Chapter 1: What is the main topic discussed in this episode?
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Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. Bloomberg Audio Studios. Podcasts. Radio. News. Jeff Curry of Carlyle writing this. Even if a ceasefire is reached in the coming days, it will take time to restart the energy supply chain. A legend of energy research joins us around the table. Jeff joins us for more.
Jeff, good morning. Good to see you. Good morning. Great to be here. We've got time here, so let's take a step back. You believe that even if there's a ceasefire, tomorrow, right now, the next five minutes, the world's changed. The commodities have accrued. What's changed? For one, you've disrupted global supply chains. This is not just a disruption to oil.
It's gas, it's fertilizers, it's metals, it's petrochemicals. The list goes on and on. And then you've disrupted supply chains in countries all over the world. The ships are in the wrong places. The insurances have been canceled. You've taken the pressure out of the fields that you've shut in in places like Saudi Arabia or Iraq or even in the UAE. The list goes on and on.
The damage is going to take months to unwind. But I want to bring it to the immediate. There is no policy response that can stop this ascent in crude. None. And yes, you hear this 400 million barrel headline. Flow rate is what matters. You know, the maximum sustainable flow rate is 2 million barrels per day.
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Chapter 2: What impact is the Iran war having on the global energy supply chain?
So 400, that'll take them 200 days to get that out. And you put that in the context of a disruption of, you know, let's net it out. It's got to be somewhere around 18 million barrels per day right now. You're just minuscule in terms of offsetting it. So, again, there's not many options here. What would you call this then, a PR campaign? in terms of doing this, it's all they have.
They're going to do whatever they can. But I think the key issue here, keep the hoarding down. Because we know what happened in the 1970s when you got the hoarding. It created an increase of demand of somewhere around 2 million barrels per day. In the size of this market, try 3 million barrels per day, on top of the disruption of somewhere around 18.
That word comes up in your research repeatedly, hoarding. China has been rewarded for doing just that over the last 12 months. Do you think others will follow now? They already are. Whether it's places like Japan and Korea, they're hoarding anything they can get their hands on at this point. And it even happens down to people driving. Keep your tank filled up.
By the way, that's meaningful in terms of the demand pull. You know, most people drive and they take it down to about a quarter filled and then refill it.
Chapter 3: How are global supply chains disrupted beyond oil?
Now they're going to be going into the gas station filling it back up every time it gets to a half or even three quarters. So what kind of premium are you talking about longer term? We were just speaking with Steve Voth of Federated Hermes earlier saying that if oil prices go above $90 for a prolonged period of time, that will cause real damage to the underlying economy.
Is that a base case for you? By the way, the one thing... We're going through a regime change. This is not a trade. This is a regime change. We're moving from that world that was defined from 2014 to 2024, you know, is the new economy boom, you know, driven by Mag7, is a technology boom, asset light. Similar to what we saw, the dot-com boom. What came after the dot-com boom?
Remember, it was the exact same thing. You had a geopolitical event, switched you in 2001. And then actually directly connected to the 9-11 was China's admission of WTO. By the way, they were connected. George Bush Jr. needed to use force in the Middle East. He needed a vote in the UN Security Council. He traded admission of China into the WTO to get that vote. Boom, you're off to the races.
You were in an asset-heavy boom that lasted for over a decade of 2014. And then we went into the current light asset one. And look, we're again in one of these huge geopolitical events. And I think the big thing to watch is when she and President Trump meet at the end of this month. And that's going to be where the negotiation happens.
You could argue that 2020 was the real jumpstart to the reindustrialization. Oh, absolutely.
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Chapter 4: What will it take to unwind the damage to the energy supply chain?
of the world because people realize, oh, wait a second, the physical world actually takes time, unlike sending things digitally. I just wonder how much still needs to be priced in to the physical world. And we've just been highlighted, we've just been shown the risk in the oil markets, but more broadly, how much are we underpricing some of what needs to happen?
I don't think we know what can happen here. And what's going to happen is we're going to reprice everything. By the way, metals since 2020 are just a straight line going up.
Chapter 5: What is the significance of the current crude oil price trends?
