 00:09:30,240 Speaker 1: Maybe there won't actually be enough oil to deliver into 170 00:09:30,280 --> 00:09:33,120 Speaker 1: these contracts this time around. So I'm just wondering how 171 00:09:33,160 --> 00:09:36,560 Speaker 1: you're thinking about how the physical relates to the actual 172 00:09:36,600 --> 00:09:41,760 Speaker 1: trading at the moment. Well, that's um, it's really important 173 00:09:41,800 --> 00:09:45,120 Speaker 1: to understand the vehicle because it's what's going to drive 174 00:09:45,160 --> 00:09:48,000 Speaker 1: the place of oil. So an ample, let's say during 175 00:09:48,000 --> 00:09:52,480 Speaker 1: the COVID times when the demand suddenly collapsed of the night, 176 00:09:53,080 --> 00:09:55,800 Speaker 1: we built a lot of inventories of a shop period 177 00:09:55,880 --> 00:09:59,839 Speaker 1: of time, and you know, the infrastructure of the your market, 178 00:10:00,120 --> 00:10:04,880 Speaker 1: you know, it was not built to withstand those kind 179 00:10:04,920 --> 00:10:08,120 Speaker 1: of events of losing twenty percent of worlds demand overnight. 180 00:10:08,600 --> 00:10:14,960 Speaker 1: So the left of empty storage was um enough, was 181 00:10:15,080 --> 00:10:18,120 Speaker 1: actually could only take one and a half months of 182 00:10:18,280 --> 00:10:22,440 Speaker 1: this uh willy low demand before all the thanks were full, 183 00:10:23,000 --> 00:10:25,880 Speaker 1: and so in April two thousand and twenty, when all 184 00:10:25,880 --> 00:10:28,800 Speaker 1: the thanks were full. Basically, it's just in some production 185 00:10:28,840 --> 00:10:31,040 Speaker 1: that needs to be moved. Nobody can buy that oil, 186 00:10:31,080 --> 00:10:34,080 Speaker 1: and that's where placed negative. And as you say, like 187 00:10:34,120 --> 00:10:38,080 Speaker 1: when when when we're in the opposite scenario where inventories 188 00:10:38,080 --> 00:10:41,600 Speaker 1: are very low and there are places in the world 189 00:10:41,600 --> 00:10:46,000 Speaker 1: where a delivery of certain contracts such as Cushing in 190 00:10:46,000 --> 00:10:51,280 Speaker 1: Oklahoma for doubl TI, where the tanks are all empty 191 00:10:51,400 --> 00:10:55,880 Speaker 1: and there's no no all in those tanks anymore. If 192 00:10:55,880 --> 00:10:58,920 Speaker 1: somebody is a long future, then try to take delivery 193 00:10:59,240 --> 00:11:02,480 Speaker 1: of of oil at that at that place, at that 194 00:11:02,520 --> 00:11:05,280 Speaker 1: point in time, well, nobody can deliver and then it 195 00:11:05,320 --> 00:11:08,920 Speaker 1: can go to any price. So generally what happens is 196 00:11:09,080 --> 00:11:12,680 Speaker 1: that that's where the kind of so called speculators are 197 00:11:12,720 --> 00:11:15,960 Speaker 1: in in in the middle to to help make the 198 00:11:16,040 --> 00:11:18,480 Speaker 1: price moving. After that, we're never in a situation where 199 00:11:19,240 --> 00:11:23,719 Speaker 1: either the tanks are full or either the tanks are empty. 200 00:11:23,920 --> 00:11:26,240 Speaker 1: So it means some high it means you know that 201 00:11:26,360 --> 00:11:29,600 Speaker 1: prices have not gone up fast enough and for long 202 00:11:29,720 --> 00:11:33,959 Speaker 1: enough to either bring more extra supply or actually we 203 00:11:34,120 --> 00:11:38,360 Speaker 1: use demand before we run out of inventories. And that's 204 00:11:38,400 --> 00:11:40,280 Speaker 1: where sometimes people want to know what is the role 205 00:11:40,320 --> 00:11:44,080 Speaker 1: of speculators. I mean, it's actually a price discovery and 206 00:11:44,080 --> 00:11:47,679 Speaker 1: and also giving the white signal to producers and consumers 207 00:11:48,040 --> 00:11:50,760 Speaker 1: in order not to run out of storage capacity or 208 00:11:51,320 --> 00:11:55,280 Speaker 1: um not to run out of inventories, because then prices 209 00:11:55,280 --> 00:11:57,840 Speaker 1: can go anywhere. Right if somebody has to buy the 210 00:11:57,840 --> 00:12:00,480 Speaker 1: oilatiny price, you know, you could go to you know, 211 00:12:00,559 --> 00:12:03,760 Speaker 1: five dollars bubble back coalition, you can't go anywhere. So 212 00:12:03,800 --> 00:12:07,200 Speaker 1: that's where generally what what the price should do. The 213 00:12:07,280 --> 00:12:11,840 Speaker 1: price should move in order to keep the the inventories 214 00:12:11,920 --> 00:12:15,760 Speaker 1: within kind of kind of you know hand that makes 215 00:12:15,760 --> 00:12:18,840 Speaker 1: the market function. Let's talk a little bit more about 216 00:12:19,280 --> 00:12:23,520 Speaker 1: the fundamentals themselves. And there's like a furious debate obviously 217 00:12:23,600 --> 00:12:27,280 Speaker 1: in the US context, in particular why we haven't seen 218 00:12:27,520 --> 00:12:32,599 Speaker 1: a more aggressive ramp up in UH in drilling and 219 00:12:32,720 --> 00:12:36,200 Speaker 1: explorations such that I get greater supply. Why haven't we 220 00:12:36,240 --> 00:12:38,600 Speaker 1: in your view, because we've had other theories, But what's 221 00:12:38,679 --> 00:12:41,480 Speaker 1: your explanation for why we haven't seen a more aggressive 222 00:12:41,520 --> 00:12:45,280 Speaker 1: supply response. I think there's two reasons, um. So the 223 00:12:45,320 --> 00:12:47,520 Speaker 1: first one is that all the all the I mean 224 00:12:47,559 --> 00:12:49,600 Speaker 1: a lot of the easy oil in the US has 225 00:12:49,679 --> 00:12:52,080 Speaker 1: been drilled. You know, generally when you come with like 226 00:12:52,440 --> 00:12:56,160 Speaker 1: a new field, a new basin, well, the producers will 227 00:12:56,240 --> 00:12:58,400 Speaker 1: will go way, it will drill way, it's easier to 228 00:12:58,440 --> 00:13:00,320 Speaker 1: get the oil, and over time they'll get where it's 229 00:13:00,320 --> 00:13:03,000 Speaker 1: a bit more challenging. So I would say that now 230 00:13:03,640 --> 00:13:07,840 Speaker 1: US shell has been producing you know, at scale for 231 00:13:07,920 --> 00:13:11,280 Speaker 1: ten years, and they're still room you know for another 232 00:13:11,840 --> 00:13:15,920 Speaker 1: ten years of also of strong supply. But I'm not 233 00:13:15,960 --> 00:13:19,800 Speaker 1: sure there's a room for you know, many decades of 234 00:13:20,160 --> 00:13:23,640 Speaker 1: high production and definitely high production goals. So some of 235 00:13:23,679 --> 00:13:25,360 Speaker 1: it is due to the fact that it gets the 236 00:13:25,400 --> 00:13:28,680 Speaker 1: fields are getting a bit more mature, and and another 237 00:13:28,840 --> 00:13:31,600 Speaker 1: reason is also because you know a lot of the 238 00:13:31,640 --> 00:13:34,319 Speaker 1: shallow producers in the US have lost a lot of money. 239 00:13:34,360 --> 00:13:37,560 Speaker 1: They have been focused on on wasising production over the years, 240 00:13:38,080 --> 00:13:41,560 Speaker 1: uh and taking some debt against it and actually not 241 00:13:41,600 --> 00:13:44,120 Speaker 1: being profitable. You know, the most of them lost a 242 00:13:44,120 --> 00:13:46,640 Speaker 1: lot of money. At some point, the whole industry had 243 00:13:46,679 --> 00:13:50,040 Speaker 1: burned through six hundred billion dollars of cash and the 244 00:13:50,080 --> 00:13:53,800 Speaker 1: shareholders had taken a big hit. So producers like production 245 00:13:53,880 --> 00:13:57,240 Speaker 1: was growing up in the US, but the films were 246 00:13:57,240 --> 00:14:01,280 Speaker 1: not profitable. Now now there's they start to be profitable. 247 00:14:01,320 --> 00:14:06,080 Speaker 1: So now finally at current prices um they get poditive 248 00:14:06,080 --> 00:14:10,240 Speaker 1: cash flow and good profits, and the shareholders of those 249 00:14:10,240 --> 00:14:15,840 Speaker 1: companies pressure the the CEOs to not grow production too 250 00:14:15,880 --> 00:14:18,319 Speaker 1: fast because if they're going to fast, then prices question 251 00:14:18,360 --> 00:14:21,640 Speaker 1: again and then the cab with money. And also there 252 00:14:21,720 --> 00:14:24,200 Speaker 1: is some pressure you know for climate change, basically not 253 00:14:24,320 --> 00:14:27,520 Speaker 1: to grow supply too fast in order to find a 254 00:14:27,560 --> 00:14:32,400 Speaker 1: solution and replacement to focil fuels in terms of of supplier. Actually, 255 00:14:32,960 --> 00:14:34,800 Speaker 1: but the issue is, you know, there's been a lot 256 00:14:34,840 --> 00:14:39,120 Speaker 1: of work on pressurizing those companies not to grow supply 257 00:14:39,240 --> 00:14:42,680 Speaker 1: too fast or even to to to have production decline, 258 00:14:42,960 --> 00:14:45,960 Speaker 1: but there hasn't been a lot of work in giving 259 00:14:46,480 --> 00:14:49,600 Speaker 1: a solution for the consumers right to have another choice 260 00:14:49,600 --> 00:14:52,840 Speaker 1: but to buy oil. So, okay, we have like more 261 00:14:52,880 --> 00:14:56,120 Speaker 1: electric cars every year, and that we car and going. 