Title: Adam Rozencwajg: Oil Crisis Not Over Yet, This is the Real Bottleneck
Show: Investing News Network (investingnews.com) — interviewed by Charlotte McLeod
Guest: Adam Rozencwajg (managing partner, Goehring & Rozencwajg Associates)
Date: 2026-SEP-03 (publish date; the interview was RECORDED on 2026-SEP-01 — "we talked today on September 1st" — and the firm's quarterly letter it references was released 2026-AUG-31)
URL: https://youtu.be/5BdwMOdyqWs
Length: 46:45 (2,805 s)
Note: Verbal fillers removed (um / uh / "you know" as an interjection / contentless "sort of", "kind of", "I mean") and stutters and false starts collapsed; bracketed non-speech artifacts stripped ([clears throat], [snorts], [music]). Auto-transcript name manglings corrected: "Adam Rosen Swag" / "Adam Rosenzweig" -> Adam Rozencwajg; "Gearing and Rosen Swag" / "Gering and Rosenzweig" -> Goehring & Rozencwajg; "Charlotte McCloud" -> Charlotte McLeod; "Wersch" -> Warsh (Kevin Warsh); "NextGen" -> NexGen Energy; "Rook Iero" -> Rook I; "and Lee was as well" -> "and Leigh was as well" (Leigh Goehring, his partner); "the straight" -> "the strait"; "for not" -> "or not"; "double the triple" -> "double or triple"; "bear markets and gold" -> "bear markets in gold"; "speculative net length in energy" -> "speculative net length and energy" (matches his later "still a lot of speculative energy"). "Tank heels" is the correct oil-storage term and is kept. Wording otherwise verbatim; every (mm:ss) cue kept exactly in place, except the final (46:25) cue whose entire content was the stripped [music] artifact. The YouTube page carried an earlier title variant, "Adam Rozencwajg: Oil Crisis Hiding in Plain Sight, What to Watch Now".

Transcript:

(00:04) I'm Charlotte McLeod with investingnews.com and here today with me is Adam Rozencwajg, managing partner at Goehring & Rozencwajg. Thank you so much for being here. Always great to have you on. >> Thanks for having me. Happy to chat. >> Yes, of course. Always good to be catching up with you and this time I think we have a lot to go over.

(00:24) We're catching up from our last conversation all the way back in mid-March and I wanted to begin with oil, which was point of discussion at that time. We talked about how disruptive the Iran war and Strait of Hormuz closure could be for the market and since then, of course, we've definitely seen volatility.

(00:45) But it seems like the impact hasn't been as strong as many expected. So, why is that happening? What do you see going on there? >> No, I think that's a great way to phrase it and when we start talking about the state of the oil market today, unfortunately, I've tried my best to distill it down and make it simple to follow, but unfortunately, this is one of those ones where there's quite a few figures and facts and whatnot.

(01:10) So, one thing that I'll say before we get going is we just released our latest quarterly letter. I think it was put out just yesterday morning on the 31st of August. You can find it on our website and we outline in detail and have charts and tables with all of the figures I'm about to say. So, for the purposes of this call, don't try to scribble down anything.

(01:33) Just take the story for what it is because it is really quite an interesting one and I think it's one that has really profound investment implications here potentially as we go through the rest of the year. So, the rough math when the Strait of Hormuz closed was that we were impacting anywhere between 10 to 15 million barrels a day of oil.

(01:58) Now, even that needs a little bit of a disclaimer and a disclosure because very quickly after the strait closed down, Saudi Arabia, Iraq, and UAE found ways of alternate forms of egress or ways to get oil out that didn't have to go through the strait. And the most famous of that was the Saudi East-West pipeline that they ramped up above nameplate capacity so that they could export oil out of the Red Sea.

(02:25) So the strait essentially had 20 to 25 million barrels passing through it depending on whether you included NGLs and products or just crude oil. And that essentially ground to a halt, but in the early days, 5 million or so got out through other forms of egress. And so we were impacting about 15 million barrels a day.

(02:47) And on our math, we figured that if you did that for 75 to 100 days, you should have drawn global inventories by over a billion barrels, up to 1.5 billion barrels even. And we did some back of the napkin math and we said, "Okay, how much do we have in global stockpiles around the world?" And some of that's of course in these government strategic reserves, some of them in the commercial reserves, some of them in oil on the water in the form of tankers and things like that. And a lot of that oil,

(03:23) which amounts to anywhere between 6 and 7 billion barrels on a global basis when you include absolutely everything, most of that oil is actually trapped in the sense that it's not so much inventory like a savings account that you can draw down, rather it's more like working capital that you need to run your business.

