Title: $20 to $147 Oil: Super Spike vs. Super Vol (Arjun Murti, Veriten) — Part 3 Show: Trevor Rose podcast — episode 300 Guest: Arjun Murti (Veriten partner; ex-Goldman Sachs energy analyst; publisher of Super-Spiked) Date: 2026-09-03 (published) / recorded 2026-08-27 URL: https://youtu.be/7BOWd5rCeII Length: 1:21:32 (4892s) Note: Raw YouTube auto-transcript, cleaned: verbal fillers (um/uh/"you know" as interjection) and stutters/false starts removed; wording otherwise verbatim and every (mm:ss)/(h:mm:ss) cue kept in place. Auto-transcript name manglings corrected to the real entities (Arjun Murti, Veriten, Jeff Currie, Steve Strongin, J. Aron, Lloyd Blankfein, Hank Paulson, Amerada Hess, ExxonMobil, Michele Della Vigna, Jan Hatzius, Jim O'Neill, Tourmaline, Duvernay, Montney, Vaca Muerta, Amin Nasser, Patrick Pouyanne, Lucio Noto, Ken Derr, Strait of Hormuz, Petrie Parkman, Maynard Holt, Jamie Heard, Super-Spiked / Super-Vol, shale-not-"shell", IEA, non-OPEC, E&Ps, LNG). Interview recorded 2026-08-27; published 2026-09-03 (the archive folder uses the publish date).
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00:00 Good morning, Mr. Arjun Murti. Thank you very much for doing this yet again. I appreciate your time. >> Trevor. It's always an honor and a pleasure to be with you. Thank you for inviting me. >> This is part three. So I'm feeling fortunate. It's also episode number 300. So it's a special day. >> Oh, wow. I got the milestone episode.
00:16 That is even greater to know. >> Yeah, I felt like this was a good time to do number 300. So you've been a regular guest supporting the show. So it's been great. But it is August 27th today. You've probably had a good golf season so far. How's your golf game going? >> The golf game is actually been picking up here.
00:38 So I was kind of moaning and groaning that working full-time at Veriten had cut into my ability to practice, especially the short game. So I'm getting the rounds in, but wasn't getting the practice in and the handicap was going in the wrong direction. And Maynard Holt, our co-founder, who I know you know, Trevor, he had a Veriten summer gathering for the team and he had a simulator truck in the front yard of his house and there was this young guy who was a pro and he gave me some tips that made it totally fixed my game. I'm actually going to go see him this afternoon for a follow-up lesson here in Houston.
01:08 But it's gotten my handicap back down to that kind of 8ish range versus 11-12, which is kind of as good as my handicap's been. I'm 57 and I'm realistic about my athletic abilities, but I feel like the golf game is sort of back on track having now been working full-time again for the last three years and I feel like I've been able to adjust.
01:36 Well, a single digit handicap is pretty darn good, which is probably a good sign that I probably should never play with you. [laughter] >> I'm happy to play with anybody. I find golfers only care about speed of play as opposed to quality of play. So always happy to play with anyone that knows how to kind of keep it moving.
01:54 So >> it's probably good we have this conversation. I'll maybe we'll stick to podcasting. >> Fantastic. >> You've had a lot of Super-Spiked content out lately nowadays too, which is amazing. So just before we start, listeners can find your work at the Super-Spiked website, I think. >> That's right.
02:14 It's a couple places, arjunmurti.substack.com, something like that. It's also on the veriten.com website, and it's also, by the way, on YouTube. So I think we're in the mode now of if it is a written post always turning it into an audio or video so that if people want to listen to it they can. Most of them, it's probably at least three quarters now, are on YouTube and Spotify kind of as a video/audio type podcast but there is occasionally some written work that we then turn into an audio podcast as well.
02:46 So you can find it on Spotify, Apple Podcast and YouTube as well. >> And like I said today is August 27th. I was fortunate to talk to Mr. Jeff Currie a couple weeks ago and so given the timing I thought we could kind of tie that into our conversation today and go back to the late 90s when you joined Goldman and the formation of your super spike call.
03:10 But I think you started at Goldman in 1999 if I'm correct. >> That's right. My career started in '92 in Denver at Petrie Parkman. I was on the buy side of JP Morgan for four years on the asset management side and then Goldman came calling in '99 which for a call back to that environment was the last time we had a major boom in the technology sector. That was internet kind of 1.
03:34 0 and that sort of internet bubble was the backdrop for launching my career at Goldman Sachs in the late 90s. >> So do you remember your first day at Goldman Sachs? Were you nervous? >> Oh, I absolutely remember it. It was July 12th, 1999 and I had actually just gotten engaged between stopping at JP Morgan and starting at Goldman Sachs.
03:56 My wife and I have now been married for this December will be year 27. So we got married later that year of 1999 and we got engaged in Italy between JP Morgan and Goldman. So I remember that start and time frame very well. >> And were you nervous that day? >> I don't remember being nervous. I remember being a little overwhelmed and in awe of the place and the opportunity to pick up at the time the integrated oil sector which even at a time the tech sector was all the focus, between it was just Exxon at maybe
04:30 it was ExxonMobil by then, Chevron, some of the other large companies, it was still a very material portion of the S&P 500. So while tech was hot, energy was still 8% of the S&P 500, something like that. And of course, I was asked to cover these largest integrated oil companies.
04:49 There was about a dozen of them at the time. So I think I was more in awe of that opportunity than maybe pure nervousness. >> Well, that's a great stretch. You got engaged and you got a job at Goldman Sachs. >> I will tell you this, Trevor. I do remember the day I was going up to launch coverage and there was a guy covering some random subset of a subset of the internet and he introduced himself, very pleasant guy, and he's like, well, what are you here to launch on? I said I'm here to launch on the integrated oils and he's like, oh, I'm so
05:19 sorry. And he wasn't being obnoxious. He was truly sorry that someone was stuck covering the energy sector when he was doing some hot sub-subsector. And of course, to make a long story short, I don't think he survived at Goldman for another 6 months. Whatever random six companies he was asked to cover, long went away.
05:40 And here we are 27 years later with lots of ups and downs in energy. But I've been blessed to cover this global sector where even when it's out of favor, people care about the price of oil, whether they should or shouldn't, they do and it's been just a very fortunate career that I've had covering this tremendous sector. >> And so Goldman hired you because they were looking to strengthen their commodities department and research and energy.
06:06 There must have been some momentum in that part of the economy. >> I think Goldman has long had a very strong commodities both on the commodities trading side through J. Aron — that's the side that Lloyd Blankfein, that we were just talking about before we started here, got hired to Goldman Sachs and grew up in — and on the equity research side there was a senior analyst, a partner, Don Textor, who covered the exploration and production stocks and a senior gentleman who has since passed away, Todd Bergman, who's a job I was notionally taking over,
06:36 both had been in the jobs for many years, had a very strong equity research franchise. Steve Strongin was leading commodities. He had started in 1994. Allison Nathan was hired after him and Jeff Currie right after him. So I knew Jeff, I knew Steve and Allison as clients when I was at JP Morgan. So they were leading the commodity side.
06:57 I was hired along with the team in London led by Anthony Ling not to strengthen the franchise but to hopefully continue what had been a strong equity franchise to marry the strong commodities franchise and I feel like we had a very good run over the next 15 years at Goldman with my partner and friend Jeff Currie and then my colleagues on the equity research side.
07:18 >> Last time we spoke I think you mentioned Steve Strongin who for the listener I think he founded Goldman's commodity research group. So maybe who was Steve Strongin and why was he important to the formation of that group? >> Steve, I want to say, is a University of Chicago trained economist and I believe he did start up the commodities research effort which I would distinguish from equity research or people who trade the commodity at what we used to call J. Aron and I think it's now fully
07:45 in the Goldman Sachs branding and it was a research effort originally dedicated towards oil commodities trading and has since expanded to cover oil, natural gas, including around the world they cover power, coal, as well as many of the industrial and precious metals. But Steve was really one of my core mentors at the start of my career.
08:09 There was a gentleman who hired me at Petrie, Paul Leidman, Chris Karapy at JP Morgan Asset Management and then Steve Strongin. And Steve ended up becoming our global director of research. He has since retired from Goldman Sachs actually a few years after I had left the firm, but he started up the commodities research and I think to his credit he found people as good if not better than him, folks like Jeff Currie who ended up taking on that lead a few years after Steve.