262 00:14:56,560 --> 00:14:59,240 Speaker 1: But then the electricity that is being used for those 263 00:14:59,280 --> 00:15:02,280 Speaker 1: electric cars us to be produced, and that depends where 264 00:15:02,280 --> 00:15:04,480 Speaker 1: in the world some of it. Some of that electricity 265 00:15:04,520 --> 00:15:08,000 Speaker 1: is still produced by cool or natural gas, still by 266 00:15:08,000 --> 00:15:10,720 Speaker 1: fossil fuel, and some of it is renewables such as 267 00:15:11,280 --> 00:15:14,680 Speaker 1: solar and wind. But we we need the big Now 268 00:15:14,720 --> 00:15:17,800 Speaker 1: we have the issue that we have some shortage of 269 00:15:17,960 --> 00:15:21,160 Speaker 1: electricity and oil. So it's a bit tricky, you know, 270 00:15:21,200 --> 00:15:22,920 Speaker 1: Like I mean, in the US you have a bit 271 00:15:23,000 --> 00:15:24,960 Speaker 1: less of a polem. I think in Europe it's a 272 00:15:25,080 --> 00:15:27,760 Speaker 1: much bigger problem where you know, if we were to 273 00:15:27,800 --> 00:15:31,800 Speaker 1: replace normal cars, like you know, gasoline or diesel cars 274 00:15:32,040 --> 00:15:35,640 Speaker 1: by by evs, because there's not enough power to charge 275 00:15:35,640 --> 00:15:37,880 Speaker 1: those evs. So we we really have an issue at 276 00:15:37,960 --> 00:15:40,920 Speaker 1: least in Europe in fending a solution for for our supply. 277 00:15:41,400 --> 00:15:44,520 Speaker 1: How are you actually thinking about renewables at the moment, 278 00:15:44,560 --> 00:15:47,480 Speaker 1: because I know, I think you were quite polish on 279 00:15:47,600 --> 00:15:51,840 Speaker 1: emissions related credits, so basically making a bet on decarbonization. 280 00:15:52,200 --> 00:15:54,160 Speaker 1: But on the other hand, you know, in the past 281 00:15:54,200 --> 00:15:56,960 Speaker 1: couple of weeks, we've seen a lot of people, including 282 00:15:57,000 --> 00:15:59,880 Speaker 1: some people who have been on this podcast, talking about 283 00:16:00,240 --> 00:16:02,560 Speaker 1: the idea that renewables are not going to be able 284 00:16:02,920 --> 00:16:06,400 Speaker 1: to ramp up enough to replace lost supply from the 285 00:16:06,480 --> 00:16:09,840 Speaker 1: Russia situation, and that actually we might have to you know, 286 00:16:09,920 --> 00:16:13,160 Speaker 1: stick with traditional oil and gas for longer than perhaps 287 00:16:13,160 --> 00:16:16,720 Speaker 1: some people expected. Yeah, I mean, you know, this Russian 288 00:16:17,000 --> 00:16:21,320 Speaker 1: situation was not expected, right, So the plan in terms 289 00:16:21,360 --> 00:16:25,040 Speaker 1: of the Calbanization was to go supply of renewables you know, 290 00:16:25,120 --> 00:16:28,840 Speaker 1: every year by quite a large amount that uh and 291 00:16:28,840 --> 00:16:31,880 Speaker 1: and to have a gross in evase so you have 292 00:16:31,920 --> 00:16:35,560 Speaker 1: more power supply coming from from renewables and then you 293 00:16:35,640 --> 00:16:38,760 Speaker 1: have more evs and then you have the electricity to 294 00:16:38,840 --> 00:16:41,720 Speaker 1: charge those evs and and it's all good. The issue 295 00:16:41,880 --> 00:16:45,000 Speaker 1: so making the plant is for like a twenty year 296 00:16:45,040 --> 00:16:48,280 Speaker 1: transitional so where you have more evis every year and 297 00:16:48,440 --> 00:16:53,080 Speaker 1: more renewable um like power. That's something that can work 298 00:16:53,080 --> 00:16:55,840 Speaker 1: on a long term basis, yes, but it cannot you know, 299 00:16:56,320 --> 00:16:59,000 Speaker 1: change overnight. I mean, it takes time to build solar 300 00:16:59,080 --> 00:17:02,400 Speaker 1: panels and with meals and to build enough evs and 301 00:17:02,520 --> 00:17:05,880 Speaker 1: enough charging stations and all that. One issue that we've 302 00:17:05,880 --> 00:17:07,879 Speaker 1: been aware of on our side for for quite a 303 00:17:07,880 --> 00:17:11,320 Speaker 1: few years now is that the growth of supply in 304 00:17:11,359 --> 00:17:14,600 Speaker 1: metals is not going to be large enough to build 305 00:17:14,640 --> 00:17:17,960 Speaker 1: as many evs and to electrify the world as fast 306 00:17:18,000 --> 00:17:20,960 Speaker 1: as we'd like because the miners have not invested enough. 307 00:17:21,000 --> 00:17:23,800 Speaker 1: So you know, the miners also there have been under 308 00:17:23,840 --> 00:17:26,600 Speaker 1: pressure not to mind because of you know, the E. 309 00:17:26,800 --> 00:17:29,240 Speaker 1: S G pressure. But then it means, okay, we don't 310 00:17:29,240 --> 00:17:31,160 Speaker 1: We're not going to get enough metals in the medium 311 00:17:31,200 --> 00:17:34,359 Speaker 1: to long term to build the power supply with renewables 312 00:17:34,600 --> 00:17:36,359 Speaker 1: because that takes a lot of metals. Takes a lot 313 00:17:36,400 --> 00:17:40,640 Speaker 1: of metals to to build renewables and then a lot 314 00:17:40,680 --> 00:17:44,400 Speaker 1: of metals to build batteries. Uh, and the evs take 315 00:17:44,440 --> 00:17:47,360 Speaker 1: a lot more cooper um. And we won't have enough 316 00:17:47,359 --> 00:17:49,240 Speaker 1: of that in the long term. So that's the long 317 00:17:49,320 --> 00:17:51,920 Speaker 1: term theology. It's the challenge. I think metal spaces will 318 00:17:51,920 --> 00:17:54,600 Speaker 1: have to go up a lot in order to incentivize 319 00:17:54,840 --> 00:17:59,159 Speaker 1: enough like goals to be able to recombinize the world 320 00:18:00,119 --> 00:18:03,320 Speaker 1: over time. Now, if we lose you know, five million 321 00:18:03,320 --> 00:18:08,040 Speaker 1: balls a day from Russian all overnight, we can't have 322 00:18:08,160 --> 00:18:11,880 Speaker 1: certainly a lot more power coming from renewables overnight and 323 00:18:11,920 --> 00:18:14,120 Speaker 1: a lot more heavies overnight. It takes time to build 324 00:18:14,119 --> 00:18:19,400 Speaker 1: all that. So it's already at capacity. Um. So there's 325 00:18:19,400 --> 00:18:21,800 Speaker 1: the things that can really change in the very short term. 326 00:18:22,119 --> 00:18:24,960 Speaker 1: So I said we place Russian oil ry. Now, let's 327 00:18:25,000 --> 00:18:29,239 Speaker 1: say over the next two years. What we can do is, 328 00:18:29,760 --> 00:18:31,640 Speaker 1: so let's say if we if we are losing four 329 00:18:31,640 --> 00:18:34,399 Speaker 1: million balls today of Russian oil for the next two years, 330 00:18:34,600 --> 00:18:38,840 Speaker 1: we can replace I guess the saudiast and create a 331 00:18:38,880 --> 00:18:41,920 Speaker 1: new ways could but actually increase production by one and 332 00:18:41,960 --> 00:18:44,520 Speaker 1: a half million today. They will not do it before 333 00:18:44,680 --> 00:18:47,520 Speaker 1: they understand that the Russian oil is out and will 334 00:18:47,520 --> 00:18:49,560 Speaker 1: not come back in time soon, so they will not 335 00:18:49,600 --> 00:18:52,920 Speaker 1: do it preemptively. But I believe they will increase production 336 00:18:53,119 --> 00:18:55,800 Speaker 1: once that that Rasian supply is out of the market 337 00:18:55,880 --> 00:19:00,440 Speaker 1: and there's visibility on on how much and for how long. 338 00:19:00,760 --> 00:19:02,280 Speaker 1: So I believe they can bring one and a half 339 00:19:02,280 --> 00:19:05,080 Speaker 1: million bars today, which is not high by historical standard, 340 00:19:05,160 --> 00:19:08,160 Speaker 1: but it is something. Is that your gut take that 341 00:19:08,280 --> 00:19:10,200 Speaker 1: the Russian oil that's been taken out of the market 342 00:19:10,280 --> 00:19:12,800 Speaker 1: is gone for good or at least for the foreseeable future. 