(03:43) So, we have pipelines around the world and those pipelines have to stay full of oil. You can't drain oil out of a pipeline, otherwise it stops operating. That amounts to about a billion and a half barrels that needs to be in the pipeline system at any given time. Another 2 billion or so barrels needs to be on boats at any given time just to sustain an 80 million barrel a day seaborne market.

(04:05) If you figure that every vessel needs about 20 days on the water and 80 million barrels, you're at 1.6 billion barrels that's needed on the water just to support that export market. And you go through all those different things. There's tank heels or minimum operating capacities that the tanks can't actually get below, otherwise you can't get any more oil out of them.

(04:24) Etc. etc. And we concluded that you would have outside of the strategic reserves, about a billion barrels of easily mobilized crude and product. And then the SPR — the OECD countries had committed to about 400 million barrels of a release. So we're going to lose 1.5 billion barrels from fields that were actually shut in because they had nowhere to put the oil.

(04:50) And that was going to test the limits of the global inventory system even with the government stockpiles being released etc. etc. And that's when we said, "Look, we have a real problem here. If this lasts much longer, we're going to potentially get to tank bottoms, which is a very, very catastrophic event in the oil market.

(05:11) We essentially go from having a buffer to being just in time. We've never actually done it on a global basis. We filled inventories to the brim during COVID. And so we had inventory dislocations on the loose side or on the bear side, but we've never taken them to tank bottoms. But presumably, when we took inventories to the tank tops, that's when we got the minus $45 oil print and you lost $70 in three or four sessions.

(05:40) Presumably something just as dramatic might happen on the flip side. And so that's when we first rang the bell and sounded the alarms, so to speak. And that was back in April. So, here we are. It's August, or now it's September. We're over 150 days into this crisis. And with only a very, very brief exception, the Strait of Hormuz has remained certainly impaired, if not absolutely closed.

(06:09) And yet, we don't seem to have a problem. And that's really the question that we all have to ask ourselves now is, what is going on? Because the oil bears will tell you that this is proof that the market was in a much greater excess than we had anticipated going into this crisis. They'll tell you that the oil market was far looser and more resilient than anyone, including ourselves, especially maybe ourselves. But it wasn't just us.

(06:37) There's a number of energy analysts and banks that were raising alarm bells back in April and May. The bears would tell you that the fact that we don't have a crisis is proof that the market's much looser and much more resilient than anyone expected. But we actually don't think that's the case.

(06:57) We think that there's things that are happening perhaps just below the surface, just out of sight of most analysts, that is in fact extremely alarming. And that helps to bridge the gap between what we're seeing, which is relatively modest inventory draws in the US and Europe, etc. and the potential catastrophe that I think is looming just around the corner.

(07:22) >> I think that's a great point to get us started. And you mentioned the latest quarterly commentary. We'll link that in the video description, so that people can take a look and see all of these numbers. I also want to draw out a point from there, because what I was picking up on was that these consensus views of the oil market right now are missing key information when it comes to measuring demand.

(07:47) So, I wonder if you can go into that and what you're seeing there that might be being missed. >> Sure. So, let's start with the headline numbers. Let's look at, let's say, January and February of this year before the crisis started and then compare it to the data we have from March to July. So, remember I said at the beginning we were worried that 15 million barrels might be impacted, 20 million through the strait, 5 million finding alternate ways of egress.

(08:12) Well, if you actually take the full period from March to July including that period in June when things got a little bit better in the region and tankers started to actually move through the strait, it now in retrospect seems as though we lost about 10 million barrels of production.

(08:31) That's upstream, right? At the field, from the wellhead. We've lost 10 million barrels per day over 150 days. So, you're back at your 1.5 billion lost barrels that we had worried about a few months ago. Offsetting that, however, according to the headlines, according to the IEA and most banks that use that as their starting point, the world has also lost 5 million barrels a day of demand.

(08:56) And then there's this balancing item which we always talk about which is frustrating as can be, that loosened by a million barrels. So, we lost 10 million of supply, offset by 5 million of demand, and then a million barrels of extra balancing item which is miscellaneous oil that seems to be sloshing around in the balance sheet.

(09:13) So, the total balance is essentially tightened by a very large 4 million barrels per day. Now, if you believe the IEA, we started with a surplus of about a million. So, now we've had over this 6-month, 5-month period, we've had a 3 million barrel a day deficit. So, that works out to be about 400 million barrels of lost oil.