08:33 >> I read in Lloyd's book there was a bit of integration friction when they bought J. Aron. Was that still going on when you got there? >> Not by the time I got there. I want to say that J. Aron was purchased probably sometime at the height of the prior commodity super cycle in the early 1980s and by the time I got to Goldman Sachs in 1999, my career benefited massively from being able to talk to the folks on that side of the business and I think by then it had been fully integrated.
09:05 The crash from the 80s in commodities had since passed and it had become a core component of Goldman Sachs by the time I arrived. >> So there was no friction at the time. The commodities was just a great profit center. >> There's always friction in an integrated investment bank where research analysts have a view, investment bankers have a view, traders and salespeople have a view and commodity traders have a view.
09:30 So there's always an inherent friction in the system. But as far as kind of the integration to J. Aron, that had been well since accomplished by the time I arrived. >> This podcast episode is powered by ATB Capital Markets. ATB Capital Markets provides financial solutions and strategic advisory services to help businesses thrive.
09:53 With a track record of successful deal execution, ATB is a full-service investment dealer with a deep understanding and commitment to the industries it serves. Visit atbcapitalmarkets.com for more information. >> So what did the research department look like back then? How did you guys sit? What was it like? >> There was a traditional approach to research.
10:16 So an analyst for all the different sectors, but it was on the cusp of trading. So in equity research, especially in the United States, there was this thing called the Institutional Investor II poll. And the basic thought was if you had an II — they, every once a year, they came out with these rankings of who the top three analysts on the street were.
10:36 And the thought process was, if you have a top three analyst they're probably going to be key to driving sales and trading commissions and they're going to be key to generate an investment banking business. So a company would choose to do investment banking with Goldman Sachs not just because we had great bankers but because they'd get a research analyst who was a top rated analyst.
10:58 The issue is that poll drove behaviors that ended up being not compatible with being a profitable organization. Meaning you ended up having to hire analysts for all these different sectors. Not all of which generated either investment banking revenues or sales and trading commissions. It also forced you to often market to clients who had big II votes but again might not have been the core firms that generated sales and trading revenues in particular to Goldman Sachs.
11:29 And what we found was you ended up having to overpay for research analysts. They had to overhire for research and I think Goldman was one of the first, especially of the major banks, to say that model of research, sales and trading does not work as trading commissions are under pressure and the business is changing, and we ended up going to a model where — this sounds crazy — we focused on our best clients and that is different than focusing on clients who vote for II. And so the model switched to kind of one senior person — this is
12:01 over maybe the next seven years from when I was hired in 1999 — to oversee a business unit. So I oversaw energy. I was the senior person. I became a partner at Goldman Sachs and we had somewhat more junior people under me and that trend of sort of one senior person overseeing more and more of the research business.
12:21 It was a big change in direction. And I will say that as we've had more technology and information systems, more information's available, you are able to do more with less as an analyst. For portfolio managers, sometimes the deep knowledge of just a small group of companies isn't as helpful as having a broader view across sectors, that I feel like we evolved as our clients evolved.
12:48 And I think Goldman Sachs continued to have a leading investment banking franchise. I think with our key clients, we were generally at the top of their list of who they valued and the research department ended up kind of marrying that view of the world at a cost that was less than what it was under a previous model where you had a senior analyst in every one of these sectors whether that sector mattered or not.
13:11 >> At Goldman Sachs, I don't think you sold your research. So it wasn't revenue centered directly. In an environment like that where the point is to make money and people are quick to call out things like that, the P&L at the end of the day. Was there ever a time where there was some tension on where the profits came from and how did you present your value to the company? >> You are hitting on perhaps the classic tension that exists in a research department, especially one where, as you correctly highlight, it's
13:39 not like we'd produce a report and offer it directly for some dollar amount as some folks are able to successfully do today. And one of the common things that I used to sort of tell all the folks who worked under me, especially as I eventually became co-director of research, is everyone always likes to complain about research. The managements are mad at you if you don't have a high — there was a huge Chinese wall that got erected over the time at Goldman Sachs after the Spitzer settlement — but whether it was direct or
14:08 indirect the investment bankers would complain for the same similar reasons and the clients, the buy side clients, love to complain as well that, oh, this bad call, and so on and so forth. The fact that they're complaining means you're important and they value you and it is your job to produce differentiated research. I didn't need analysts and I didn't need myself to be plus or minus 3% of consensus, whatever that was. The goal would be to have differentiated calls such that at the end of
14:40 the day the buy side clients found it of value and if the buy side clients found it of value it was going to be important to the companies. It might be positive, it might be negative or neutral or anything in between. You can't make up differentiated calls. It had to be based on real research. But all sectors ultimately move; all sectors in the course of a year or a couple years outperform and underperform. Within every sector
15:04 there are different groups of companies that are in favor today and that different ones are in favor tomorrow or out of favor. And it is your job to get there first and to be bold enough to make the call and not just sort of hug consensus. I always said I don't need to pay you if all you're going to do is regurgitate what every other analyst or sell-sider is saying out there.
15:25 And it's how I sought to differentiate myself is what I would preach to the research department. The fact that everyone is complaining about you means that we are actually of value, which is not how it always feels at the moment but is absolutely true. You don't complain about things you don't care about is a general comment. >> Goldman's an amazing place to work and you had an incredible career there.
15:46 But did you ever have a bad day where you thought to yourself maybe I'll just go join the buy side and start my own fund? >> Well, my last three years — so I became a partner of Goldman Sachs in 2006 and even today, Trevor, it's 34 years since the start of my career, and I've gone on to do some board and advisory work. I'm now at Veriten.
16:05 I still identify as an equity research analyst, analyzing companies, analyzing today, it's the broad energy and power and new energy and old energy kind of sectors. That is what I love to do. My last three years at Goldman, 2012 to '14, they put me in charge of the research department with my colleague Bob Boroujerdi. We were co-directors of the Americas equity research department which was overwhelmingly the US but included Canada and Latin America as well under our guidance and that job was the job that absolutely killed
16:38 me and motivated me to retire from Goldman in 2014. My wife said, "You know, you still work a gazillion hours a day and a week and a year, but you don't seem happy doing it anymore." So I'll give her the credit for the insight that I was not enjoying it. And I will say with like 12 years of retrospective now, I think I did gain a lot of skills from that management job.
17:01 I believe I apply them hopefully in an okay manner today. But in the moment that was the part where, oh man, I'm really not enjoying being a research director and those were the bad days and I give my wife credit for motivating me to retire from Goldman. >> But you had an amazing run there when you were there for 14 years I think. >> 15 years. Yeah, '99 to 2014. >> That is a fairly long time. What do you think allowed you to stay that long, besides it being a great company? What
17:34 allowed you to be successful for so long at Goldman? >> My focus was always how can I make the best calls to the benefit of our buy side clients. That was what my job was as a sell-side analyst. Whether anyone liked the calls or didn't like the calls, I got a lot of motivation out of that.
17:53 What is going to happen next? I became probably best known for the oil call. Oil is going to go from 20 to at least 105, what we called our super spike call. But there were actually some company specific calls we made previously. We had actually a sell recommendation on Amerada Hess when they had some disappointments and it's a call where the stock went from 85 to 50.
18:11 We then double upgraded it from sell to buy at 50 and it ended up working out in both directions. I take a lot of pride in having called it, I will say, correctly both ways. Murphy Oil was a big — some big stock company specific calls. We had plenty of wrong calls as well. Right now I happen to be remembering the ones we got right and then ultimately we had the commodity calls but that was always the motivation. >> In any given year as a Wall Street person you're going to care about your compensation and what does everyone else
18:41 make and if I left Goldman here's what I can make at some other bank, but I think I'm lucky or I had the sense to resist that temptation and that comparative analysis and I said at Goldman Sachs I really like working with my colleagues. I really appreciate Steve Strongin and being a key mentor and ultimately my boss and I had other bosses as well during the time, the directors of research, and liked and appreciated and I knew they valued me.
19:07 So to leave because in one year you thought, well, I can make more if I went to this bank — and it's a very compensation driven type culture on Wall Street. I'm grateful that I was fortunate enough or lucky enough or had enough sense to resist the "I can always make more money in the short term" and just focused on how do I make the best calls as a sell-side analyst and generally loved all aspects of that.
19:33 I loved covering the energy sector. I saw it out of favor. I saw the big commodities boom. I saw that roll over. I saw shale not be a thing then suddenly be a thing. All of that motivated me again until those director of research years slowly ate at me. And best decision I made was actually to join Goldman and then the other best decision was to actually retire from Goldman.
19:56 >> This episode is brought to you by Bunch Projects. Bunch is a construction engineering and EPC partner supporting Western Canada's energy industry for more than 45 years. Bunch combines practical field-driven engineering with data-driven planning to improve predictability and support cost certainty.