343 00:19:13,240 --> 00:19:16,000 Speaker 1: It will depend, you know, if we're going to have 344 00:19:16,040 --> 00:19:19,080 Speaker 1: some kind of regime changing in Russia. So for me, 345 00:19:19,119 --> 00:19:22,440 Speaker 1: it's not only about the sea fire. But I still 346 00:19:22,480 --> 00:19:26,840 Speaker 1: think that the sanctions will stay on Russia until the 347 00:19:26,960 --> 00:19:28,840 Speaker 1: West can feel like they can trust them and that 348 00:19:28,960 --> 00:19:32,000 Speaker 1: they will not go attack another neighbor like a few 349 00:19:32,040 --> 00:19:36,200 Speaker 1: months later, or attack NATO countries. Um. So I think 350 00:19:36,240 --> 00:19:38,920 Speaker 1: that there's need to be once it's over, there will 351 00:19:38,960 --> 00:19:41,320 Speaker 1: be there will need to be a trust that it 352 00:19:41,400 --> 00:19:45,080 Speaker 1: will be um we gained. And for that trust to 353 00:19:45,080 --> 00:19:46,560 Speaker 1: be we gained, I don't think it can be with 354 00:19:46,600 --> 00:19:49,119 Speaker 1: the current regime. I mean, you can't go from being 355 00:19:49,119 --> 00:19:53,000 Speaker 1: scared of them or using nuclear strikes and using chemical 356 00:19:53,040 --> 00:19:57,400 Speaker 1: weapons and and biological weapons to certainly like negotiate and 357 00:19:57,680 --> 00:20:00,640 Speaker 1: give the money again. Um So, I think that will 358 00:20:00,680 --> 00:20:03,720 Speaker 1: need to be a regime change in some way with 359 00:20:03,880 --> 00:20:06,560 Speaker 1: the regime that we feel we can trust as we 360 00:20:06,720 --> 00:20:10,320 Speaker 1: as the West, before the sanctions are lifted, or at 361 00:20:10,400 --> 00:20:13,840 Speaker 1: least a big part of the sanctions are lifted. Um So, 362 00:20:13,960 --> 00:20:17,159 Speaker 1: in in that way, I think, yes, we could be 363 00:20:17,160 --> 00:20:20,000 Speaker 1: in a situation where we will lose rational for some 364 00:20:20,119 --> 00:20:22,920 Speaker 1: time until there's a regime change. But let's say if 365 00:20:22,920 --> 00:20:25,639 Speaker 1: that's a origin change in one week. I mean I 366 00:20:25,640 --> 00:20:30,440 Speaker 1: think it's unlikely, but you never know. Um then and 367 00:20:30,680 --> 00:20:33,040 Speaker 1: if we if we can have good relationship with that regime, 368 00:20:33,080 --> 00:20:35,320 Speaker 1: then then we could get the rational again in in 369 00:20:35,359 --> 00:20:38,159 Speaker 1: a few months time. So it's very you know, it 370 00:20:38,240 --> 00:20:41,159 Speaker 1: really depends on on on a lot of Uh, it's 371 00:20:41,200 --> 00:20:43,160 Speaker 1: going to pan out. But I don't think that certainly, 372 00:20:43,200 --> 00:20:45,920 Speaker 1: if they started fighting, they start fighting, the oil comes back, 373 00:20:45,920 --> 00:20:47,480 Speaker 1: It's not going to be the case. The oil is 374 00:20:47,480 --> 00:20:49,480 Speaker 1: going to be gone for good. And even though the 375 00:20:49,560 --> 00:20:52,400 Speaker 1: only the US put sanctions on on a rational US 376 00:20:52,440 --> 00:20:55,879 Speaker 1: and UK for now you can still buy it, and 377 00:20:55,880 --> 00:20:58,520 Speaker 1: and the rest of the world. Um, there's a lot 378 00:20:58,520 --> 00:21:01,199 Speaker 1: of self sanctioning going on, so a lot of the 379 00:21:01,240 --> 00:21:04,320 Speaker 1: re finals, you know, they don't want to be uh, 380 00:21:04,400 --> 00:21:06,960 Speaker 1: to be facing a PR disaster if they buy Rational oils. 381 00:21:06,960 --> 00:21:10,840 Speaker 1: They don't want to contribute to you know, financing uh, 382 00:21:11,920 --> 00:21:15,520 Speaker 1: like a war on on Ukraine and and potentially European 383 00:21:15,600 --> 00:21:17,479 Speaker 1: and the rest of the world. So there's a lot 384 00:21:17,560 --> 00:21:19,720 Speaker 1: at stake here, right, It's a it's a lot. It's 385 00:21:19,760 --> 00:21:23,800 Speaker 1: about trying to avoid World War three, and we have 386 00:21:23,840 --> 00:21:26,640 Speaker 1: to understand that that's going to because to pay. So 387 00:21:26,680 --> 00:21:28,840 Speaker 1: I think, you know, like there's some issues as well 388 00:21:28,920 --> 00:21:32,920 Speaker 1: with insurance or being able to ensure the ships that 389 00:21:32,960 --> 00:21:36,840 Speaker 1: go take delivery of the Rasian oil. There's a PR disasters. 390 00:21:36,880 --> 00:21:41,240 Speaker 1: There's also a financing issue where new banks want to 391 00:21:41,440 --> 00:21:43,800 Speaker 1: give a letter of credit, even Chinese banks don't want 392 00:21:43,840 --> 00:21:46,359 Speaker 1: to give a letter of credit to to for for 393 00:21:46,560 --> 00:21:51,119 Speaker 1: aversion oil cargo. So even though we don't have formal 394 00:21:51,640 --> 00:21:57,200 Speaker 1: sanctions yet from the EU, in practice U not everybody 395 00:21:57,240 --> 00:21:59,320 Speaker 1: can buy oil. And there's a lot of logistical issues 396 00:21:59,359 --> 00:22:01,720 Speaker 1: as well, and that will probably last for some time. 397 00:22:01,760 --> 00:22:04,160 Speaker 1: So I think in the next few weeks, if that's 398 00:22:04,160 --> 00:22:08,720 Speaker 1: still the case, Russia will have to stop production because 399 00:22:08,720 --> 00:22:11,960 Speaker 1: they will run out of storage capacity at their points 400 00:22:12,920 --> 00:22:15,920 Speaker 1: and and and so they will need to cut production 401 00:22:16,000 --> 00:22:18,960 Speaker 1: by two at least two million partiday partentially fwi million parthday. 402 00:22:19,200 --> 00:22:21,160 Speaker 1: And then it takes time to bring that supply back, 403 00:22:21,200 --> 00:22:24,600 Speaker 1: you know, like if if the tanks are full at 404 00:22:24,600 --> 00:22:28,000 Speaker 1: the at the parts, they can't carry on producing and 405 00:22:28,000 --> 00:22:29,439 Speaker 1: and that's it, and then we lose it for some 406 00:22:29,520 --> 00:22:33,840 Speaker 1: time until there's like a piece like a piece and 407 00:22:33,840 --> 00:22:36,800 Speaker 1: a better relationship with Russia. So I think we could 408 00:22:36,880 --> 00:22:41,119 Speaker 1: lose defensive original for for some time Russian gas making. 409 00:22:41,160 --> 00:22:44,280 Speaker 1: Europe is very dependent on Russian gas. Gas has been 410 00:22:44,359 --> 00:22:48,679 Speaker 1: natural gas Mali, Germany and Italy uh and they're working 411 00:22:48,720 --> 00:22:50,800 Speaker 1: on some kind of work plants on how they could 412 00:22:50,800 --> 00:22:54,040 Speaker 1: survive in case Rossia cloud is the tope or or 413 00:22:54,119 --> 00:22:57,000 Speaker 1: could they actually you know, we use their demand so 414 00:22:57,040 --> 00:23:00,360 Speaker 1: that they don't pay Russia as much money um. And 415 00:23:00,440 --> 00:23:04,320 Speaker 1: so there will be some kind of rationing potentially in 416 00:23:04,320 --> 00:23:09,760 Speaker 1: in in Europe, like to bring a natural gas demand down, 417 00:23:09,960 --> 00:23:12,919 Speaker 1: and they will look at what they can do to 418 00:23:13,520 --> 00:23:17,600 Speaker 1: accelerate the energy transition. So but that will require metals 419 00:23:17,640 --> 00:23:19,960 Speaker 1: as well, and Russia is a big exporter of metals. 420 00:23:20,200 --> 00:23:21,800 Speaker 1: So it's not it's not going to be busy, but 421 00:23:21,880 --> 00:23:23,720 Speaker 1: it's it is what it is, right like, we have 422 00:23:23,800 --> 00:23:26,320 Speaker 1: to find a solution. But to finish my point about 423 00:23:26,359 --> 00:23:29,680 Speaker 1: how the version would be replaced, Um, if we lose 424 00:23:29,720 --> 00:23:32,160 Speaker 1: four million barllars a day for some time, let's say 425 00:23:32,160 --> 00:23:33,920 Speaker 1: we get one and a half million bills a day 426 00:23:33,960 --> 00:23:37,600 Speaker 1: from from Gulf countries. Um, then it's to one half 427 00:23:38,160 --> 00:23:40,600 Speaker 1: two point five million bars a day that we we 428 00:23:41,080 --> 00:23:43,920 Speaker 1: have to we have to find some of it could 429 00:23:43,960 --> 00:23:47,399 Speaker 1: be supplied by the global SPR, so the strategic reserves 430 00:23:47,480 --> 00:23:49,760 Speaker 1: that the I manage, So some of it is in 431 00:23:49,800 --> 00:23:52,560 Speaker 1: the US, but you have also a lot of city 432 00:23:52,560 --> 00:23:56,440 Speaker 1: countries with SPR, and they could release up to five 433 00:23:56,480 --> 00:23:59,240 Speaker 1: million ballars a day for twelve months. So let's say 434 00:23:59,240 --> 00:24:01,840 Speaker 1: they could easy they could easily go to two million 435 00:24:01,840 --> 00:24:05,439 Speaker 1: bars a day for you know, two and a half years. 