(09:34) And that seems to align fairly consistently with the 50 million that we've seen come out of the OECD, 200 million or so that has come out of the strategic petroleum reserves, and then about 100 million from the non-OPEC world, and that rounds out that math. But the problem that we see is with that 5 million barrel a day demand figure, because when we look out at the world, we don't see 5 million barrels a day of lost demand.

(10:03) In fact, 5 million barrels a day of lost demand is worse than the oil demand loss that we experienced during the global financial crisis. It's actually kind of like 2x the global financial crisis. And it's on par with the first quarter of 2021, which you'll remember we were still under very restricted mobility coming out of COVID from pre-COVID levels.

(10:26) That was down about 5 million barrels. So, when I look today at airline miles, when I look at vehicle miles traveled, when I look at general economic growth and activity, absolutely none of those things are consistent with 5 million barrels a day of demand loss. In fact, most of the data that I look at is consistent with year-on-year demand growth.

(10:47) So, why do people think demand is slowing if I think any reasonable person looking out of their window would tell you that this is clearly not as bad an economy as the depths of the GFC. This is clearly not as restricted mobility as during COVID. So, why are we seeing or why is the consensus figure projecting all of this demand loss? And I think that's what gets to this point which you brought up and we've written about about how we actually measure demand, because demand, first of all, it is a very misunderstood

(11:23) data point, and how it gets computed I think is even less understood. So, first of all, when we talk about the oil markets, we talk about supply and demand, and we throw those terms around, but in reality we're talking about two completely distinct markets, right? You have when we say supply, what are we talking about? We're talking about oil that comes out of the ground, oil, condensates, and natural gas liquids, and some biofuels.

(11:48) When we talk about demand though, we're talking about what consumers and industrial users actually use, which is of course gasoline, diesel, jet fuel, petrochemicals, etc. So, those aren't the same things and in the middle sits the refinery system. And on a global basis, refining will run about 85 million barrels per day of crude oil.

(12:15) And the rest comes from NGLs and biofuels and some refinery gains, which is like magic that happens in the refining system where more comes out than what you put in. And when it's all said and done, you get to your 105 million barrels of demand, right? Coming off of runs of 85, 86, something. So, when people typically report demand, you would think that what they're actually reporting is how much gasoline went into people's cars and planes, etc.

(12:46) But usually what ends up happening is the industry will report how much oil went into the refining system. Now, nine times out of 10, that's a fairly safe assumption to make because the global refining system will only run crude when it's profitable to do so, meaning they'll get their demand signal from the market.

(13:09) The market gets a given gasoline price and it's very quick to respond, and so they'll see what the demand is and the refiners will run as much crude as is necessary to produce that product. And it's rarely the bottleneck in the system, and so that whole refining system of transforming crude oil into refined product happens offstage.

(13:31) And when we look at the supply-demand balance sheets, we just talk about supply and demand. And really, we don't make the bridge into these intermediate steps that could be important at times of dislocation. And today we have the times of dislocation because we have a huge percentage on a relative historical basis, a big percentage of the world's refining system is undergoing pretty major problems right now.

(13:55) And so when I look again January and February compared to March to July, we'll very quickly see that refining capacity or refining throughput is down 6 million barrels. Now, where does that come from? The Middle East, those refineries are basically offline because they can't get the products out of there, right? And even when the Strait of Hormuz reopened, people were very reluctant to take the crude oil that they had been storing on VLCC vessels and run it through a Middle Eastern refinery because that means it would be trapped in the region

(14:28) for another 2 weeks and who knows if the Strait would be open 2 weeks from now, right? And in fact, that was a good call because the MOU that kept the Strait open in June didn't last much longer than 2 weeks. So, if you had run a Middle Eastern refinery in that time, now you'd have trapped product sitting in the region.

(14:47) So, that's why they didn't do that. China has done a very curious thing. They have basically entirely shut off their export market for refined products. So, right when this crisis started, China made the decision that they would favor their domestic market, that they would only import enough oil, crude oil, to refine product for what they needed themselves, and they would stop essentially being the outsourced refinery for a huge part of the world, particularly the global south, right? China had invested a massive sum of money in a big refining

(15:22) system that was really geared towards importing crude oil, converting it into diesel and gasoline, jet fuel, and then exporting it back out to the non-OECD world. So, China stopped doing that, and as a result, they're running 2 million barrels a day less through their refining system. And then Eurasia, which in IEA parlance is really Russia, they're down a million barrels a day because Russia has suffered very, very extensive war damage to their refining complexes.