20:16 From well pads and compressor stations to gas plants and energy development, Bunch focuses on construction, clear communication, and consistent results. Bunch construction engineering is built on trusted partnerships and proven performance. Learn more at bunch.ca. >> Speaking of making calls and bull runs in commodities, your first major call was the super spike thesis circa 2004.
20:43 So maybe for the listener, what was the super spike call and why did you make it? >> If I back up quickly, we had the big commodities boom in the 70s that ended famously with the 1986 oil price crash. It probably actually peaked in like 1979, 1980 but definitively crashed in 1986 when Saudi had cut and cut and cut production, that didn't work, and then ended up with their fellow OPEC producers flooding the market in '86 and then for the next 15 years it was $15 to $20 oil and the correct strategy was to restructure, to cut cost, to downsize, to
21:16 be capital disciplined, best exemplified by Lee Raymond's ExxonMobil strategy, pursued by Lucio Noto of Mobil and Ken Derr of Chevron and all the major companies. And by the time you got to my joining Goldman Sachs, everybody knew that oil will forever be $15 to $20 a barrel and that the 70s super cycle was just a geopolitical aberration and that it could never go up again.
21:43 And analysts and major oil CEOs used to have a "who can have the lowest long-term oil price" contest. And we used to fight over 50 cents a barrel. That's absurd with hindsight, but if someone had $18 a barrel, someone else might forecast $17.50 a barrel. This is for WTI, all prices, and it would be a death match over the 50 cents.
22:03 I remember I think it was Shell came out with 14, then Lord Browne came out with like 12. It was just a race to the bottom at what turned out to be the trough of the cycle. It was actually my colleague Michele Della Vigna who is currently the senior person in Europe leading the European oil coverage.
22:23 She was a junior analyst just hired out of college who did our first top 50 projects report. And at the time we were forecasting 3% non-OPEC growth. Year one it came in at zero but there were some excuses, a Gulf of Mexico hurricane or something like that. The next year we forecast 3% and the top 75 projects report and it again came in at zero for some different set of excuses and I started having the view that hey, maybe there's something else going on here.
22:50 That the sort of exploitation, the drilling of the nearby fields from the big boom of the 70s and 80s, that that was starting to peter out, that companies were collectively all missing their production forecast which drove non-OPEC. At the same time China joined the WTO and oil demand was surprising to the upside and so the expectation back then was that if oil ever went from 20 to 40 it would lead to a flooding of new supply and it would kill the global economy.
23:22 People said Saudi Arabia would have to be destroyed for oil to ever be $40 or $50 a barrel and once it's destroyed you'll have a deep global recession. And there's lots of reasons why those calls didn't come true. The nominal prices — we did some work that showed that oil and gasoline spending had underperformed the economy over 20 years and therefore would take a much higher oil price to limit demand.
23:44 That China was causing demand to surprise to the upside. That non-OPEC was disappointing. And I want to say oil was about $40 when we made the call. So it had already risen some. We said it's going to be a multi-year period of much higher oil prices potentially going to 105. But we used the word super spike: "super" to suggest this is multi-year in nature.
24:07 The word "spike" was meant to say there will be a downside at some point but it's not a short-term downside. It's supposed to be multi-year in nature and that was the essence of the call and I think we're fortunate that that call tended to work out for us. >> The idea was that there wasn't enough supply in oil and as a result prices would spike which would cause demand destruction and a sharp fall off in oil prices.
24:32 I think >> that's exactly right. That in the near term we'd gone through the easy oil and we were going to have to figure out where that oil is going to come from next. Is it going to be deep water? Is it going to be Russia? Is it going to be Arctic? Is it going to be West Africa? And while we're trying to figure out where is supply going to grow — because again we'd worked through all the easy oil after the 70s and 80s — you're going to have to have oil go high enough to limit demand.
24:56 We actually said in the United States, because in that era the gasoline price was generally controlled by the government in many of the foreign countries that were growing faster, and so we did our analysis on what would cause demand destruction in the US. And it worked out to, at the time gasoline might have been $2 a barrel,
25:13 we thought it was going to have to go to at least $4 a gallon. And that led to backing into a hundred, a plus $100 type oil price to limit demand to available supply while we were trying to figure out where is supply going to come from? >> So I think you started making that call in about 2004.
25:31 What were you seeing at the time that consensus wasn't seeing? >> It was the disappointment from this top projects work analysis, and I want to give Michele credit for doing a lot of the leg work on that, that the companies were disappointing on supply, that globally supply was starting to disappoint. We were also seeing the upsides to demand even as oil prices were going up. So that mindset that any increase in the oil price is bad for the global economy, that was clearly not true as China, BRICs was expanding. I think people made the
26:03 mistake that in the 1970s it was an embargo, not necessarily economic growth, that drove the rerating in oil prices. We could spend a lot of time on what happened in the 70s but the sort of notion of geopolitics being the driver of oil, I think people misapplied that to what was clearly a global economic cycle of China and BRICs expansion. I remember there was one year, might have been 2005, where oil demand had been growing a little over a million barrels a day and in one year it grew three million barrels a day driven mostly by
26:34 China and people said the three is unsustainable and you know what, it was, in terms of growth rate, but the next year grew one which meant that the three wasn't an aberration. In fact you'd base loaded it. I feel like everyone was misanalyzing that. It was also an environment where in the near term we weren't necessarily low on inventories and it really threw people off because when oil was $15 to $20 a barrel all that mattered was the short-term inventory analysis. And in fact you had in many cases, you were forcing some
27:08 amount of near-term surplus in oil because there was this longer-term demand growth that it was unclear whether supply could meet it. So in many respects countries and others were seeing that and were building oil in the short term. So you had a short-term seeming weakness in oil and all the action in oil prices, it was actually at the long end of the curve.
27:30 It was the 5-year forward oil which was rerating up. People said that's speculation. And we did a lot of work to show that no, the capital intensity of this business is going up a lot. In fact, the return on capital at $100 oil turned out to, with years of hindsight, to have been no better than the return on capital at $20 oil.
27:50 So we pushed back and everyone said, "This is just speculative nonsense. Can't you see that inventories had built in the short term?" when in fact the capital intensity, the cost to produce oil was growing up meaningfully and we were needing this kind of very high oil price to keep demand limited to what was available supply even though that created a little bit of a short-term surplus in the very short term.
28:11 >> But when you're making those calls, you have to rely a lot on data like OPEC and IEA and all those other sources of data which can be a bit fungible, I don't know what the right word is. So how did you know what data sets were you looking at at the time and how did you know to trust and rely on the data? >> I think the first thing is when looking at data is one needs to do retrospectives on here's what was forecast and here's what came about.
28:36 So we've always looked backwards to say hey, we made this forecast. I go back to the top projects example. We were forecasting 3% growth and it came in at zero. Most people said here are the excuses for why my forecast was wrong. And people are very willing to blame others rather than themselves on mis-forecasts.
28:56 >> Because if in one year it's Gulf of Mexico hurricanes, the next year it's a Nigerian disruption, at some point you have to take responsibility that stuff happens in the world. And while in any one year that may be an aberration, you can't keep blaming the excuse for what happened.
29:15 It was clear that it was getting harder for companies to meet their production forecast. Even though you might in any 12-month period be able to make an excuse. I think people are very not willing to take responsibility for the mistakes. The IEA has phenomenal historic data. They've always had issues with the forecasts.
29:34 We know that's true in this recent net zero environment. It was true back then as well. And so we've never taken the IEA forecasts as a given. We've tried to say here's what we expected and how did it come out. The second point would simply be that at Goldman Sachs, I benefited from my global colleagues.
29:53 So as China was expanding, we had a team in China that directly covered Chinese equities. We had a great Chinese economist, I want to say her name was Hong Liang. She just did a phenomenal job forecasting China. We had our BRICs economist Jim O'Neill who coined that term BRICs. And so the macroeconomics team was outstanding.
30:14 We had analysts on the ground. And I used to speak to our steel analysts and our metals analysts on a daily basis. They often had better real-time information about what was going on in China than did what we had in the oil sector. So while not oil directly, it gave me confidence about Chinese economic growth and so dramatically. We all take China as a given now as a major country.
30:35 That was not the case in 2000. So between taking responsibility for our own forecast misses and trying to learn from it, between working with my colleagues in macroeconomics and these sectors, I don't think we could have made the call if we weren't at Goldman Sachs and I've never been confused about that.