436 00:24:05,840 --> 00:24:07,360 Speaker 1: But then that means that in two an a half 437 00:24:07,400 --> 00:24:08,840 Speaker 1: years there will be you know, you know, all the 438 00:24:09,000 --> 00:24:11,000 Speaker 1: ESPR will be empty and they will have to be 439 00:24:11,440 --> 00:24:14,439 Speaker 1: to re supply the ESPR. And I think we have 440 00:24:14,520 --> 00:24:16,840 Speaker 1: to accept some demand destruction, you know, like we really 441 00:24:16,840 --> 00:24:19,760 Speaker 1: have to save energy as much as we can UM. 442 00:24:20,119 --> 00:24:23,680 Speaker 1: And and if we can find some kind of government 443 00:24:23,760 --> 00:24:26,520 Speaker 1: mandate and it's not easy to bring the demand down, 444 00:24:26,880 --> 00:24:30,239 Speaker 1: UM mandate could be something like a confinement, right like 445 00:24:30,280 --> 00:24:32,640 Speaker 1: we saw it two years ago with COVID we had 446 00:24:32,720 --> 00:24:37,160 Speaker 1: some kind of global lockdown, global confinement that bote all 447 00:24:37,200 --> 00:24:41,200 Speaker 1: demands down by here if we just need to think 448 00:24:41,240 --> 00:24:43,679 Speaker 1: of bringing all demands down by two percent, it's not 449 00:24:43,720 --> 00:24:45,960 Speaker 1: going to be as drastic as the global lockdown, but 450 00:24:46,600 --> 00:24:49,920 Speaker 1: there there could be some either some government mon dates 451 00:24:50,040 --> 00:24:52,680 Speaker 1: to bring demand down or it will have to be 452 00:24:53,040 --> 00:24:55,439 Speaker 1: coming from price, and then the price will have to 453 00:24:55,440 --> 00:24:58,680 Speaker 1: be high enough to bring that demand down by one 454 00:24:58,720 --> 00:25:00,639 Speaker 1: and a half million barllars a day or so. What 455 00:25:00,840 --> 00:25:04,000 Speaker 1: is right now as we're talking brent oils at a 456 00:25:04,119 --> 00:25:07,920 Speaker 1: hundred and fourteen w as less, What does that mean 457 00:25:08,560 --> 00:25:13,240 Speaker 1: is that are these demand destruction levels? Is they're driving 458 00:25:13,320 --> 00:25:15,920 Speaker 1: or flying or something else that is not happening at 459 00:25:15,920 --> 00:25:17,840 Speaker 1: these levels or does it need to go higher in 460 00:25:17,960 --> 00:25:21,520 Speaker 1: order to really move the needle on the demand side. Yeah, 461 00:25:21,520 --> 00:25:25,320 Speaker 1: So basically, when when people speak about demand destruction, UM, 462 00:25:25,359 --> 00:25:29,720 Speaker 1: you know, you can think of it in many, many 463 00:25:29,800 --> 00:25:34,240 Speaker 1: different ways. Um, you don't really generally have such things 464 00:25:34,280 --> 00:25:36,960 Speaker 1: as demand destruction for oil, because you can't really replace 465 00:25:37,640 --> 00:25:40,760 Speaker 1: in the shop term, you know, driving you know, your 466 00:25:40,800 --> 00:25:43,919 Speaker 1: car by something. So sure some people will decide to 467 00:25:43,920 --> 00:25:47,159 Speaker 1: walk or take a bike, but that's very marginal, um 468 00:25:47,359 --> 00:25:50,560 Speaker 1: Journally the car is used to doing like longer distance 469 00:25:50,760 --> 00:25:54,840 Speaker 1: and and I guess some of it there could be 470 00:25:54,880 --> 00:25:57,560 Speaker 1: at the margin a bit more public transport and these 471 00:25:57,640 --> 00:26:01,120 Speaker 1: kind of things, but it stays quite quite mad general. Generally, 472 00:26:01,119 --> 00:26:06,199 Speaker 1: what brings the demand destruction is some kind of economic crisis. 473 00:26:06,520 --> 00:26:09,159 Speaker 1: I mean, you also have you know, demand destruction. You 474 00:26:09,320 --> 00:26:13,080 Speaker 1: sent that if people seeing the prices are high, maybe 475 00:26:13,160 --> 00:26:14,960 Speaker 1: they'll use their cars a bit less for one or 476 00:26:14,960 --> 00:26:17,400 Speaker 1: two months, and then they'll get used to the new 477 00:26:17,440 --> 00:26:20,040 Speaker 1: price and carry on using their cars as they were before. 478 00:26:20,480 --> 00:26:22,720 Speaker 1: So that's not really demand destruction is just like a 479 00:26:22,760 --> 00:26:24,880 Speaker 1: slowdown in demand for one or two months, and then 480 00:26:24,880 --> 00:26:28,399 Speaker 1: the demand comes back, Um, and then it's a question 481 00:26:28,440 --> 00:26:31,480 Speaker 1: of you know, at what price do do we have? 482 00:26:31,560 --> 00:26:34,600 Speaker 1: Like a large recession that then brings you know, lower 483 00:26:34,600 --> 00:26:38,920 Speaker 1: economic goals and as a result, lower all demand. And 484 00:26:38,960 --> 00:26:42,040 Speaker 1: that's generally what really brings prices down is when we 485 00:26:42,240 --> 00:26:45,040 Speaker 1: eventually and and what brings demand down, that's when we 486 00:26:45,119 --> 00:26:50,440 Speaker 1: have a large recessions, so not small recessions, but large recessions. 487 00:26:50,560 --> 00:26:54,480 Speaker 1: And that price will always depend on what economic environment 488 00:26:54,520 --> 00:26:56,880 Speaker 1: we will be. So example, for two in two seven 489 00:26:56,960 --> 00:26:59,760 Speaker 1: and eight, we went up to dred and forty seven 490 00:26:59,760 --> 00:27:03,399 Speaker 1: dollars the battle, which is equivalent to around two hundred 491 00:27:03,400 --> 00:27:06,960 Speaker 1: dollars a bottle of two days dollars, and the you 492 00:27:07,000 --> 00:27:09,600 Speaker 1: know at the time, but we didn't see that demand 493 00:27:09,720 --> 00:27:14,040 Speaker 1: was being hit. But when Leman went burst and there 494 00:27:14,160 --> 00:27:18,600 Speaker 1: was no UM, then when the financial crisis started, then 495 00:27:18,720 --> 00:27:21,439 Speaker 1: there was a collapse of the trade of financing and 496 00:27:21,480 --> 00:27:25,440 Speaker 1: then all demand collapsed as a result. UM in two 497 00:27:25,480 --> 00:27:30,560 Speaker 1: thousand eleven to thirteen, even like first half, like two 498 00:27:30,600 --> 00:27:34,360 Speaker 1: thousand fourteen, we had brand was averaging hundred and ten 499 00:27:34,400 --> 00:27:38,359 Speaker 1: dollars a battle, which is equivalent to one and fifty 500 00:27:38,400 --> 00:27:43,240 Speaker 1: dollars barttle two days dollars, and we had European sovereign 501 00:27:43,280 --> 00:27:46,720 Speaker 1: crisis at the time. UM and the economy could you 502 00:27:46,720 --> 00:27:50,160 Speaker 1: know handle hundred fifty dollars of two days dollars for 503 00:27:50,160 --> 00:27:52,359 Speaker 1: for three and a half years, you know, And I 504 00:27:52,400 --> 00:27:55,760 Speaker 1: believe they called me today before before the Russian invasion, 505 00:27:55,800 --> 00:27:58,520 Speaker 1: at least, because we don't understand what will be you know, 506 00:27:58,560 --> 00:28:02,159 Speaker 1: all the impact going forward, UM could definitely handle more 507 00:28:02,200 --> 00:28:07,920 Speaker 1: than so For me, UM, I was expecting already prices 508 00:28:07,960 --> 00:28:13,479 Speaker 1: to above went fifty before the Version invasion. UM, so 509 00:28:13,520 --> 00:28:15,439 Speaker 1: I was already Britia. I don't think that all the 510 00:28:15,480 --> 00:28:18,239 Speaker 1: move up in oil is due to Russia, you know, 511 00:28:18,440 --> 00:28:22,520 Speaker 1: it's uh, it's the the acceleration of the move up 512 00:28:22,560 --> 00:28:24,919 Speaker 1: of the last two weeks is due to it. But 513 00:28:25,440 --> 00:28:28,879 Speaker 1: we would have gone to those places anywhere and higher 514 00:28:29,000 --> 00:28:31,040 Speaker 1: this time. It would have been a bit more steady, 515 00:28:31,359 --> 00:28:33,159 Speaker 1: but it would have been it would have gone higher. 