(15:54) So, when you take it all told, refining demand for crude oil is down 6 million barrels per day. And as I said before, headline petroleum demand is down 5 million barrels per day, very, very similar to that same figure. And so, what I think is happening is that the models that everyone typically uses to measure demand or model demand, which is essentially a function of GDP and refinery runs, right? Is suggesting that we've lost 5 to 6 million barrels of demand because the refiners around the world have stopped refining in that same quantum.

(16:31) But, I don't see any indication that we've actually impaired the end use of those products. So, what does that mean? Well, first of all, let me offer a piece of evidence that I think might support that. The first thing that I would say is if in fact we had a big, big, big demand destruction, again, worse than what we saw in the GFC, on par with what we saw in COVID, then oil prices would be range bound or down, probably pretty down, and refined product prices would be down as well, right? That would be they would

(17:06) be moving together. If there was so little demand for end use product, then we would see both of those, crude oil and refined products, be weak alongside one another. And instead what we saw even when oil traded back to its January February lows back in June when it seemed like the war might be over, product prices never budged.

(17:29) And so we're seeing the crack spread, which is the difference between refined product prices and crude oil prices, which normally might average between 10 and 20 dollars, they hit 100 bucks. And they're staying there. That to me is not the sign of a very weak demand market. That's the sign of a refining problem.

(17:49) And that I think is exactly what we have. So if that's all the case and you're running 6 million barrels a day less crude oil through the refining system, and yet your demand let's say it's not growing, but let's say it's not changed, so it's not down 5 million barrels. That means that you're short between 5 and 6 million barrels a day of refined product.

(18:13) And I think that's exactly what's been happening. I think that refined product inventories have been bridging the gap. I think they have been collapsing around the world and are doing their best to make ends meet because we're putting 6 million barrels a day less crude through the system and we're getting presumably 6 million barrels per day less refined product out the other end, but demand has barely budged.

(18:38) And so the only thing that could be happening is that we're drawing down our refined product inventories. Now, I'll say one more thing here before I take a breath and let you ask some questions, but if all of that is true, then we have a major problem because the IEA and all of us quite frankly, the one area that we really have absolutely no visibility into is refined product inventories.

(19:08) And there's a good reason for that. When we talk about the OECD world, the developed world, they all report data and it's fairly accurate. Sometimes it's revised and sometimes we can get frustrated and whatnot, but in general it's pretty directionally accurate. In the non-OECD world, things get a lot murkier.

(19:28) And so there's a couple companies out there that do their best to estimate non-OECD inventories, both crude and refined product. And for crude, I would say they do a fairly good job estimating that. And the way they do it is they have satellite imaging up in space that's able to look at these big crude oil storage tanks and estimate how much oil's inside.

(19:52) And the way they can estimate it is because the roof of those tanks floats. It floats on the top of the crude oil contained within it. So that essentially as the crude oil is drawn down, the roof will collapse alongside it so that there's no air in that tank whatsoever. And by looking at the shadows of the side walls against the roof at certain times of the day, they can impute how full or empty those tanks are.

(20:17) And they do a pretty good job with that, not perfect, but pretty good. It wasn't long after they started releasing that data that their clients started bothering them for refined product inventory data as well. They said this is great, but we're missing a piece of the puzzle. Now, the problem with refined product storage is that the tanks are not floating roof tanks, they're fixed tanks.

(20:39) And so there's really no way from space that you can say how much inventory is inside of those tanks or not, but it doesn't stop people from estimating. And again, if you go back and you look at the IEA data, they'll say that non-OECD refined product inventory is down about 50 million barrels. And if we're right, it might be down 500 million barrels.

(21:03) So it's an order of magnitude difference. And that's essentially we've run out of inventory of refined product in most of the world. And I think that's what the crack spreads are telling you. And I think frankly that that's what a lot of the headlines that we're getting from places like Bangladesh, from places like India and the Philippines are telling you as well that there's major, major problems developing in these markets because we've simply run out of refined product.

(21:28) >> Clearly, a huge amount of nuance here. So, thank you for going into all of these topics. And I do want to talk a little bit more about where we go from here because I think again with that consensus view of the oil market, many people are looking at it and saying, "Well, once the Iran war wraps up, whenever that happens, things go back to normal."

(21:49) But I know you're thinking based on the way you're looking at is that could actually be when the real problems start ramping up. So, I wonder if you can go into that and talk about how this could play out from where we are now. >> Sure. There's a couple different paths that we can take here, but I think the main starting point is that the complacency that investors have today is really based on the idea that we don't have a crisis yet.

(22:15) And if we've been able to make it through such a big dislocation without a crisis, then what possibly could lay down the road to make it worse from here? Things can only get better. And I think that feeling of calm is really misguided because I think we do have a huge problem. It's embedded itself into the system.