30:54 I made the call, but I also was at Goldman Sachs when I made the call and the Goldman Sachs part of it was a really core part of it. And I think a lot of folks who left Goldman Sachs prematurely kind of artificially gave themselves too much credit. I will say that I deserve some credit for having made the call, but Goldman Sachs and my colleagues deserve a huge portion of the credit as well.
31:16 And you always have to kind of remember that. You have to take responsibility for your own forecasting mistakes. You have to give credit for where you are and the teammates that you have. And then hopefully you yourself are brave enough to make some of these calls. And it's all of those things. It's not just one of those things. >> And speaking of being brave enough, when did you have the confidence to make that call? Was there a single data point that really stuck out? >> I've always sort of rejected consensus views. I think that
31:43 might be a personality thing. It was funny, recently I was dialed into some Fed conference and someone was addressing — I was listening to this, I was on the webinar — someone was live saying, "Hey, Arjun's forecasting this." And kind of is pushing back on peak oil demand. And the guy on stage, he really cracks me up.
32:01 He's a friend. He's like, "I think Arjun just likes to argue." So there's something in the personality of, okay, everyone's thinking this, where are they going to be wrong? And I don't think everyone has that personality. I think some of the most successful analysts, that's in their nature to be. You can't be contrarian just for the sake of being contrarian.
32:21 But your willingness to be contrarian, I do think it's part of one's personality. And I guess I do like to argue is probably the way to say it. >> I guess by that time you'd had about five years at Goldman. So you had a bit of credit with the firm, so to speak, and you could make the call. >> I mean, I go back to again the stock calls I mentioned, Amerada Hess and Murphy Oil, like those were thrilling calls to make.
32:42 And by the way the Murphy call, I actually added that to our — we called it our conviction buy list, or at the time it would have been the recommended list — on the day that it turns out my first daughter was born. So my wife it turns out was in labor at our apartment at home. I was on the what was called the 4:10 call upgrading Murphy.
33:00 I got home, we immediately went to the hospital and my daughter was born. So I remember that call. So like I joined Goldman Sachs right after I got engaged. My first Murphy, I think, preceded Hess in terms of call. My first big stock call was Murphy Oil on the day my daughter was born. They had two dry holes in Malaysia.
33:18 Right after that call was made, the stock went down, the stock went down, and they were going to drill the third well. Do we stick with this? And I knew my credibility was on the line. And I said, "Listen, their base business, I think, is worth the price of the stock. You're not paying anything for this phenomenal Malaysian upside.
33:34 " And it was called the Kikeh discovery in Block K of Malaysia. It turned out to be at the time kind of a home run discovery for Murphy and therefore for myself. And that sort of — it's exciting to get calls right. It's honestly also exciting in a different way when you're wrong on a call.
33:54 I mean, you're nervous. It induces fear, but there's something psychological that you embrace both the good and the bad. Clearly, you want to be right and not be wrong. I'd say to be right, you also do have to be wrong. That suggests you're taking some risk. That suggests you're willing to be bold and to be wrong and to be embarrassed and all these kind of feelings that one might have, but then also to really dig into the analysis and should I really stick with Murphy Oil here.
34:19 Again, I think that's part of one's psychology. And I think we're fortunate that some of those calls did work out. And by the way, I'm not highlighting any of the wrong calls I made. There were plenty of those along the way as well. But as we're talking, I'll try and remember some of those as well. Maybe I've Xed them out from my memory.
34:34 >> Right. But you did get the super spike call correct which it sounds like it was a bit of a team effort coming out of Goldman. You had the commodities group with Mr. Jeff Currie kind of making the same call at the same time. Was it kind of a tug of war on where that call came from? Was it, did it come from you? Is it a bit of a debate? >> At the time back in those days, the equity research team would independently kind of model and forecast oil prices, but with the idea towards what do we think about
35:04 the companies and the sector and their outlook. Separately the commodities team would independently forecast oil prices. Their forecast tended to be less than a year. It was more of a trading type of call. So there was always — it started off differently over the course of the five years that we made.
35:22 Jeff's call was called "revenge of the old economy." My call was called super spike and we both came out with these calls at roughly the same time. We found that when we had like a dollar difference in our forecast, which was not intentional, that I was a dollar higher or a dollar lower, that's all anybody would talk about.
35:42 And so we learned to actually then just collaborate on the calls. Now, if we wanted to change the oil price back in those days to update all of your models, you couldn't do it with a press of the button. It would take at least a weekend or some amount of time to crank it through all the numbers and what else needs to change, capex, operating cost.
36:00 So we learned to coordinate over time, especially when people say, "Why are you guys a dollar difference?" as opposed to, "Hey, we're both making a very similar differentiated call." Stopped picking on the minor differences based on 25 cents or a dollar on our individual call. So Jeff and I got to the point that we ended up really collaborating.
36:21 And I do think since then, now it is a seamless singular forecast. The commodities team now forecasts out further in time. It's not just a short-term trading call. And I think the equities team, as I understand it, it's my friend Neil Mehta, Daan Struyven — Daan has now taken over for Jeff.
36:39 I think they work very well together. And I think it's just a coordinated call. I think Jeff and I were the two who kind of worked all that out. And so it was a team effort. It was a team effort with the other sectors. It was a team effort with the macroeconomists. It was honestly a team effort with sales and trading who had to make these calls and would get the feedback of why we were dumb or why we were smart and all of that kind of stuff.
37:01 Then we both benefited from talking to the leading buy side people out there who would give us plenty of feedback on where they thought we were smart but also where they thought we were dumb and we benefited from all of that. >> So and like we mentioned Goldman had acquired J. Aron through the years and it integrated into the company and so it had a really strong commodities and knowledge base of that side of the business and I think at that time Mr.
37:28 Lloyd Blankfein was the CEO of the company. So when you made that call, did it make its way up to senior management and did they ever come down to visit you and did you have to support the call with Lloyd? >> So when the super spike call — so you correctly highlighted that we started that view in 2004, but the report that got attention was published on March 30th or 31st, 2005.
37:51 And Hank Paulson, he'd not become Treasury Secretary yet, okay, he was the CEO and that call just blew up, right? It was all over the news, it was all over all the clients and I was actually under a lot of pressure at the time. The internet and social media really wasn't quite a thing so having like random people from around the world sort of email and call in and complain, you're going to do this, you're going to do that. Actually, I'm more used to all that now. At the time that was very foreign. It never
38:25 bothered me to get critiqued from the leading buy side clients or the companies for that matter. That was like the normal people we were targeting to. My assistant got a call from purportedly someone in Czechoslovakia who says you are going to ruin my chimney cleaning business here in Czechoslovakia. Like that was just crazy, right? And who knows who was calling in, but that part was very upsetting.
38:49 But I was marketing the call in Boston. This is literally like a week or two later. And the salesperson who I was with, I'll keep her — just give her first name, Kathleen. She's like, "Arjun, they're asking questions to Hank at the Goldman Sachs annual meeting about your oil call," and she's giving me like this play-by-play because it was like on the speaker box on the Goldman trading. It was like, hey, they're saying your name, Hank is answering the question. Hank, I don't think, knows you.
39:19 He's calling you the oil services analyst. It was just hilarious, but hilarious with hindsight. At the time, oh my god, Hank's getting questions about our call and Hank just made the public comment the research department is separate from the firm overall and he gave some sort of legalistic kind of reply. I since came to learn that Lloyd Blankfein actually came down to the research department, says what's going on? Do you trust this analyst and what's the call that he's making? And without me knowing at the time, Steve Strongin stuck
39:48 up. He's like, he knows what he — he's a credible analyst. He's put his thought into the call, whether it works or doesn't work, I don't know. And Lloyd Blankfein, as I understand it, stood by the independence of the research department, which is really important. I didn't learn this until actually, frankly, just a couple of years ago that Lloyd went to the senior research management and just said, "Hey, what is going on? Are you sure about this?" and they stood by me to Lloyd and Hank without telling me.
40:16 They said research is independent. It makes its own calls. And so I ended up having the support not knowing it at the time. And I think that was very important. You should be able to make the — I mean there's no point in having a research department if it's not going to be independent and making its own calls.
40:29 Certainly if the target is to give the best advice to buy side clients. And so I'm grateful with hindsight for the directors of research, for Steve Strongin and my directors of research would have been David Kostin and Laura Conigliaro at the time, for standing by me when a lot of people were skeptical of the calls. >> It's important to keep an intellectual purity in the calls. That's the whole point. >> Yes. I mean it is the point. I was always grounded by what Capital and Wellington and Fidelity and all the
41:00 hedge fund clients — will they respect the call and what is their feedback? And I got plenty of feedback from them. That feedback to me was always sort of within the fairway. Again, it was the random internet people. It's more common today. It was not common at the time. That part used to upset me deeply and I had to learn to develop a thicker skin and to not take it as personally.