516 00:28:33,240 --> 00:28:34,840 Speaker 1: So it means to me the fact that we only 517 00:28:34,880 --> 00:28:37,600 Speaker 1: at d and fourteen dollar brand now, it tells me 518 00:28:37,680 --> 00:28:41,160 Speaker 1: that the market doesn't believe that UM, we will lose 519 00:28:41,360 --> 00:28:44,200 Speaker 1: this oil for very long. I mean, how high do 520 00:28:44,240 --> 00:28:46,960 Speaker 1: you think it could go and what level would be 521 00:28:47,000 --> 00:28:50,120 Speaker 1: worrying to you in terms of demand destruction? Well, I 522 00:28:50,120 --> 00:28:54,200 Speaker 1: think UM like close to two battle, so much higher 523 00:28:54,240 --> 00:28:58,080 Speaker 1: than today. I feel like there's no demand destruction all brands, 524 00:28:58,320 --> 00:29:01,480 Speaker 1: and we'll have to go significantly high before dement can 525 00:29:01,560 --> 00:29:04,800 Speaker 1: go down by enough. But that's also assuming there's no 526 00:29:04,960 --> 00:29:09,240 Speaker 1: government mondate in some kind of confinements. Well, let's say 527 00:29:09,400 --> 00:29:12,080 Speaker 1: two days amounts, we are not doing anything and we 528 00:29:12,080 --> 00:29:13,840 Speaker 1: are in confinement for two days amounts. I mean that 529 00:29:13,880 --> 00:29:16,760 Speaker 1: could be some some solutions like that to bring demand down. 530 00:29:17,040 --> 00:29:20,360 Speaker 1: But if there's no no government mondates, then I think 531 00:29:20,480 --> 00:29:26,280 Speaker 1: that oil will be enough to to bring demand down 532 00:29:26,440 --> 00:29:29,040 Speaker 1: to balance the market. Could we see two hundred dollar 533 00:29:29,120 --> 00:29:32,280 Speaker 1: oil this year? Yes? I think so? Yes? Can I 534 00:29:32,360 --> 00:29:34,600 Speaker 1: just ask I want to stand back. You mentioned, you know, 535 00:29:34,640 --> 00:29:37,680 Speaker 1: the potential supply response from Saudi equate from the other 536 00:29:37,720 --> 00:29:40,800 Speaker 1: Golf states. I find it striking, And we did an 537 00:29:40,800 --> 00:29:43,840 Speaker 1: oil episode a few weeks ago that OPAC is no 538 00:29:43,920 --> 00:29:46,040 Speaker 1: longer the first thing we talked about when we talked 539 00:29:46,040 --> 00:29:49,280 Speaker 1: about oil. We always talk about shale, the shale response first, 540 00:29:49,400 --> 00:29:51,600 Speaker 1: whereas several years ago, if you talk oil, the first 541 00:29:51,640 --> 00:29:54,680 Speaker 1: thing everyone would talk about is well, what's OPEC gonna do? 542 00:29:54,800 --> 00:29:57,200 Speaker 1: And now it feels like they're almost playing a second fiddle. 543 00:29:57,760 --> 00:30:01,400 Speaker 1: What is the politics at OPEC right now? And how 544 00:30:01,440 --> 00:30:04,440 Speaker 1: are the open leaders thinking about it? What is your 545 00:30:04,880 --> 00:30:10,320 Speaker 1: forecast generally for how how that group is going to behave? Okay, 546 00:30:10,360 --> 00:30:13,160 Speaker 1: so first I was, you know, really impressed by the 547 00:30:13,320 --> 00:30:20,400 Speaker 1: reaction in March April when the collectively you know, agreed 548 00:30:20,480 --> 00:30:23,760 Speaker 1: to cut collection by one ten million dollars a day. Uh, 549 00:30:23,920 --> 00:30:26,960 Speaker 1: prices were very low, um, so they were struggling, but 550 00:30:27,040 --> 00:30:30,880 Speaker 1: they got together and agreed to cut ten million bars today. 551 00:30:31,160 --> 00:30:33,600 Speaker 1: Otherwise we would have had negative prices for some time. 552 00:30:33,760 --> 00:30:36,560 Speaker 1: You know, that would have led to a much larger 553 00:30:36,600 --> 00:30:41,240 Speaker 1: collapse in the supply today. And then they stayed quite compliant, 554 00:30:41,400 --> 00:30:44,400 Speaker 1: you know, over the over time, so even when prices 555 00:30:44,440 --> 00:30:48,480 Speaker 1: were we're covering in second half twenty twenty and then one, 556 00:30:49,280 --> 00:30:52,320 Speaker 1: they were really careful about bringing oil back to the market. 557 00:30:52,320 --> 00:30:55,719 Speaker 1: So they did it gradually, really together, doing really respecting 558 00:30:56,440 --> 00:31:00,280 Speaker 1: the quarta that they put. Very few countries to did, 559 00:31:00,360 --> 00:31:03,840 Speaker 1: if any. And what we noticed is quite a few 560 00:31:03,880 --> 00:31:07,640 Speaker 1: countries in Opaque plus could not meet their quota. Many 561 00:31:07,640 --> 00:31:11,040 Speaker 1: of the African countries they could not produce as much 562 00:31:11,120 --> 00:31:14,160 Speaker 1: as what they were allowed to because of under investment. 563 00:31:14,600 --> 00:31:17,360 Speaker 1: So over the years there's been like under investments that 564 00:31:18,000 --> 00:31:22,200 Speaker 1: brought to bote the fields to decline. There was no 565 00:31:22,320 --> 00:31:25,520 Speaker 1: new fields coming and the production was going down. So 566 00:31:25,640 --> 00:31:27,760 Speaker 1: that's why now there's only like a little bit of 567 00:31:28,080 --> 00:31:30,840 Speaker 1: production capacity I think I won one and a half 568 00:31:30,840 --> 00:31:33,000 Speaker 1: million dollars a day. You know, when I when I 569 00:31:33,040 --> 00:31:36,760 Speaker 1: say spec capacity is production that can be brought on 570 00:31:37,000 --> 00:31:39,800 Speaker 1: and kept for one or two years. I think it's 571 00:31:39,840 --> 00:31:44,280 Speaker 1: probably only Saudi create a new a and that's pretty 572 00:31:44,360 --> 00:31:46,600 Speaker 1: much it. I think most of the other countries are 573 00:31:46,640 --> 00:31:50,480 Speaker 1: at at maximum so in a way because they could not. 574 00:31:50,760 --> 00:31:53,280 Speaker 1: You know, their quota has been going up every months 575 00:31:53,320 --> 00:31:55,200 Speaker 1: for the last few months, but the production has not 576 00:31:55,440 --> 00:31:59,480 Speaker 1: because they don't manage to UM. So that's why I 577 00:31:59,480 --> 00:32:02,120 Speaker 1: think it's you know, we know that they can bring 578 00:32:02,120 --> 00:32:04,720 Speaker 1: one and a half niversity. We'll probably get to deal 579 00:32:04,800 --> 00:32:07,200 Speaker 1: with Iran bringing a million balls to day back, but 580 00:32:07,280 --> 00:32:11,000 Speaker 1: that's expected by the market and UM and then you 581 00:32:11,000 --> 00:32:14,840 Speaker 1: you need more more supply from from the US, but 582 00:32:14,880 --> 00:32:19,080 Speaker 1: that will take you know, twelve months also for for 583 00:32:19,160 --> 00:32:22,360 Speaker 1: the US to be able to bring higher levels of 584 00:32:22,440 --> 00:32:35,560 Speaker 1: supply than what is expected today for next year. One 585 00:32:35,600 --> 00:32:38,640 Speaker 1: of the big picture ideas that's been going around at 586 00:32:38,640 --> 00:32:42,120 Speaker 1: the moment is this idea that as sanctions are imposed 587 00:32:42,120 --> 00:32:45,520 Speaker 1: on Russia and it becomes clear that you know, the 588 00:32:45,680 --> 00:32:49,040 Speaker 1: dollar and the dollar payment system can be weaponized to 589 00:32:49,160 --> 00:32:54,120 Speaker 1: some extent against Western enemies, that maybe the dollar loses 590 00:32:54,160 --> 00:32:58,160 Speaker 1: its position as reserve currency. Maybe Russia has to depend 591 00:32:58,400 --> 00:33:01,400 Speaker 1: more on gold. And I guess we're sort of seeing 592 00:33:01,400 --> 00:33:05,640 Speaker 1: a return of talk about commodity money or money that 593 00:33:05,760 --> 00:33:09,960 Speaker 1: is backed by an actual thing. Is that something that 594 00:33:10,000 --> 00:33:12,760 Speaker 1: you see happening? And I guess more broadly, you know, 595 00:33:12,920 --> 00:33:15,120 Speaker 1: gazing into the future, do you see a world that 596 00:33:15,280 --> 00:33:19,320 Speaker 1: is more tied to commodities or less tied to them, 597 00:33:19,400 --> 00:33:23,160 Speaker 1: given the kind of volatility that we've seen recently. Sure? 598 00:33:23,480 --> 00:33:26,840 Speaker 1: So first about the currency and the potential you know, 599 00:33:27,120 --> 00:33:30,040 Speaker 1: loss of with a council for the dollar, I think 600 00:33:30,080 --> 00:33:35,920 Speaker 1: it's overstated. I think uh, I think ability if a 601 00:33:36,000 --> 00:33:40,480 Speaker 1: country had a currency back to gold or something, well, 602 00:33:42,240 --> 00:33:45,200 Speaker 1: the Western world could still sanction that currency even if 603 00:33:45,200 --> 00:33:48,320 Speaker 1: it's backed by gold. So you know, even now like 604 00:33:48,560 --> 00:33:51,680 Speaker 1: Russia having having gold in reserves, where do they keep it? 605 00:33:51,720 --> 00:33:56,000 Speaker 1: You know, maybe some of it could be frozen as well, 606 00:33:56,080 --> 00:33:59,280 Speaker 1: even though it's gold, So it doesn't necessarily save you. 607 00:33:59,360 --> 00:34:04,400 Speaker 1: Even same for cryptos, right like cryptos, Uh, some people 608 00:34:04,520 --> 00:34:06,920 Speaker 1: think it's the stort of valuable When things get really 609 00:34:06,960 --> 00:34:09,000 Speaker 1: bad and if you have no