(22:32) I think that inventories are materially lower than anyone thinks. They're pushing on that billion barrel mark, I would say, as we speak right now. It's just not where we're looking. It's in the parts of the balance sheet that are a little bit more difficult to parse apart. And of course, as we know now in September 1st, we're not really much closer to the war being over.

(22:56) So, we'd all like to hope that this goes 150 days and that's it. But at this point, I think it's anyone's guess. Remember that the Trump administration only five or six weeks ago, when they signed the MOU and they were criticized for essentially agreeing to what was thought to be a very weak deal on the part of the United States, their answer was, this is the president himself and the vice president both said, "Look, we had to do something because even four more weeks of the Strait of Hormuz being closed would lead

(23:28) to a disaster." Well, here we are 7 weeks later and there's really no end in sight. So, I think the starting point of saying, "Look, we made it through. The worst things are better." We might be in the eye of the storm. In fact, I think very, very likely that we are in the eye of this storm and we still have the other half of it to get through.

(23:46) But, you're right that what is potentially going to surprise people. So, either we hit this wall and the global south runs out of refined product inventory and there's a crisis and that spills and propagates into other parts of the world very quickly. I would point to the fact that there's a ton of short interest on the different crude contracts, whether Brent or WTI.

(24:09) In the US, Cushing, which is where the WTI contract is settled, those tank farms are basically at their operational minimums right now. So, yes, there's other oil that we could divert into Cushing, but there's lots of logistical bottlenecks that would make that difficult to do in a short squeeze, right? Immediate doesn't happen immediately.

(24:27) And that's basically what happened when oil went negative. Was that those same tanks, it wasn't that every tank overflowed, it's that those tanks risked overflowing and you had to settle your contract there. And so, eventually oil drained out into other tank batteries, but for that day, when you needed to close out your long, it was awfully difficult to do.

(24:47) We could get something like that where the shock of running out of essentially refined product inventory in the emerging market spills over very quickly based on how much leverage exists on the short side today. Or we could have a more gentle, I suppose, ending to this, which would still be quite bullish for crude.

(25:09) And what that would look like is that if we open the strait back up, very quickly, we would get 2 and 1/2 million barrels of refining capacity from the Middle East back online. China would likely come roaring back because you can make a tremendous amount of money right now. If you're not worried about security of supply and you're willing to export like China did before this crisis, I mean, with $100 crack spreads, you can make an unbelievable amount of money if you have refining capacity that's idle like China

(25:39) does. And other parts of Asia as well would come back very quickly because they're essentially struggling to find the feedstock. The only thing that obviously wouldn't come back quickly would be the damaged Russian refineries. But the Americans, the Indians, and the Japanese would probably run above nameplate capacity for a while to be able to make up that shortfall.

(25:59) So, we would have a huge bid for crude to go and refill that refining system. And there would be a massive, massive bid for refined product, right? So, everybody would be incentivized very, very aggressively to run those refineries at above nameplate capacity, defer maintenance, do everything you need to do to make hay when the sun shines.

(26:24) You also have all these governments around the world that have now drawn down their strategic reserves to essentially almost operational minimums as well. And that includes the OECD world. China has likely drawn down its SPR. And I think if there's one lesson here, it's that you probably want to have a strategic petroleum reserve.

(26:42) I can't imagine how that's not the takeaway from the last 4 months. It was a huge make or break difference, right? Having access to crude and refined products over the last several months. So, you're going to see two or three competing sources of demand. One is going to be from the refining complexes that are essentially going to try to normalize, right? That refined product inventory, which is now at such dangerous levels, and governments, and then just generally economic activity.

(27:15) And so, I think ironically it's going to take maybe a getting back to normal in order to truly manifest and see all these bottlenecks that have presented themselves in the system today. Either that or we hit a brick wall before the strait ever reopens, and I think in both cases we're pretty dangerously close to doing that.

(27:38) The big thing here is if you look at the US and Europe and Japan, you say we took 50 million barrels out of commercial inventories. That's nothing. We're fine. Or you look on the other side and you say actually demand has not fallen. We might have taken out an order of magnitude more from refined product inventories than anyone's letting on.

(28:03) And I think if that data were to be released to the market tomorrow, that would result in a pretty big panic, certainly a big short covering. And so, I think some version of that transition is going to happen. What makes it happen, whether we have a crisis first or whether things normalize and that data becomes more readily apparent, I don't know, but it's not nearly as calm as the price would suggest.