41:23 That took a number of years to learn that. >> Well, that must feel good knowing that Lloyd and Hank Paulson had your back at the end of the day. >> I said they had my back. I didn't say they were happy. So whether — because they were certainly getting grief from — no, it doesn't hurt that the call ultimately did work out.
41:41 I think I'm grateful for Goldman leadership without question. >> And so, like you said, the call did work out. Prices kept climbing. The average through 2005 was about 56, in the year 2006 was about 66. By 2007, it was about $70. At what point did you start to think to yourself this was the right call and it was actually more of a fact rather than an opinion? >> We thought throughout that we were making the right call in part because we were continuing to get pushback throughout it. And the biggest pushback was
42:15 isn't this all just speculative nonsense, because people were showing that open interest in commodity was going up. This is where it really helped to have folks like Jeff Currie. There's a gentleman David Greely who now has his own podcast at ABAC Technologies. It's a great weekly energy podcast.
42:33 David was Jeff's number two and he did a lot of great work just showing capital flows into commodities, that the idea was that it is investment in commodities driving this as opposed to just speculative fervor. It's just a different kind of sense to it. What I contributed to that was to show the returns on capital for the sector.
42:52 So when oil first went from 20 to 60, returns on capital went up consistent with the increase in oil price. As oil went from 60 to 100, this is actually my biggest regret for the call. We got the commodity part correct, but profitability peaked for the sector at about $60 oil. So even though oil went on in 2007 and 2008, ultimately over $100 a barrel, profitability was starting to level off.
43:16 Now the profitability was still a quote good number. It was high teens. It's a very good return on capital for a mature capital intensive sector like energy. But that clearly the capex, the projects, the cost inflation was starting to overwhelm the increase in the oil price. So I'm an equity analyst. I'm not a commodities analyst.
43:34 That was the peak for the sector from a profitability standpoint. And so now I'm going to get to a call that I got wrong. It wasn't the commodity part of the call that we got wrong. I feel like we got that right. We had the great recession. Oil fell. We temporarily had to downgrade oil price, but we never thought the call was over.
43:53 And when you look at 2010 to '14, we had five years of $100 a barrel. That was the whole point of the super spike call, but it was over from a profitability standpoint in 2007. And that part we did not get correct. And it is my biggest regret for my time at Goldman that I've always been a return on capital person.
44:11 And I've always focused on are returns getting better or worse. And for individual companies, by the time you got to like 2012, the return on capital at $100 oil in 2012 for the sector was no different, zero difference than when oil was at 20 in 2004. They completely competed away the excess return.
44:31 And so the irony, Trevor, is that we used that analysis to say that speculators are not driving oil prices. We were correct on that. But I'm an equity analyst. So it was incorrect to tell portfolio managers that they should stay overweight the sector because oil prices are high. There is one buy side analyst —
44:52 I think I do have to keep him nameless. Maybe I can say at T. Rowe Price — who nailed it. He's like, "Arjun, based on your numbers and based on your analysis, it looks like profitability has peaked and it's only going to go down from here. It may not go down quickly, but it's only going to go down from here." That person nailed the call.
45:13 And it's the only person I'm aware of. There are other people who were bullish and bearish over times and so forth. I believe that person from an equity standpoint nailed the call for the right reason, which was profitability was rolling over even though oil was high. And at some point even our call was super spike, which means a downside on the price.
45:31 What would happen to profitability then? Well, you know what happened, 2015 to 2020, a terrible period for the sector. And so I want to give that one gentleman at T. Rowe Price a lot of — I don't know if he's still there or not. He's the one who called me, said based on your analysis, Arjun, I think the sector has peaked and we should avoid it.
45:47 And it was just a great call. Only person I know that got it truly right. >> Oil prices peaked about July 11, 2008 at $147 a barrel. They quickly fell off. By December 2008, oil was at 40 bucks. Do you remember July 11, 2008 when oil hit 147? >> I do. Jeff Currie and I were in Brazil. We were in São
46:10 Paulo and the introduction from the team that was down there was actually, I think, a vice chairman of Goldman Sachs, so very prominent person. He introduces, he's like, "I'd like to welcome everyone to the Jeff and Arjun show." And so probably a sign when you're being treated as a rock star in a commodity sector. >> It's at least a sign of a near-term peak.
46:34 >> So I will say that we got that — we did not call the rollover. We ended up actually doing an okay job in my opinion of getting the trough right. So we had a couple downgrades to the oil price when it said, "Okay, there's a great recession happening or whatever it was. We're going to have to go to cash production cost, but that will be short-lived and then we're going to go back to 100."
46:53 We did not get the rollover, but I believe we quickly got the where it's going to bottom and then how quickly it was the kind of the V-shaped recovery, right? So people out there can have their own view of whether we got it right or wrong. We definitely did not get the rollover, but I think we ultimately got the trough and the rebound correct, if I'm being clear here.
47:12 So we didn't think it was over, but I do remember all that like it was yesterday. And I will give both Jeff and I credit that we missed the 147, but I feel like we kind of pretty quickly got to okay, it's going to have to test 30 before it rebounds. I really feel like we played that okay with hindsight. >> So your actually was the accurate call with super spike.
47:30 That's the whole point. By December 2008, the price was 40. >> Yep. >> Which is >> That's exactly right. So again, I don't want to — I feel like people are going to say, "Yeah, I don't feel like you got that correct." Again, we did not nail the rollover, but then we quickly got to we're going to have to touch 30 and we might see 40.
47:48 And we also thought it would be a pretty quick rebound back to 100. So again, I think the second half of that we did a good job with and that the great recession was just that, it was a financial crisis. >> Yeah. >> And it was going to be resolved. So that, by the way, that was also working with — it was Jan Hatzius who's now the global chief economist at Goldman Sachs.
48:08 I remember in 2009 his note at the depths of the financial crisis when the S&P was like at 600 or some crazy low number, he had a report titled "green shoots" and that was all we needed to say okay we're going back up now and I think we very quickly made a "we're going back to 100" kind of call and that turned out to be correct. So that was the background of the super spike call which turned out to be correct.
48:34 >> Nowadays your theme or thesis has been the Super-Vol call. So maybe for the listener what is the Super-Vol call and how is that thesis different from the super spike call? >> I think it's different in one really important way which is that 2004 to 2014 cycle was demand was surprising massively to the upside and then we didn't know where supply was going to come from and that was the whole notion of needing a super cycle to resolve that.
49:00 That's not what we're seeing right now. So on the one hand, Trevor, we push back hard on the net zero, the energy transition mindset that says we're going to have peak oil demand by 2025 then 2030 or some year like that. We don't think any of that is true, but we're also not super bulls on oil demand. We think it can grow about a million barrels a day in the kind of economic environment we're in.
49:23 We also think you can meet that million barrels a day through shale grinding higher, through some Middle East supply expansions. Maybe there's a little bit of exploration that's needed, but we're not calling for that notion of a super cycle. On the other hand, we've got some major geopolitical events going on.
49:41 Russia, Ukraine, which was supposed to last weeks or months at most, is now in year five. The age of drones and defense tech is a total game changer for some of these otherwise smaller countries. We're seeing it in real time with US versus Iran right now where Iran through drones is causing havoc in the Strait of Hormuz. And it's also allowing them to sort of continue to fight even though I don't think anyone would dispute the US military is overwhelming in competency and size and efficacy versus Iran, that they're able to defend themselves with drones
50:11 just as Ukraine has been doing. And so there's going to be continued geopolitical turmoil. I feel like everyone's waiting for these crises to quote be resolved. Let's hope they are. But I would say the evidence from Russia-Ukraine is it's more ongoing uncertainty around the Strait of Hormuz, is more likely to be a permanent situation going forward.
50:30 It'll be open and it'll be closed and it'll be open and it'll be closed many, many times in the coming years. And so that's an element of what we're seeing today. And that we will at times test 50, we will at times test 100. But I can push back on peak oil demand, but I also don't think we're in a world where GDP globally is in a position to surprise to where it's going to grow like it did in that 2000s era and oil demand is suddenly one and a half to two million barrels a day growth.
50:59 So oil demand grows but at a more modest clip and it is the changing of this post-World War II order. US wants to reshore manufacturing. It's doing it in perhaps an imperfect type of style. But the idea that the US can just outsource everything to China, that is not a sustainable — we now all realize as Americans that was not ever a sustainable strategy and we're course correcting maybe imperfectly with a lot of noise and a lot of turmoil and I don't think we're alone in that.