power, what happens to 610 00:34:09,000 --> 00:34:11,120 Speaker 1: your krypto? What you can't really use it either. So 611 00:34:11,160 --> 00:34:13,200 Speaker 1: there's always some situations that are difficult, but I would 612 00:34:13,239 --> 00:34:19,080 Speaker 1: say currencies in general, it's always gonna be countries that 613 00:34:19,160 --> 00:34:23,200 Speaker 1: have a strong rule of law and and trust and 614 00:34:23,239 --> 00:34:25,359 Speaker 1: a strong financial market that will be able to have 615 00:34:25,400 --> 00:34:27,759 Speaker 1: a strong currency. So for now, we have that in 616 00:34:27,800 --> 00:34:31,560 Speaker 1: the US, in Europe, in Japan, and then when you 617 00:34:31,560 --> 00:34:33,880 Speaker 1: look at China there's still a lot of capital control 618 00:34:33,960 --> 00:34:37,760 Speaker 1: so and and it's not a consumer economy. They export 619 00:34:37,800 --> 00:34:41,719 Speaker 1: a lot and so they hold a lot of U. S. Treasuries, 620 00:34:42,000 --> 00:34:45,160 Speaker 1: so they are dependent on on on on on the US. Right, 621 00:34:45,200 --> 00:34:48,880 Speaker 1: so I think to really have a strong currency, and 622 00:34:48,960 --> 00:34:52,200 Speaker 1: that's what those countries don't understand, the more autocratic countries, 623 00:34:52,520 --> 00:34:56,320 Speaker 1: is that if they don't have enough freedom and m 624 00:34:58,000 --> 00:35:01,799 Speaker 1: low low enough level of corruption and uh you know, 625 00:35:01,960 --> 00:35:05,400 Speaker 1: enough entrepreneurship and a strong rule of flaw, then they 626 00:35:05,440 --> 00:35:07,680 Speaker 1: will never be able to have a strong currency. So 627 00:35:07,719 --> 00:35:10,640 Speaker 1: then then we go into commodities. Okay, if people are 628 00:35:10,680 --> 00:35:13,719 Speaker 1: worried about the value of currency because there's because of 629 00:35:13,760 --> 00:35:18,000 Speaker 1: potential you know, high inflation, then I mean to protect 630 00:35:18,200 --> 00:35:23,680 Speaker 1: oneself against high inflation, you have to belong things that 631 00:35:23,760 --> 00:35:27,319 Speaker 1: the world needs. And you know, some people think that 632 00:35:27,320 --> 00:35:29,640 Speaker 1: we need cryptocurrencies, but no, it's not something we need. 633 00:35:29,800 --> 00:35:32,239 Speaker 1: It's maybe nice to have for some people, but it's 634 00:35:32,239 --> 00:35:34,799 Speaker 1: not something we absolutely need. What we need is to 635 00:35:34,840 --> 00:35:41,279 Speaker 1: be able to eat and move. So it's energy. Uh, 636 00:35:41,320 --> 00:35:45,600 Speaker 1: it's energy, it's agricultural products, it's food, it's metal. So 637 00:35:46,000 --> 00:35:49,760 Speaker 1: these are like the old school commodities that first people 638 00:35:49,800 --> 00:35:52,839 Speaker 1: should be you know, should I should have enough exposure 639 00:35:52,920 --> 00:35:57,360 Speaker 1: to in order not to be hit by inflation to negatively. 640 00:35:57,840 --> 00:36:00,239 Speaker 1: And that's you know, despite the large move over the 641 00:36:00,320 --> 00:36:02,560 Speaker 1: last couple of years, I mean coming from a very 642 00:36:02,600 --> 00:36:05,440 Speaker 1: low base and now we're starting to be at relatively 643 00:36:05,520 --> 00:36:08,480 Speaker 1: high historical numbers, we haven't seen a lot of investment 644 00:36:08,520 --> 00:36:11,200 Speaker 1: going into commodities, right, Like most of the pension funds 645 00:36:11,280 --> 00:36:14,759 Speaker 1: don't have the box thing. We have to be long communities, 646 00:36:15,120 --> 00:36:19,120 Speaker 1: you know, like there's only long equities and bonds and 647 00:36:19,360 --> 00:36:22,040 Speaker 1: they're looking at cup tools, but they have their litle commodities. 648 00:36:22,560 --> 00:36:25,839 Speaker 1: So I think there will be more interesting commodities and 649 00:36:25,880 --> 00:36:29,879 Speaker 1: there should be more investment um to to eventually bring 650 00:36:29,920 --> 00:36:34,400 Speaker 1: more supply and to to be able to we stand 651 00:36:34,440 --> 00:36:38,160 Speaker 1: against shocks requescying today. You know, this is a theme 652 00:36:38,239 --> 00:36:43,319 Speaker 1: that comes up over and over again on on our episodes. 653 00:36:43,360 --> 00:36:46,400 Speaker 1: Which is under investment? And you mentioned that some of 654 00:36:46,440 --> 00:36:50,120 Speaker 1: the OPEC plus countries, particularly in Africa, we're not even 655 00:36:50,200 --> 00:36:53,280 Speaker 1: able to sell as much oil as they were allotted 656 00:36:53,600 --> 00:36:56,480 Speaker 1: because they didn't have the capacity. Can you talk a 657 00:36:56,560 --> 00:37:00,800 Speaker 1: little bit about sort of across commodities, this is how 658 00:37:01,000 --> 00:37:03,640 Speaker 1: sort of under investment are weally? And then how long 659 00:37:03,760 --> 00:37:06,399 Speaker 1: is this cycle? Like are we going to see an 660 00:37:06,400 --> 00:37:09,520 Speaker 1: increased investment cycle for five a decade to come? Like 661 00:37:09,560 --> 00:37:13,200 Speaker 1: what is the sort of flip side of this decade 662 00:37:13,200 --> 00:37:16,600 Speaker 1: of under investment gonna look at as every every country 663 00:37:16,719 --> 00:37:19,319 Speaker 1: wants to sort of beef up it beef up its 664 00:37:19,360 --> 00:37:24,160 Speaker 1: domestic capacity. So for agricultural products it's pretty fast, like 665 00:37:24,200 --> 00:37:28,040 Speaker 1: within a year you can change things. But for metals 666 00:37:28,160 --> 00:37:30,920 Speaker 1: it takes anywhere between seven and fifteen years. So you 667 00:37:31,000 --> 00:37:34,919 Speaker 1: have to to build new minds. Um well, I think, 668 00:37:35,680 --> 00:37:39,200 Speaker 1: and then you have to exploit those minds. But I mean, 669 00:37:39,480 --> 00:37:42,080 Speaker 1: I think that there will be a different lengths of 670 00:37:42,120 --> 00:37:44,560 Speaker 1: the cycle of when there's a shortage and when there's 671 00:37:44,600 --> 00:37:46,839 Speaker 1: no shortage. So you know, in the past it could 672 00:37:46,880 --> 00:37:50,000 Speaker 1: take quite a few years before getting the approval to 673 00:37:50,000 --> 00:37:53,560 Speaker 1: build a mine, and that will probably be much faster 674 00:37:53,640 --> 00:37:57,680 Speaker 1: now going forward when we'll get much higher prices, But 675 00:37:57,880 --> 00:37:59,719 Speaker 1: only you know, it's going to be at least five 676 00:37:59,760 --> 00:38:04,719 Speaker 1: years before the decision when the company decides to bring 677 00:38:04,760 --> 00:38:08,879 Speaker 1: the production of subtle metals or minerals up and when 678 00:38:09,080 --> 00:38:12,359 Speaker 1: that supply will come. So there's no like short term 679 00:38:12,400 --> 00:38:14,920 Speaker 1: institution in terms of getting more metals for next year 680 00:38:15,040 --> 00:38:17,560 Speaker 1: or in two years. It tends to be more like 681 00:38:18,120 --> 00:38:22,800 Speaker 1: five years plus down the road. For oil outside of USHL, 682 00:38:22,920 --> 00:38:28,720 Speaker 1: it's similar um it's for any any new projects journally 683 00:38:28,800 --> 00:38:33,640 Speaker 1: today would bring oil supply in seven years time. So 684 00:38:33,680 --> 00:38:37,520 Speaker 1: there's a lot of hesitation about going to invest in 685 00:38:37,640 --> 00:38:40,200 Speaker 1: those long lead time projects today because you get all 686 00:38:40,320 --> 00:38:44,600 Speaker 1: comes out in nine twenty thirty. People don't know what 687 00:38:44,760 --> 00:38:48,359 Speaker 1: the demand levels will be by then. So I think 688 00:38:48,440 --> 00:38:50,960 Speaker 1: that's that's kind of twacky in the long term to 689 00:38:51,040 --> 00:38:55,799 Speaker 1: bring two I mean yeah, in the short term, to 690 00:38:55,800 --> 00:38:58,320 Speaker 1: bring more more, more production. Only the US has a 691 00:38:58,360 --> 00:39:01,960 Speaker 1: shorter circle of probably twelve before the decision to increase 692 00:39:02,000 --> 00:39:05,239 Speaker 1: capex and getting more oil because they know where the 693 00:39:05,280 --> 00:39:08,239 Speaker 1: oils have, all the infrastructures, they know, you know, they 694 00:39:08,280 --> 00:39:12,640 Speaker 1: about the uh enough kind of capacity from the service 695 00:39:12,680 --> 00:39:16,560 Speaker 1: companies to to actually bring bring that toil. So I 696 00:39:16,560 --> 00:39:19,000 Speaker 1: would expect more coming from the US in the next 697 00:39:19,040 --> 00:39:20,640 Speaker 1: few years and then from the rest of the world 698 00:39:20,640 --> 00:39:23,520 Speaker 1: a bit later. Um, but I think we'll have to 699 00:39:23,600 --> 00:39:28,640 Speaker 1: live with how your prices to keep you know, demand down, 700 00:39:29,200 --> 00:39:32,239 Speaker 1: to keep to to be treated a bit more as 701 00:39:32,239 --> 00:39:35,560 Speaker 1: a luxury product, and also to accelerate the energy transition. 