(28:27) >> So, we've got a number of different paths that we could take from here. I think that makes sense. Is there anything that you can say about prices at this point? I know there's been a lot of ups and downs since the Iran war started. There's been concerns about the impact on inflation.

(28:43) Is there anything you can say at this point? >> Well, look, at this point we talked today on September 1st, crude oil is trading in the low 90s. It traded all the way down to essentially $70 a barrel when it was announced that the Strait of Hormuz would reopen back in June. And then as it became clear that that might not happen, it's traded back up, but it hasn't made a new high.

(29:09) In fact, the first high was done back in April and May when the strait first closed. And unequivocally the global petroleum situation is much worse today, meaning much tighter, much more bullish today than it was back in April and May. And so you would think that we'd be making new highs. So the price today isn't low.

(29:30) Oil prices right now as we speak aren't weak, but we did see what the world does when it feels as though this crisis is over. And that is essentially take the price of oil back to pre-war levels. And that's just a mistake. When I look at how traders are positioned this year, one of the things that jumps out at me is they were very, very, very bearish at the beginning of the year.

(29:54) And the net short positions and the gross short positions were really high. Then there's this feeling that when the war started, people had become bulls on energy. And I don't really think that was true. I think what happened was you had a shock. The physical price spiked because people started hoarding essentially.

(30:10) People that would normally be physical sellers stopped selling. And it was harder to source crude early on in the crisis. And so the physical price surged. And with that, saw a mass liquidation of the short positions, notably at hedge funds. And if you talk to any of the pod shops and stuff like that, right after the crisis started, most of them fired their energy teams.

(30:37) And I suspect the reason you would fire your energy team at the outbreak of a war is if they were really short going into that war. I don't know why else you would fire them all. All the big shops did that. You could go back and read the headlines. And I think it was really the risk committee and the risk team that came down and said, "Look, you guys have to lower your gross short positions here."

(31:00) And they were forced to cover, and that's what helped bid up the price of the prompt contract, but not the far out months because they weren't playing there. They were playing in the spot. Then as time went on and it seemed like the crisis wasn't inevitable or going to happen the next day, we saw a big accumulation of those short positions back on again.

(31:19) To the point that, until the second MOU fell apart or maybe a step back, when the second MOU was signed or around that time, the gross short positioning of all these speculators exceeded where it did at the beginning of the year. So, they took another bite at that apple big time.

(31:38) And then again, you saw them have to cover that as the MOU fell apart and it seemed like we weren't out of the woods yet. And again, I think their risk teams came to them and said, "Look, this happened once already this year. We're not going to do it twice." So, the reason I bring all that up, no one is particularly bullish. I think whatever price you see, if you see a nine handle on oil today, it's not because people are more bullish today than they were two or three months ago.

(32:03) In fact, I think people have maintained their fairly bearish pervasive views throughout the year. And the only thing that's really affected the price has been what your risk team is allowing you to short. So, that's going to flip. At some point, if we're right, this is going to become an area where people are interested in putting risk capital.

(32:23) This is something that people are going to talk bullishly about and push the price up. And you're at a $90 price without any of that having happened yet. And even if you look today, the short interest is quite high on a lot of this. So, where do prices go from here? I suspect higher. I don't think we're out of the woods. I don't think we can write down the probability of tank bottoms to zero.

(32:45) In fact, I think they're probably higher today than they were when we last spoke at the beginning of the year. >> And just a little bit more on the investment side. I think it's worth noting you were bullish on oil before the Iran war even began and I believe rotating into the sector well before that was happening.

(33:05) How has the conflict has it changed your investment approach at all or have you been staying to what you were doing previously? >> No, for better or worse, we were positioned going into the conflict. As you mentioned, we did sell down a lot of our gold exposure back in January. We felt that it had run. We remain long-term gold bulls, but that doesn't mean you can't get a fairly dramatic correction. That was our view.

(33:28) Obviously, you've had a correction and the big question now is is that move over or is there more to go in gold before the next leg of the bull market starts and we can talk about that here in a second. But we did position ourselves back in January and February to be crude.

(33:45) Obviously not expecting a war to break out, but rather because the big growth engine, which is the US shales, which has essentially carried all of global supply growth for the last 15 years, was slowing sharply. And that's something that we'd been saying for a while and we've been seeing in the data for a while and we felt that the market was unduly pessimistic towards a market that was essentially balanced and was going to slip into deficit.

(34:08) So, we haven't really changed too much in terms of how we're positioned. Maybe tweaked a little bit around the edges, but we continue to favor Canadian oil sands names. I like good long-lived assets in a friendly jurisdiction. I'm Canadian. I've lived in the United States for 24 years, but I still consider Canada and the United States to be friendly jurisdictions to one another despite everything that's been happening.