51:28 And I think China, how one deals with China's massive manufacturing overcapacity is a question for every other country in the world including Asian countries, including Canada, including United States, including Western Europe. Everyone else is going to have to deal with this. The thing is though, they are low cost in nature.
51:46 So how do you fight Chinese deflationary impulses and motivate reshoring in your own country? And I'm not saying the US is doing some theoretically perfect job in how they're going about it, but we do need to go about it. And I think that creates an element of volatility and uncertainty in the world that contributes to our Super-Vol call.
52:09 Can the US be the reserve currency in the world if it wants to reshore its manufacturing? So there's just a lot of things that are going on right now that makes us think it's not going to be a smooth economic cycle. I will just say, Trevor, though, in light of the US-Iran war, or maybe I should say US and Israel versus Iran war, GDP growth has been better than I would have feared.
52:32 And so maybe there's a chance that GDP can surprise to the upside and we can go back to talking about super cycles and such things. On the other hand, I think shale is still grinding higher. It's doing better than everyone expected. I actually am positive on Middle East oil supply from places like Iraq.
52:47 I think ultimately Saudi and UAE will figure things out. Libya, Algeria, North Africa looks promising. There's growth in the Vaca Muerta in Argentina. Latin America overall has had some major political changes that speaks to the potential for higher oil supply. And I think I've always been very positive on the Canadian oil and gas sector.
53:07 And I think some of the unfortunate rhetoric that's come out of the US towards Canada, as an energy analyst, which is how I'm speaking right now, I think it's had the positive impact on Canada of unifying the country behind Prime Minister Carney. And I think it's caused — and I'm saying this as an outsider, so I say this respectfully —
53:24 I think it's caused Prime Minister Carney to perhaps modify his previous net zero, Glasgow Financial Alliance for Net Zero, "let's keep oil on the ground" view to now embracing things like energy infrastructure, oil pipelines and so forth. I think there's some stuff the prime minister still needs to prove in terms of getting the pipelines off the ground and so forth, but at least how he talks about things,
53:45 I feel like that's going to be very positive for the Canadian oil and gas sector, which I was already positive on even when there was a more hostile government in place in Canada towards the oil and gas sector. I'm obviously referring to Prime Minister Trudeau. So the Canadian oil and gas sector did well in a hostile environment. Yeah.
54:03 If it has a more supportive environment, I think that's only going to be good things. And so point being, I think Canadian oil supply can grow, shale oil can grow, Middle East oil supply can grow, Latin America could grow. So we don't see super cycle, but we do see a lot of volatility in the oil price. >> Despite the, I guess, political headwinds in Canada, there is so much inventory in the country that supply can come on eventually.
54:30 But getting back to the super spike call, the idea was that demand was growing, you wouldn't have supply to keep up with it. But the last few months, like we said, there's been supply hits, various parts of the world, like UAE leaving OPEC after 59 years. Do you worry that's where maybe we don't have as much immediate supply and that it could be setting up higher oil prices? >> It's possible.
54:55 I think the key to really having a super cycle will be instead of about a million barrels of demand growth — and 2026 is going to be very noisy because of the Strait shutting down and maybe the noise never goes away as I just said a few moments ago — but that a million barrels a day, even if it got to one and a half or even a little higher than that, compounding at an extra half a million barrels a day, that would give you the upward bias in my opinion towards perhaps being more in super cycle. I think 1 million barrels a day to
55:25 me is the over/under of what can be met through again US shale, Canada, some of the Latin America and some of the Middle East supplies. The bigger disruption, Trevor, I think probably everyone listening to your podcast appreciates, has been on the refining side.
55:41 So the age of drones has not only disrupted supply, but it's had an even bigger disruption on the refining side of the business, especially in Russia, also the Middle East. And there is a tightness there that we're going to need to expand refining capacity. I'm not sure where we're going to do that. It's definitely not a popular thing to grow refining supply, but that is as tight of an area as exists in the energy markets today.
56:04 >> A lot of smart people were calling for a price spike in the summer as a result of the Strait of Hormuz conflict and whatnot, which didn't really happen. Oil prices are strong. So how come you think there hasn't been a spike yet? >> I think it was shorthanded probably incorrectly to oil will spike to $150 to $200 a barrel.
56:26 If you look at diesel prices, if you look at refined products around the world, we have had the spike that people were talking about. It just has not happened in crude oil. It's happened through the refinery shutdowns, has happened on the product side of the business. So I'm going to look at my screen, which is just to the right here.
56:40 And crack spreads are $64 a barrel — Gulf Coast 3-2-1 WTI kind of benchmark crack spread. Typically that kind of crack spread would be around $20 a barrel and maybe in a bull market it would be $30 a barrel. It's double that. And on individual days the diesel crack, just the diesel price minus the oil price, that has been over $100 a barrel when again normally 20 or 30 would be, or certainly 30 would have been a very, very good number.
57:07 So we have had the spike but it's come through Ukraine having a lot of success shutting down and attacking Russian refineries a thousand kilometers away as well as some of the products that's been disrupted coming out of the Strait of Hormuz. And so it's been on the refining side that we've had this spike. >> And another, I guess, point people made is the impact of China on the world oil prices and refining prices.
57:33 So how do you think about China? Do you have any access to their data? And how are you thinking about that? >> It's a great point that I should have absolutely mentioned before you asked, which is China reducing their oil imports by anywhere from 4 to 6 million barrels a day is as big a factor as any for why the crude price itself has stayed at a high level, but not like $150 to $200 a barrel.
57:57 I don't think China going from 12 million barrels a day of oil imports to seven, eight, nine is in any way sustainable. I don't believe they were just voluntarily buying 12 million barrels a day. One can say some of that was for strategic builds that maybe they don't need to repeat, but they absolutely have to be drawing down at least some of those builds to some degree.
58:19 And I would suspect that they will look to replace it perhaps in a future down cycle. I think that's one of the things that cushions the downside. You will see Chinese and global SPR builds, especially if oil was to someday pull back to $50 or $60 a barrel or something like that. But I agree that China has probably been the biggest surprise factor.
58:37 Everyone would have known that Saudi could redirect some of their oil flows out of the Strait to Yanbu, for them it would be the east to west pipeline to come out of the Red Sea. >> It's 5 to 6 million barrels a day there. I think people expected the US to draw down their SPR.
58:52 Maybe there's been slightly higher shale production than what people forecast. Japan drew down their SPRs. I think that's not a surprise. The surprise was the Ukrainian success on striking Russian refineries and then the Chinese reduction in oil imports. And I'm going to say with maximum confidence, China going from 12 to 7 million barrels of oil imports or whatever the number is, is completely unsustainable.
59:17 But whether that changes in September or next March or the following December, that's the near-term trading in oil that we could probably endlessly debate. And it's definitely not my strength on guessing that exact month they resume. >> And speaking of the SPR, yesterday, August 26th, the most recent SPR numbers came out, which was basically a record low since I think it was the early 80s.
59:37 Does that worry you? >> I think we should be worried, just because the US — I think one of the things that I don't care about in terms of current rhetoric that would come towards the US from US political figures would be that somehow we're energy independent. We're certainly far less dependent than we were thanks to the miracle of shale.
1:00:00 There's no doubt, we're the number one oil producer, NGLs producer, natural gas producer, and we're blessed as Americans to be in that position. We are hugely dependent and no one should ever forget on the 4 million barrels a day of heavy oil that comes from Canada that we then refine and export to the world.
1:00:15 That is a great positive trade impact for the United States and I feel like that often gets forgotten by many leading politicians today. So I would never want that to change and I'm sort of grateful that I haven't heard that as part of the current trade disagreements that are going on between the two countries.
1:00:32 That is a really important integration that should ought to continue. But the point would be just because we are not as dependent on the Middle East as we once were doesn't mean we're independent of all this stuff as well. And so I think China has shown the strategic benefits of just having an overwhelmingly large SPR.
1:00:50 And so your question was does drawing down the SPR cause me concern? Yes, it does. I think we're in a better position as a country to have as high of an SPR as we can possibly have, to be closely integrated with our closest and historically closest allies, in particular Canada in the case of energy. And so I would never want there to be any disagreement on how critically important Canada and US integration on energy is. That's mostly oil but it's also natural gas, it's also hydro, it's electricity, a bunch of different things. We know it's true
1:01:20 for sure on the oil side of the business and I think we're both better off, the United States and Canada, to leave that out of the trade disagreements. Maybe they can — so far I think they have, so far, I don't want to jinx. >> Yeah. >> I preach as much as I can how important that integration is.