702 00:39:36,239 --> 00:39:39,200 Speaker 1: Just real quickly is the shortage of metals, I mean 703 00:39:39,200 --> 00:39:41,880 Speaker 1: we hear about the same shortage we hear about obviously 704 00:39:41,920 --> 00:39:45,520 Speaker 1: steel prices do then also trip up the ability to 705 00:39:45,600 --> 00:39:48,560 Speaker 1: increase oil production. The fact that if you have tight 706 00:39:48,640 --> 00:39:53,040 Speaker 1: commodity markets elsewhere, it makes new investment more difficult. Yeah, 707 00:39:53,080 --> 00:39:55,759 Speaker 1: it does. Actually you you have I mean, as we 708 00:39:55,800 --> 00:39:58,920 Speaker 1: saw last year, there's a lot of bottlenecks and you 709 00:39:58,920 --> 00:40:02,640 Speaker 1: know everywhere, um due to COVID. And then once we 710 00:40:02,760 --> 00:40:06,040 Speaker 1: get less supply of in the other communities and also 711 00:40:07,200 --> 00:40:11,160 Speaker 1: very low unemployment number, you know, how to find the 712 00:40:11,160 --> 00:40:14,759 Speaker 1: people and then to get all the technology you know, 713 00:40:16,120 --> 00:40:18,319 Speaker 1: enough volume and at the white time to to to 714 00:40:18,360 --> 00:40:20,480 Speaker 1: bring supply up. So it's going to be challeging any thing. 715 00:40:21,000 --> 00:40:26,520 Speaker 1: Over the next ten years. Communities are gonna cap the 716 00:40:26,560 --> 00:40:29,640 Speaker 1: community supply actually not only price, but level of supply 717 00:40:30,080 --> 00:40:33,120 Speaker 1: will actually capt the type of economic goals we will 718 00:40:33,120 --> 00:40:36,040 Speaker 1: be able to have. So I think a lot of 719 00:40:36,040 --> 00:40:38,760 Speaker 1: people just assume we'll, you know, in their economic model, 720 00:40:38,840 --> 00:40:41,439 Speaker 1: that we can have as most community as we want. 721 00:40:41,520 --> 00:40:43,640 Speaker 1: Is just a question of demand, But no, I mean 722 00:40:43,680 --> 00:40:47,319 Speaker 1: this time it will be supply constraints. I just want 723 00:40:47,360 --> 00:40:49,799 Speaker 1: to go back to the idea of two d dollar 724 00:40:49,880 --> 00:40:52,439 Speaker 1: per barrel oil because I'm sure some people who hear 725 00:40:52,680 --> 00:40:56,040 Speaker 1: that number, um and think back to the previous record, 726 00:40:56,120 --> 00:40:59,000 Speaker 1: which I think was almost a hundred and fifty dollars 727 00:40:59,080 --> 00:41:03,239 Speaker 1: per barrel, They're going to be shocked and worried and 728 00:41:03,320 --> 00:41:06,840 Speaker 1: wondering how exactly, you know, we get to a point 729 00:41:06,880 --> 00:41:09,000 Speaker 1: in the market where oil can go up over a 730 00:41:09,080 --> 00:41:12,080 Speaker 1: hundred dollars in less than a year potentially, can you 731 00:41:12,120 --> 00:41:16,080 Speaker 1: maybe walk us through exactly what needs to happen in 732 00:41:16,200 --> 00:41:18,920 Speaker 1: order to get to a number like that, Like, what 733 00:41:19,040 --> 00:41:21,960 Speaker 1: exactly is the process that is going to take place 734 00:41:22,000 --> 00:41:24,720 Speaker 1: in order to get to two hundred dollars per barrel? Okay, 735 00:41:24,719 --> 00:41:26,960 Speaker 1: So I think it's um, you know, there's a lot 736 00:41:27,000 --> 00:41:31,280 Speaker 1: of recently bias to people's mind. Johnny, we get choosed 737 00:41:31,280 --> 00:41:34,600 Speaker 1: to with some prices. And at first we think andred 738 00:41:34,719 --> 00:41:37,520 Speaker 1: is expensive, we complain, I mean once we let people 739 00:41:37,560 --> 00:41:40,720 Speaker 1: in general complain, uh, and then they get used too hundred, 740 00:41:40,760 --> 00:41:43,160 Speaker 1: and then they complain when it's one twenty, and then 741 00:41:43,200 --> 00:41:45,719 Speaker 1: the complay went one forty. And but they get choosed 742 00:41:45,719 --> 00:41:48,319 Speaker 1: to higher levels of the time. So the antiquation of 743 00:41:48,800 --> 00:41:51,359 Speaker 1: it is still worth using this oil, you know. But 744 00:41:51,400 --> 00:41:53,759 Speaker 1: and if you look at seems to certain an eight 745 00:41:54,160 --> 00:41:58,240 Speaker 1: um so d and fifty dollars, then is two dollars 746 00:41:58,239 --> 00:42:01,680 Speaker 1: today in two days dollars? If you as an inflation measure, 747 00:42:01,719 --> 00:42:05,520 Speaker 1: you take the GDP global GDP flatter, then it's two twenty. 748 00:42:05,840 --> 00:42:07,880 Speaker 1: So the way I think of it is, is it 749 00:42:08,000 --> 00:42:10,680 Speaker 1: more bullish today's and then yes, it's more bullish today 750 00:42:10,719 --> 00:42:13,839 Speaker 1: than then. And then we had USHL to compail us 751 00:42:13,880 --> 00:42:16,520 Speaker 1: out a few years after in two thousand and ten eleven. 752 00:42:16,760 --> 00:42:18,919 Speaker 1: This time we might not have it. So I think 753 00:42:19,000 --> 00:42:23,319 Speaker 1: it's it's just people, you know, people slowly realizing that 754 00:42:23,719 --> 00:42:26,000 Speaker 1: prices have to go up and accepting it, and and 755 00:42:26,000 --> 00:42:28,919 Speaker 1: and and then the price goes upen and all the 756 00:42:29,040 --> 00:42:32,120 Speaker 1: usage of all that is not really necessarily get cut. 757 00:42:32,480 --> 00:42:35,560 Speaker 1: So people were you know, driving for could end up 758 00:42:35,560 --> 00:42:37,680 Speaker 1: taking the bus intead of taking the car, or people 759 00:42:37,800 --> 00:42:40,279 Speaker 1: going for some long trip, well they do short trips. 760 00:42:40,360 --> 00:42:43,160 Speaker 1: And the kind of things for for you demand to 761 00:42:43,200 --> 00:42:45,640 Speaker 1: go down and for the market to be balanced. And 762 00:42:45,640 --> 00:42:48,399 Speaker 1: the thing is if people if prices stay too low 763 00:42:48,440 --> 00:42:50,680 Speaker 1: for too long, what happens is it can be what's 764 00:42:50,760 --> 00:42:53,560 Speaker 1: gonna happen soon is that eventually you run out of 765 00:42:54,960 --> 00:42:57,880 Speaker 1: inventories to deliver on the screen, and then the price 766 00:42:57,880 --> 00:43:01,320 Speaker 1: can go anywhere. So it's very important that the price 767 00:43:01,880 --> 00:43:05,120 Speaker 1: moved in line with fundamentals so that we don't run 768 00:43:05,120 --> 00:43:07,840 Speaker 1: out of inventors eventually, because then it goes to you 769 00:43:07,840 --> 00:43:11,320 Speaker 1: know anything, it can go anywhere um as a price. 770 00:43:11,600 --> 00:43:13,800 Speaker 1: So I think that the process is that people you 771 00:43:13,840 --> 00:43:17,120 Speaker 1: know generally get get used to it little by little um. 772 00:43:17,960 --> 00:43:20,399 Speaker 1: And also you know, the economy is taking less oil 773 00:43:20,440 --> 00:43:23,960 Speaker 1: per unit of GDP, so today for one unit of GDP, 774 00:43:24,120 --> 00:43:27,719 Speaker 1: where we're using fifteen percent less oil than in in 775 00:43:27,760 --> 00:43:31,560 Speaker 1: two thousand and eight. So also that justifies you know 776 00:43:31,680 --> 00:43:34,719 Speaker 1: the fact that maybe to have the equionomy to have 777 00:43:34,800 --> 00:43:37,239 Speaker 1: the same impact on the economy at the high price 778 00:43:37,239 --> 00:43:39,320 Speaker 1: of two thousand and eight when it was one fifty 779 00:43:39,480 --> 00:43:42,759 Speaker 1: might be actually closer today. So that's the way I 780 00:43:42,760 --> 00:43:46,200 Speaker 1: think of it, And that's jolly. People get you know, 781 00:43:46,239 --> 00:43:48,560 Speaker 1: they don't know, they get used to new prices and 782 00:43:48,560 --> 00:43:51,400 Speaker 1: then accept it and and it is what you know. 783 00:43:51,560 --> 00:43:54,279 Speaker 1: That's why it's a it's a long process. And and 784 00:43:54,360 --> 00:43:58,120 Speaker 1: demand doesn't you know, go down right away because there's 785 00:43:58,160 --> 00:44:02,000 Speaker 1: not a lot of