(34:34) Certainly, if you zoom out to look at the whole world, Canada and the United States are still good places to do business. I think that US shale producers, where you can find them, still offer really attractive assets. The problem there is that we're depleting them rather quickly and it's hard to find really good quality reserves anymore.

(34:54) Not that it can't be done, but that's maybe not enough to build a whole portfolio around the way it was a few years ago. And then we also favor the offshore drilling sector. Those names can be very volatile. They're in a massive bottoming process here. We're starting to see more and more positive data come out in the offshore space.

(35:16) And we're starting to see a little bit of performance, but in drawdowns they definitely pull back hard. In our portfolio, our offshore names will either be our biggest contributors or biggest detractors to performance in any given month or quarter. But we're starting to see very very favorable green shoots developing, consolidation in the industry.

(35:34) Most of the companies went bankrupt during COVID and so they all wiped their balance sheets clean and I think they continue to offer very very attractive risk-adjusted returns going forward. But there will be a degree of volatility there and that's how we like to play our oil space. >> Thank you for going into that as well and I think we should take a look over at gold as you mentioned.

(35:55) I believe you hit on the question that most people are wondering right now. We had this little bit of a lackluster summer for gold as well as silver. People have been wondering is the bottom in now that we've started to see prices start to go up a little bit more. So what are your thoughts? I know based on our conversation toward the beginning of the year, it seemed like for you there could be further to go before it's really done.

(36:17) >> Yeah, I think I continue to feel that way, and I could give you a serious answer or silly answer, but the number one question we get asked all the time is when are we going to buy our gold stocks back and one of our answers is when everyone stops asking us when it is. If you're a real contrarian investor, which we try to be, then you want the feeling in the room when we announced in January we were selling our gold and buying oil stocks, which was a loud audible groan

(36:49) from everybody. And today if I were to sell all my oil stocks and buy nothing but gold and copper, people would just put me on their shoulders and give me a parade. And so I think there's still a lot of speculative net length and energy in gold and precious metals. Obviously, there's been some liquidation.

(37:08) The price has been affected worse than the liquidation would suggest, so there's been essentially weak price action on just a slight liquidation of the physical gold ETFs. But essentially in order to understand, I think, how we're thinking about gold, you have to go back to when we sold it back in January and what we looked at then.

(37:28) So we got this really big silver sell signal. This is a term that we've coined, the silver sell signal, which is that silver lags and lags and then it stages this huge catch-up rally. And when it does that, it's usually time to step away from both, at least for the short term. And the short term could be a year or two.

(37:46) Never really been less than that and typically after a big silver catch-up rally, you'll see precious metals fall about 40% and takes about two years to bottom before the bull market can resume. It's just a healthy consolidation period. And we just haven't seen that yet.

(38:06) We've seen a pullback in gold about 20%, but it's about half of what we've seen in the past. It is on par with the shallowest pullbacks after a silver sell signal. So there was one example in the last 50 years where gold pulled back about 20% before resuming a bull run. So, if you go off of that, you might be there now. But, if you go off the average, it's closer to 40%.

(38:33) And this has also happened a lot faster than it typically does. It typically takes a year or two to bottom, and obviously we're 6 months in, 7 months in at this point. So, on those measures, I don't think, just based on history, I don't think that the sell-off is over. But, more importantly, some of the fundamentals that we looked at back in January haven't really improved.

(38:54) And what I'm talking about is how much speculative Western investment demand for gold had accumulated by January. All through last year, there wasn't very much at all. The ETF started accumulating a little bit, but it was really January of this year that they had this big accumulation phase.

(39:15) And we all know that bear markets in gold bottom, or even pullbacks bottom, once a lot of that's been puked back out into the market. And if you look at the holdings of the different ETFs, they're still quite elevated. They've come down some, but not nearly as much as they have in past corrections.

(39:32) So, I think that there's more metal to be sold there. I worry about real interest rates here going forward. I worry about inflation creeping up, probably energy-driven, maybe deficit-driven, yield-driven, as we're seeing right now with some issues in the bond markets and stuff like that. And so, I think you have to ask yourself, again, go back to January, I was of the opinion, correctly or incorrectly, it's hard to say, that even gold made its high with everyone expecting Warsh to come in and deliver a bunch of cuts.

(40:11) And I was getting to the opinion, and Leigh was as well, that even if Warsh was going to announce a cut, right, which should be good for gold. I could envision a situation where gold sold off on the news because so much was priced in already. It was buy the rumor, sell the news.