1:01:40 I believe energy knowledgeable people in the administration totally appreciate that, but it's always hard to know when there's disagreements amongst the presidents and the prime ministers, what gets sacrificed along the way. So close Canada makes America stronger in terms of the energy integration and having a highly filled SPR makes us stronger as well, even if we have a lot of shale oil, which we do. >> Yeah, exactly.
1:02:04 There's a lot of inventory in the Permian. >> There is. There absolutely is. >> But this isn't a politics podcast, so we won't get into politics today, but even this podcast is a very, very soft proxy. I have noticed some more American interest in Canada and maybe some of the Canadian inventory. Have you maybe noticed a bit of a shift, maybe a realization just how much product there is up north? >> There is.
1:02:29 I mean, again, this is one of the things I feel like if one went back and read Super-Spiked over the last four years that we've been published — I want to say we started in late 2022. So we're almost at the four-year mark. I've generally highlighted the attractiveness of Canadian oil and gas sector.
1:02:43 You're very correct to highlight I'm speaking as an energy analyst only, not as a political expert or any of that kind of thing. I've thought the sector was always underappreciated for how good the profitability was for especially the leading Canadian oil sands players. Some of whom are integrated, I think maybe one of them historically was not.
1:03:03 And then there's Tourmaline which has always been a very successful natural gas producer. They have their own version of integration with some midstream and takeaway capabilities. And there are definitely other kind of, you probably would call them junior E&Ps or something like that, that have had success as well.
1:03:18 We've been positive on the oil sands for sure. There are other heavy oil plays that we've liked. I think the Duvernay, the Clearwater we find of interest. The Montney we've generally been very positive on. And so I personally have had a very positive view of the Canadian oil and gas sector unrelated to this current war and even going back over the past decade when it wasn't obvious to a lot of people how much we would need Canadian oil to grow.
1:03:42 I've always thought it was important to grow. I've always thought it was important for US and Canadian integration from a health of both countries standpoint, from an energy policy standpoint, but most importantly as an energy analyst, I think the profit potential and the resource potential has always been there.
1:03:59 Now, if we're in a world where, hey, we're going to worry less about staying at 50 to 60 — we can always touch it, but we're not going to stay there. And if we have a Canadian administration, so politics always matter to some degree, if we have a Canadian administration that's willing to embrace new pipelines and new pipelines that are not just dependent on who is the US president, are they going to accept that pipeline or not? But pipelines that go to the west. I think the best place for Canadian oil is the US Midwest. But it's also
1:04:24 great to have an option to go export it to Asia, which clearly is a demand center. And I would like to see Canada better emphasize the LNG potential in the country. Why should the US be such a massive LNG exporter when Canadian natural gas is even more stranded and is as substantial as I think many of the US natural gas plays?
1:04:47 So I'd love to see Canada build up its LNG export capability. I think it's great to see more pipelines being announced for oil. All of that to me bodes very well for the Canadian oil and gas sector. But again, I believe that even under the prior Canadian administration, which was not as supportive of the oil and gas sector — it's going to be even more true today.
1:05:06 And I do think, and you correctly pointed out, American investors are starting to look back north. Whether American companies do — there's not a great track record of American E&Ps timing entry to Canada well and doing well once they got there. There are some exceptions to that. Certainly a few of the companies I know very well I think have an okay track record in Canada.
1:05:29 But I think in terms of — I probably think Canada can do this with its own companies. I actually mean that as an analyst, not as a political statement. I think there's enough of a healthy oil and gas sector within Canada >> that it's not obvious to me Canada needs foreign companies to — Venezuela needs foreign companies to help develop their oil.
1:05:49 I think Iraq needs foreign companies to help develop their oil. Not true of Canada. Canadian companies, if they so desire, I think are totally well positioned to develop their oil and gas. Again, I mean as an analyst, not a politician and not a political expert. >> The point Mr. Jeff Currie made was that we're entering a commodities upcycle and that you're going to want and need all the commodities and that's the point.
1:06:13 >> Jeff spot on on that point. I totally agree. >> Well, that's our view of the, I guess, Super-Vol argument nowadays and the upswing in oil, gas and where things are headed. But you also had a few questions from X. Do you want to do those now? >> Yeah, let's do those questions. The X questions. >> Okay.
1:06:34 Well, we had a couple from Jamie Heard. So maybe we'll go through those. They were great questions. Probably enough for an episode on its own, but we'll go through them if that's okay. >> Sure. Yeah, I'm a huge fan of Jamie. It's an honor to get some questions from him. >> You're a CFO of Tourmaline now. So that's >> I did not know that.
1:06:50 Okay, that's fantastic. So >> things are going well there. First one was: Arjun was early and vocal with his "lucky 1 billion" message. The concept that only a fraction of humans on Earth live in energy abundance and the rest are in some degree of energy shortage or poverty. The Iran war has increased shortages and AI has increased the benefits of abundance.
1:07:11 How does Arjun see the geopolitics of energy evolving in the next 5 years? What should individuals, investors and companies be doing to prepare for this evolution? >> I love the question and I think the message we've had, which was a pushback on the net zero mindset which at its core had the issue, irrespective of whether you think dealing with CO2 and climate change is the number one issue or if you think it's the number 25 issue, wherever you are on that, let's go with the view that this is the number
1:07:44 one issue in the world, there's a climate crisis, we have to deal with it. My observation, and I don't think — to me there's zero evidence in the other direction — was that no person, no country is going to model their economy on a CO2 basis. That it is not the organizing principle for anything. That does not say you shouldn't have to deal with it. You might think you should. You might say that's the number 10 priority. Whatever you think is irrelevant. Every evidence points to all anyone cares about is if I turn on my light switch, if my car
1:08:16 doesn't move forward, do I have the energy to move it forward? So reliability, availability, abundance is the overwhelming driver and then the vast bulk of the time it has to be affordable, to be reliable and to be affordable. This is a geopolitical overlay that again no person cares. If you're an individual you could care less if you think your country is an enemy of Iran or Russia.
1:08:36 You don't care where the oil came from, those countries, if it ensures your car can move forward at a low price. But at the government level this is where politicians will say, oh no no no no, you have to be geopolitically secure. We have to control our own supply. That to me leads to the motivation of new energy technologies.
1:08:53 So nothing I say about the need for abundance and reliability, it in fact reinforces the need to not just focus on oil, gas and coal, but to also focus on all the new tech. If you're a billion person scale economy, as China obviously is and as India is, you're not going to want to import the quantity of oil when you're someday a truly rich country that would be implied if you only use say oil or LNG or what have you.
1:09:17 So all of it's been — that whole call was let's make sure people understand why we use energy in the first place. All these terms like green, brown, clean, dirty, total nonsense terms and it leads to really bad policy decisions. We certainly saw that in the United States. I'll stick to my own country, over 2020 to 2023, over this idea that some things are better than others.
1:09:39 That is absolutely not correct. And I think the current environment, to answer Jamie's question, even more so reinforces that point. I think this Strait of Hormuz situation, the ongoing Russian crisis is going to reinforce, if I'm a country, what resources can I control? And so it differs by country.
1:09:58 My view has been that the United States and Canada on their own should want to maximize their oil and gas and coal potentially. So from an export perspective for the benefit of their own countries, the geopolitical strength and positioning and to help meet the energy needs of the other 7 billion people on Earth. I think there's some countries that don't have a lot of oil.
1:10:18 So again, if you're India as an example, the idea that today you use 1.4 barrels of oil per person and you're importing 5 million barrels a day of oil. If you someday got to 10 barrels of oil per person per year, that you're a rich country, that might be 70 years from now, who knows when it is. That would imply 44 and a
1:10:35 half million barrels a day of oil imports. That's a ridiculous number. There's no chance India is ever going to want to import 44 and a half million barrels a day. So that's the motivation to do electric vehicles, LNG trucks, but hopefully you control how you make the batteries and the lithium and the cobalt and the copper and all these kind of things.
1:10:52 And that is the world we're in. So our lucky — I am an American. And I am so lucky to be amongst the lucky 1 billion. Trevor, you're a Canadian. You are lucky to be amongst the lucky 1 billion. As are probably every single person listening to this podcast is amongst the lucky 1 billion.
1:11:09 I think the essence of that view is even more true today. If it was originally a critique of kind of quote the energy transition mindset that had 2020 to 2023, I think now it's been reinforced by some of the geopolitical turmoil that we're seeing. >> Yeah. The energy transition was just not grounded in reality. >> That's correct.