there's no no identity. Really, yeah, 786 00:44:02,200 --> 00:44:04,719 Speaker 1: it feels like this is a lesson that everyone is 787 00:44:04,800 --> 00:44:08,000 Speaker 1: learning all at the same time. Pierre, thank you so 788 00:44:08,080 --> 00:44:11,040 Speaker 1: much for coming on all thoughts. Really appreciate you taking 789 00:44:11,040 --> 00:44:14,640 Speaker 1: the time during this very busy moment in markets to 790 00:44:14,880 --> 00:44:18,200 Speaker 1: give us your thoughts, my pleasure. Thanks for patrinity, and 791 00:44:18,280 --> 00:44:20,200 Speaker 1: you'll have a good rest of the day and good 792 00:44:20,239 --> 00:44:22,800 Speaker 1: luck everything. Thanks Joe. I mean, I thought that was 793 00:44:22,840 --> 00:44:25,719 Speaker 1: a very thoughtful conversation that actually wrapped up a lot 794 00:44:25,760 --> 00:44:29,320 Speaker 1: of the different strands that we've been dealing with in 795 00:44:29,719 --> 00:44:33,120 Speaker 1: separate episodes. But the thing that I keep coming back 796 00:44:33,120 --> 00:44:35,719 Speaker 1: to is this idea that you know, any problem that 797 00:44:35,760 --> 00:44:39,600 Speaker 1: can be solved with money probably isn't that big of 798 00:44:39,640 --> 00:44:42,120 Speaker 1: a problem, which is actually, now that I think about it, 799 00:44:42,160 --> 00:44:45,719 Speaker 1: a very mmt thing to say. But coming over to 800 00:44:45,760 --> 00:44:48,080 Speaker 1: the dark set. That's not what I mean at all, 801 00:44:48,440 --> 00:44:50,680 Speaker 1: but it is true that you know, even if you 802 00:44:50,760 --> 00:44:53,560 Speaker 1: throw a lot of money at this problem, you know, 803 00:44:53,640 --> 00:44:56,640 Speaker 1: you can't make the oil producers necessarily drill. Like it 804 00:44:56,640 --> 00:44:59,759 Speaker 1: takes a while to ramp up capacity to build out 805 00:45:00,000 --> 00:45:02,640 Speaker 1: alternative energy sources. And when you have a big shock 806 00:45:02,719 --> 00:45:05,279 Speaker 1: like we just saw in Russia, that I mean, it 807 00:45:05,360 --> 00:45:09,080 Speaker 1: just sort of destabilizes everything and it creates even more 808 00:45:09,239 --> 00:45:11,719 Speaker 1: lead times that are very difficult to deal with. No, 809 00:45:11,920 --> 00:45:14,880 Speaker 1: I think I had the exact same thought, And maybe 810 00:45:15,000 --> 00:45:17,160 Speaker 1: it was like when he pointed out that, you know, 811 00:45:17,200 --> 00:45:20,160 Speaker 1: we could be looking at seven year cycles for something 812 00:45:20,200 --> 00:45:22,480 Speaker 1: like ramping up medals. And of course we're talking a 813 00:45:22,520 --> 00:45:25,440 Speaker 1: lot about oil, but we saw the price of nickel 814 00:45:25,560 --> 00:45:30,400 Speaker 1: go absolutely wild over this past week, and we're gonna 815 00:45:30,400 --> 00:45:33,080 Speaker 1: need regardless of what happens right now, we're gonna need 816 00:45:33,120 --> 00:45:37,200 Speaker 1: more nickel and other sort of other and other specific 817 00:45:37,239 --> 00:45:41,360 Speaker 1: medals for car batteries and d vs, etcetera. The commodity 818 00:45:41,440 --> 00:45:44,160 Speaker 1: that's in short of supply is kind of a cliche 819 00:45:44,320 --> 00:45:46,840 Speaker 1: kind of galaxy brain is time, and that is like 820 00:45:46,880 --> 00:45:49,520 Speaker 1: the one thing that no amount of money can fix. 821 00:45:49,560 --> 00:45:51,520 Speaker 1: There's just a certain amount of time it takes to 822 00:45:51,520 --> 00:45:56,319 Speaker 1: build a mind, and there's no immediate supply response. You know, 823 00:45:56,480 --> 00:45:58,760 Speaker 1: maybe shale can ramp up with the next six months, 824 00:45:58,880 --> 00:46:01,040 Speaker 1: but they're all kinds of other things they can't. I mean, 825 00:46:01,080 --> 00:46:03,200 Speaker 1: the other thing that was quite worrying. So obviously it's 826 00:46:03,200 --> 00:46:08,560 Speaker 1: concerning whenever anyone says two for barrel oil is a possibility. 827 00:46:08,880 --> 00:46:11,600 Speaker 1: But the other thing that struck me was this idea 828 00:46:11,880 --> 00:46:17,439 Speaker 1: of maybe something happens in the actual commodities market sort 829 00:46:17,480 --> 00:46:20,240 Speaker 1: of similar to what we saw in March or April, 830 00:46:21,320 --> 00:46:25,319 Speaker 1: but in reverse. So you know, someone can't ship out 831 00:46:25,440 --> 00:46:28,200 Speaker 1: physical delivery of oil that they that they owe to, 832 00:46:28,719 --> 00:46:31,000 Speaker 1: you know, to fulfill a futures contract, and at that 833 00:46:31,040 --> 00:46:34,160 Speaker 1: point you get like a very big squeeze upwards in 834 00:46:34,239 --> 00:46:37,880 Speaker 1: the price. It feels like that's a possibility. Yeah, I 835 00:46:37,880 --> 00:46:41,920 Speaker 1: thought that was really interesting him talking about the scenario 836 00:46:41,920 --> 00:46:43,880 Speaker 1: in which Russian oil could be out of the market 837 00:46:43,920 --> 00:46:45,880 Speaker 1: for a long time. And so you have these companies 838 00:46:46,200 --> 00:46:49,400 Speaker 1: self sanctioning, people call it or withdrawing, maybe partly for 839 00:46:49,520 --> 00:46:52,279 Speaker 1: pr reasons, because they don't want to be perceived or 840 00:46:52,320 --> 00:46:54,600 Speaker 1: in fact do not want to be a part of 841 00:46:54,920 --> 00:46:59,719 Speaker 1: helping fund this war and then the oil piles up 842 00:47:00,080 --> 00:47:02,200 Speaker 1: the docks at the ships, there's no more, and then 843 00:47:02,239 --> 00:47:04,640 Speaker 1: you have to turn off production because there's literally no 844 00:47:04,680 --> 00:47:08,440 Speaker 1: more place to story. And then you automatically, regardless of 845 00:47:08,440 --> 00:47:12,120 Speaker 1: what happens, get this very long lead time before that 846 00:47:12,200 --> 00:47:14,560 Speaker 1: supply can come on again. And I also thought it 847 00:47:14,600 --> 00:47:17,040 Speaker 1: was interesting and this is gonna be a big question. 848 00:47:17,120 --> 00:47:20,920 Speaker 1: Like the other side of the sanctions, Pierre's argument is 849 00:47:20,960 --> 00:47:24,120 Speaker 1: that it will be very hard to lift them under 850 00:47:24,400 --> 00:47:28,439 Speaker 1: the Putin administration. Is something to think about in terms 851 00:47:28,440 --> 00:47:30,799 Speaker 1: of what are we looking at in terms of time frame. Again, 852 00:47:30,880 --> 00:47:32,319 Speaker 1: I was about to say it goes back to time, 853 00:47:32,320 --> 00:47:35,920 Speaker 1: because even if everything was resolved tomorrow, you know, in 854 00:47:35,920 --> 00:47:38,799 Speaker 1: a ceasefire was actually declared, it seems very unlikely that 855 00:47:38,800 --> 00:47:41,360 Speaker 1: you're going to get a complete roll back very quickly 856 00:47:41,400 --> 00:47:44,439 Speaker 1: of everything that's just happened. From a sanctions perspective, under 857 00:47:44,480 --> 00:47:47,880 Speaker 1: investment rules everything around me, I feel like every story 858 00:47:47,920 --> 00:47:50,400 Speaker 1: comes back to that and the point about OPEC not 859 00:47:50,480 --> 00:47:52,879 Speaker 1: even be able able to you know, normally we think 860 00:47:52,880 --> 00:47:56,280 Speaker 1: of OPEC or OPEC plus members is cheating, always trying 861 00:47:56,320 --> 00:47:59,200 Speaker 1: to sell more oil than they have, whereas right now 862 00:47:59,200 --> 00:48:01,359 Speaker 1: the problem seems to be the opposite. All right, let's 863 00:48:01,400 --> 00:48:03,360 Speaker 1: leave it there. All right, this has been another episode 864 00:48:03,360 --> 00:48:06,040 Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can 865 00:48:06,080 --> 00:48:08,919 Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe 866 00:48:08,960 --> 00:48:11,479 Speaker 1: Why Isn't All? You can follow me on Twitter at 867 00:48:11,520 --> 00:48:14,520 Speaker 1: the Stalwart. Follow our guest Pierre on d Round. He's 868 00:48:14,640 --> 00:48:17,120 Speaker 1: at on Durron Pierre and I want to thank our 869 00:48:17,160 --> 00:48:20,920 Speaker 1: producers call It Tipton and Magnus Hendrickson. Follow the Bloomberg 870 00:48:20,960 --> 00:48:24,520 Speaker 1: head of podcast Francesco lead at Francesca Today, and check 871 00:48:24,560 --> 00:48:27,200 Speaker 1: out all of our podcasts at Bloomberg under the handle 872 00:48:27,480 --> 00:48:29,680 Speaker 1: at podcasts. Thanks for listening.