(40:27) So that if a cut was announced, a surprise 25 basis point rate cut was announced, I could see in a strange, ironic way gold actually selling off that day because all of that had been bought in advance. I don't feel that's the case today. If Warsh were to come out today and announce that you had a surprise 25 basis point hike in Jackson Hole or wherever he's talking next, I don't think that gold would rally on the news.

(40:51) I think that it would sell off because typically higher interest rates is less attractive for gold. You have a better opportunity cost putting your money in treasuries than buying gold, which of course does not generate any income. And so we'll get to a point, I think, where everyone is pessimistic on gold and they're pricing in two or three hikes and all of that airs out of the balloon such that even the announcement of a hike might prompt a short covering rally in gold.

(41:20) People would have shorted gold going into the announcement and covered on the announcement itself. I don't feel that we're quite there yet. So you have still a lot of metal in the ETF, still a lot of speculative energy. People still like gold. They would love nothing more than to see gold go on to make a new high. There's still a lot of energy in that part of the market.

(41:39) The gold to oil ratio is still very much in oil's favor, and I worry about the path of interest rates going forward. The one thing that could swing things are central banks. If central banks were to double or triple their gold purchases, that could obviously overwhelm ETF liquidation, etc. But we're watching that closely and I don't see it happening just yet.

(42:05) But that would be the one thing that could accelerate maybe our re-entry into the gold market. >> I think that covers very well how you see gold at the moment. I want to ask, I know we're getting close to wrapping up here for today, but what other areas of opportunity are you seeing in the resource sector right now that investors might be overlooking? >> Well, look, I think there's a number of them.

(42:30) Uranium, people were really willing to call the uranium rally over earlier this year. There was a big pullback in uranium stocks, 30-odd percent, on absolutely no news whatsoever. The spot uranium price fell sharply. The term contract price, which is where 90% of the market transacts, made an all-time high in the second quarter. It's 95.

(42:52) 50 a pound. Obviously in real dollars it's still below the '08 highs, but it broke by 50 cents the '08 highs in nominal terms. And that's because the market remains very, very tight. There's been some interesting news rumors around NexGen and BHP in the last couple weeks that there might be something going on there.

(43:14) But that project still remains a number of years away at this point. And that's a big project, the Rook I, to bring online. So, there's not much in the way of new mine supply to bail the market out. And utilities are still requiring, they're still very under covered in their long-term contract books.

(43:31) So, that market is just such a good long-term story punctuated by these periods of hedge fund and retail both enthusiasm that pushes prices up and then they just pull all their money out. And so you have this uptrend with this cycle around the uptrend. I would urge people, particularly at the end of one of these sell-offs like we just had, just buy it and put it away and enjoy the uptrend.

(43:57) It's one of the simpler stories, honestly, that I think is out there. And it's very, very bullish and very powerful for the next 10 years or so until eventually mine supply is going to catch up, but it takes time to do that. The other thing that people don't look at at all is the global coal industry.

(44:15) It's obviously a four-letter word, completely starved for capital, no one cares, and there's been a number of things that have happened in the last 6 months, and I think a couple things in the next two or three months that could really give coal a little bit of a tailwind. Notably, Europe seems very unlikely to be meeting their gas requirements going into the winter.

(44:37) And so there's going to start to be a need to accumulate coal stockpiles in order to have a reserve. We saw that in 2022 when Russia invaded Ukraine and shut the gas off to Europe. European coal burn rose that year to try to save and ration the more scarce and precious gas. I think you're going to see the same thing. And the Indonesians are looking to ban or severely limit the amount of coal exports that they have.

(45:09) And look, Indonesia has been to coal what the US has been or shale has been to oil and natural gas. It's been a huge swing producer in the last 10 or 15 years. And if they start to curtail exports, that would be no different than if the US said we're not going to export shale anymore.

(45:26) It would be a big blow to the seaborne market and tighten the market a lot. So no one's looking at coal at all, and I think there's some good attractive opportunities there. >> Well, two good ones for investors to look into. I know uranium quite familiar to our audience, but coal is something that maybe people are not thinking of.

(45:42) I think we can wrap it up there unless you had any very final thoughts that you would want to leave people with today. >> No, I think we covered it pretty well. >> Perfect. Well, thank you so much for coming on to explain what's going on in oil as well as other parts of the commodities market.

(45:58) This was great. And once again, I'm Charlotte McLeod with investingnews.com, and this is Adam Rozencwajg with Goehring & Rozencwajg. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below.