Everybody looks at the last couple of months, but it's just... Here's a point I like to say is that You looked at the returns of companies in 2000 when we were at $20 oil. They were like 20% or 30%. By the time we were around 2005 or 2006, you're at 60, three times on the oil price. What do you think the returns were?
They were going down because the overall cost structure of the industry was rising. So we ask about how high it can go. Metals are going up. Their cost of capital is going up. Currency's weak and your labor goes up. All of this begins to happen. You reprice. I don't want to speculate. I like to say, get long, buckle your seatbelt, hang on for the ride, and we're going to reprice this thing.
Where it reprices, I got in trouble back in the 2000s with, I'm not going to repeat the numbers again. But I think the key point here, what do you want to own? Own the hard assets. Own the halos. Own anything that, you know, and I love that term. The term we called it in the 2000s was the revenge of the old economy because it was coming off the back of the dot-com boom.
This time around, I love that term halo. Heavy asset, low obsolescence. Own those assets and hang on. And I want to own metal. I want to own gold. I want to own oil. And by the way, again, this is a huge disruption. It's just not isolated to oil. What do you make, though, about central banks right now, some of the dwindling reserves and some of their appetite to buy gold?
I think what you're going to see is even more demand for gold out of this, because ultimately you're really going to question how is the financial situation in the U.S. I want to go talk about what is really different about this time versus any other time in the last 50 years in oil.
Anytime the oil price would spike pre-22, before the US and Europe froze central bank assets on Russia, anytime oil prices would spike, you would have capital rotate into the US. The recycling, that was the petrodollars. That would act like QE buffer. It was called a shock absorber to the rest of the economy. That goes into gold now. So ever since 2022, commodity prices spike.
These emerging markets get money. What do they buy? They buy gold. They buy anything but dollar-denominated assets. because they don't want to get sanctions imposed on them like what happened to the Russians. And as a result, you don't have that money coming back. One other point you've got to keep in mind is now transfer payments are bigger.
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Chapter 6: How does hoarding affect oil demand and supply dynamics?
The U.S. debt is bigger. The interest payments are bigger. So when oil prices go up, headline inflation goes up, that gets much bigger. In fact, we estimate if you go to 120 and stay there, you're going to crowd out $150 billion of private credit because you're going to have to basically issue that in public credit.
Jeff, you think the world is more vulnerable now than they were in 1973, but the U.S. right now is a net exporter. Oh, it's a net exporter at the income cash flow level, meaning they produce as much as they consume, roughly. And I think you get an excess of around $80 billion on a $30 trillion economy. But let's say, put it this way, I call it the paradox of energy dominance.
Let's go to the wealth level. Let's look at the equity market. Energy, 3% of the market. Three. How big are the things that are short? 53%. So your long three and short 53 at the wealth level. And what is the multiple on that three? It's like 12 or 13. What is the multiple on the other one? 36%. You're in trouble at the wealth level.
You may be safe at the income level, but you're in real trouble at the wealth level. Then you get at the credit level. Now you've taken your shock absorber because of the sanctions you imposed on Russia's central bank and turned it into a shock amplifier. So again, I agree with you 100% energy dominance at the cash flow level, but not at the wealth level and not at the credit level.
Jeff, final question. It's on Asia. Refiners there have clearly got a bit of a cushion. Can you tell us how big that cushion is and how quickly before we start to see headlines across the Bloomberg on shortages? Oh, you already are. Jet fuel in Singapore spiked to over $230 a barrel. You're at that point. And that's the hoarding is only amplifying it.
And you just took out a 900,000 barrel per day refinery that was bombed there in the Gulf. So the situation on refined products is, and I think the key point here is it's Asia is going to be the one that's going to be in the deepest problem. Big time. Jeff is going to see you. Great. Thanks for having me. Could talk to you all day. Always could.
Jeff Curry there of Carlyle on the commodity market with crude this morning around $90 a barrel. This message is brought to you by Apple Card. Apple Card members can earn unlimited daily cash back on everyday purchases wherever they shop. This means you could be earning daily cash on just about anything, like a slice of pizza from your local pizza place or a latte from the corner coffee shop.
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Chapter 7: What are the implications of rising oil prices on the economy?
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