1:11:29 Certainly, I want to be always clear, the energy transition that said we need to reduce fossil fuels somehow only in the countries that are otherwise good countries, Canada, United States, Norway. And I'm going to say that whether the world thinks they're good or not, certainly as an American or Canadian or Norwegian, you're going to think your own country is good as a general comment.
1:11:54 But the idea that you'd limit oil in those places, and leave the oil to some of these countries with a different set of issues, that view never made sense to me. You can always motivate quote decarbonization of your demand profile if you wanted to. I have no issues with Norway going to 100% EVs for the small number of people that are Norwegian.
1:12:17 And it's a very wealthy country, but I love the course correction we're seeing from Norway. I've written Super-Spiked. I love the course correction we're seeing in Canada away from that net zero ideology to how do we potentially make sure our demand is efficient as it could be, whether that's miles per gallon or electric vehicles, but let's produce more oil and gas that the world definitely needs.
1:12:37 I think that is really the big change from the previous three or four years. >> Not to mention just to take care of your own citizens' basic needs. It's not about the rest. >> No question. >> No question about it, Trevor. >> All right. The second question from Jamie was: despite limited danger and few meaningful negative externalities, data centers are becoming this generation's NIMBY issue and political lightning rod.
1:12:59 What can the energy industry teach the tech industry about how to site and develop large projects with positive community involvement? >> It's such a great question. I think part of the issue is one of the challenges I think energy companies did not do a great job of during 2020 to 2023 was speaking in normal human language and defending themselves.
1:13:25 Most oil and gas executives at the time came out with various ESG reports that said, "Hey, we're not as evil as you think we are." Like that was a completely unsuccessful strategy. Events and economics ended up bailing them out. The only — there were two executives who defended themselves and their companies using normal human English and language.
1:13:46 It was Amin Nasser, the CEO of Aramco, and it was Chris Wright, the current US energy secretary. He was the CEO of Liberty Energy with this "Bettering Human Lives" report. In my opinion, no other CEO did that in any sort of public way. Everyone had an ESG slide. Everyone talked about their net zero scope one and they're going to do — I'm not saying they shouldn't be doing any of that stuff, but I'm saying explaining why we use energy, communicating clearly and without compromise. Chris did that.
1:14:12 I mean, Nasser did that. And no other CEO anywhere did that. And I think that's a real critique of how the oil and now public company CEOs — maybe they're just trying to survive the tenure of their CEOship, right? Clearly they have a fiduciary responsibility to their shareholders, which I absolutely believe they take seriously, but there's a "let's not rock the boat" aspect to it.
1:14:35 Let's go with the flow. Chris did it. Amin Nasser did it and I have a lot of respect for those folks. It's why I started Super-Spiked in the first place. So I am critical of the industry for not defending itself during the most dramatic moments of net zero and that's around the world. That includes US CEOs, includes Canadian CEOs, includes Western European CEOs totally caved to the absurd "we're going to transition our companies" type strategies.
1:14:58 My exception to that would be Total and Patrick Pouyanne. I actually always liked Total's strategy, just to be a little bit clear on that. So tech companies can learn don't follow an oil company executive's position. But tech companies have their own set of a different set of arrogance where I think oil companies try to just stick their head in the ground.
1:15:18 I don't think the tech sector does themselves any favor highlighting potential job loss or quote productivity gains. I think they're arrogant in a very different way that is not accruing themselves any favors. And so >> they've all had to face consumers to a degree oil executives have not had to in a very long time.
1:15:42 So maybe they'll be able to course correct. They live in their own bubble in Silicon Valley versus say Calgary and Houston as our sector has lived in. And I think the point of your question was yes, what kind of positive normal human language engagement can they have? How do they listen to the actual needs? How do they show how tech is actually going to benefit people as opposed to create productivity improvement which de facto means job loss and it may or may not raise your electricity price or use your
1:16:11 water, even though some of those things I think are factually not accurate. It really the point isn't really water usage. I think it's potential job loss from the data centers. >> Yeah. The, I guess, perspective from traditional energy was that CEOs are so busy trying to manage capital and find oil that maybe there wasn't time to make the case for their industry.
1:16:32 But there's a lesson there that it is a good idea to do that. >> I think you're naturally a very polite person, Trevor. I'll be direct. I really don't like that they were not willing to defend themselves when it mattered most. Again, "Bettering Human Lives," best report. Amin Nasser, keep saying it,
1:16:50 the only real two examples. Everyone else put out ESG reports that I thought were a bunch of nonsense. >> All right, final question. Speaking of some politics and Mr. Chris Wright: does Arjun see a personal role for himself in the political ecosphere? Could Arjun be the Chris Wright of a future administration? You are very well spoken.
1:17:09 >> It's very kind of him to ask. I do appreciate and thank you Trevor for the compliment. I would say that I'm confident based on my experience of not liking the politics that were involved with being a director of research at Goldman Sachs, which is a 100% commercially focused organization. And there were every aspect of the politics of being in that position.
1:17:28 That is what I really rejected most about the DR role. There can't be anything better [laughter] from a political standpoint in terms of being an actual government person. And so if you were to work for an administration, it's important to remember the president is the party, especially in America. And so I'm very familiar with Chris Wright's views as a CEO and a private citizen.
1:17:51 When you work for any president, in this case, it's President Trump. We saw this with Jennifer Granholm under President Biden. You have to adapt your views to the president, at least publicly. Privately, you may argue your case for what you think should or should not happen. But I think that would be — I think that's just something to keep in mind.
1:18:12 I believe I'm best positioned helping people think through here's why we use energy, trying to speak in normal human language to regular people about how to think about all the complexity of energy. I think I'm better suited with that than serving in government. It's very kind of you to ask and for Jamie to ask.
1:18:29 >> It's a tough job in politics. >> It is a tough job. It is definitely not for everyone. I don't think I'm quite tough enough for politics. And I think you have to be motivated >> Yeah. >> to win political battles. I am motivated to make the correct analytical call, which is a different thing.
1:18:48 >> Well, maybe to come towards the end to wrap things up, maybe to tie back to any investors listening to this episode: what would have to be true for you to change your Super-Vol thesis nowadays back to a super spike call? What would you have to see nowadays to change? >> I think there are two clear things. One is that GDP is really getting back to over 4% global GDP. I still use Goldman Sachs economic data to come up with that type of statement.
1:19:19 Everyone's GDP numbers are usually within 0.1 or 0.2%. But just so people know the data source I'm using. So if you look at Goldman Sachs economic forecasts and how they kind of model this stuff, I would say getting back to 4% plus global GDP would be the number one thing because it would mean that oil demand is getting back to a million and a half barrels a day.
1:19:38 I think we'd have to see supply truly disappointing like we did again 25 years ago. We're not seeing that today, the supply disappointment. It's not booming, but shale's going to grow at least 300,000 barrels a day this year. I mean, even I would have said probably flat at best and it's — and yes, oil is now $90 or whatever it is today. As we're talking it's $85 for Brent.
1:19:58 It's 82 for WTI, but the expectation going into the year was oil glut. Even though I pushed back on it, we weren't — no one, we didn't think it was going to be $80 a barrel. So with capital budgets that were set with a cautious view of oil that have not been raised for the most part since the war started.
1:20:18 So it's still that mindset. Shale is going to grow 300,000 barrels a day. US shale oil. US lower 48 crude oil, excuse me. Let me be totally clear on that. US lower 48 crude oil is going to grow 300,000 barrels a day. That's 300,000 barrels a day more than we would have expected with like a $60 budget price.
1:20:36 So now if people start modeling 70 or $80 oil for 2027 beyond, is it going to grow 500,000 barrels a day? So we've not seen shale roll over. Again, I think there's a positive Canadian oil story that previously existed that's now been enhanced with the focus on infrastructure development in the country. Latin America is growing, Middle East is growing.
1:20:54 So we'd have to see some disappointment amongst all of that. So demand is a surprise on the upside, supply surprise on the downside. Neither of those two things are we seeing yet. And that's what we would need to see. >> I really appreciate your time again for part three today. >> It's an honor and a pleasure and I didn't know it was a milestone episode, Trevor.
1:21:15 It is really great to be on for episode 300. Thank you for having me and I listen to you every single week. It's one of the podcasts I most look forward to. I really appreciate your sort of interview style with your guests and I learn a lot each week. So please keep doing them and thank you and it's an honor and pleasure to be here.
1:21:30 >> Thank you. I really appreciate your time.