Jeffrey Currie — $83 Crack Spreads & Why Canadian Oil Became Valuable

0:00 "The unplugged version of Jeff" — and the one lesson from Chicago

• Special adviser at Carlyle, co-founder/non-exec director of 1947 Oil & Gas, exec co-chairman of Abaxx Markets, after 27 years at Goldman as head of commodities research. Today: "more of an independent thinker and investor, with a little bit more freedom."
• His PhD (the Zellner-award dissertation) took the classic "geographic extent of the market" question off eggs and onto oil. Chicago's lasting lesson: "it's the marginal conditions that matter" — "I don't care about the cost structure of the vast majority of producers," only the margin, where all the action takes place.
• The line he still uses to explain his edge: "macro guys are average guys, micro guys are marginal guys" — far more information sits at the margin than in the average.

7:43 The two bookends of a career: Gulf War I hegemony, and its unwind

• Gulf War I = the Soviet collapse plus a resounding US victory ("they went there with 10,000 body bags, used 147"). "That's when the hegemony of the United States started and globalization started" — then deregulation, then the liquidity explosion he rode at Goldman.
• Today is the mirror image: "United States is now in a really difficult situation in Iran and you have the resurgence of China. It's almost the exact two bookends of the career."

11:10 Atom super cycles and bit super cycles — and HALO

• History is "basically tech and energy": the 2000s were an atom super cycle, the 2010s a bit super cycle, "and now we're in an atom-bit super cycle because you've got the technology guys putting steel in the ground."
• Then it was hard assets, global operations (everything centralized in China). Now it's HALO — hard assets, local operations.

12:19 Crack spreads are a bottleneck signal, not a demand signal

• With cracks near $60/bbl: "it's not being driven by the demand for oil, it's being driven by lack of investment and bottlenecks, and the bottlenecks are shifting" — copper last week, gold this week.
• The frame he coined in 2002 — "the revenge of the old economy" — repeating: too much capital into the new economy in the '90s left the 2000s under-invested. Same setup now, but the demand drivers are deglobalization, military build-out, supply-chain redundancy, re-shored manufacturing, electrification and debt/debasement — "not fun kind of demand drivers this time around."

14:16 "Nobody consumes crude oil"

• "I don't understand why there's this obsession with the price of oil. Does it matter? Nobody consumes it." Russian refineries bombed, refineries locked behind the straits, Chinese refineries idled to cope with the crude shortage — "just created a bigger shortage in products."
• Crude at 88–89 "hasn't done anything. Guys, look at product prices — they're sitting near all-time highs." And note who's exposed: "the vast majority of people talking about this don't have any exposure to oil; only refineries do."

15:15 The bottleneck rotates — you bank the spikes

• "The bottleneck changes and rotates across these different markets, but the trend is the same": crude in March/April → refined products → copper → gold and silver today. "I bet silver is probably the one that's going to rip in this next spike."
• Why people call him wrong: "it's not a continuous upward trend, but rather a sequence of spikes and rotating. And the way these commodity investments work, you're banking those spikes."
• Scoreboard: since the October 2020 super-cycle call, commodities have been the best-performing asset class — "even better than crypto." Cocoa just printed a fifth-largest move on record.

16:44 The shock list — and total complacency

• "Okay, you guys weren't bullish. We took out the Straits of Hormuz. You weren't bullish. Let's take out Black Sea… the Russian refining capacity… the Red Sea. My god. The magnitude of the shock is unprecedented."
• "And it's grains too, it's petrochemicals, it's fertilizers. The level of complacency is the part that probably surprises me the most."

18:47 $83 cracks: the market is short refineries

• "There was a day or two a week or two ago we were $83 on that crack spread, more than the price of crude. That tells you there's not enough refineries out there." The 321 crack (one-third diesel, two-thirds gasoline) is near all-time highs.
• He expects it to show up in crude eventually — "ultimately there are going to be enough refineries to chase this," starting with Chinese teapots chasing the margin — "but right now they can't be."

19:26 There is no SPR for products — and the US still needs Canada

• "There's no strategic reserves for a lot of these commodities that are being hit right now." The SPR was built to feed US refineries when the US was short crude — "and by the way, the US is still short oil… It's dominant natural gas, but it's not so dominant in oil. It needs Canada to be dominant."
• You can't build refineries on a global basis; SPR draws have slowed sharply since the Ukrainian strikes into Russia. Going into the European winter, "diesel is the one that we're really short right now."

21:27 How he'd express it: indices, refiners, integrateds

• Refinery values are "extremely well bid right now." The Goldman house rule he still recommends: "buy the petroleum indices — don't try to pick crude oil, diesel, gasoline. Just own the whole basket."
• "In case you guys want to do the equity side, own some refiners, own some producers. Why not the integrated oils? You get a little bit of both." He calls the shift structural, not temporary.

22:07 Bretton Woods, the sea lanes, and 400 years of ports

• The grand bargain of 1945: the US gave the world money (World Bank et al.) and kept the sea lanes open with its navy; in exchange the world used the dollar.
• That navy was inherited from the British, who inherited it from the Spanish and Portuguese. "Take Malacca. The Portuguese found it in 1602. The west has controlled Malacca since 1602… It's that network of ports that really mattered. And it's been in the west for 400 years."
• So losing Hormuz "is a game changer on epic proportions — it's not only the end of globalization, it's the end of Bretton Woods."

24:22 Lose the strait, lose the exorbitant privilege — the yen and the Swiss franc

• "You lose the exorbitant privilege, the cost of funding in the United States is going to up." That's why Scott Bessent is fighting the yen as hard as he can: oil goes to Japan, the yen was the world's cheapest funding currency and the biggest short — investors borrowed yen and bought US assets. Unwind it and "all that yen comes out of the US, interest rates go up."
• The mirror example: in Switzerland you can get a 30-year fixed mortgage for ~50bp because "Swiss franc is good as gold" and everyone wants it. Demand for your currency lowers your funding cost — and the US is running a 7% fiscal deficit into that arithmetic.
• The US also polices the Pacific (Chile→Shanghai copper) at its own expense — break the bargain and the dollar's dominance goes with it. Second-largest naval loss in history would be Suez in 1956.

27:21 "If America wants to be a superpower, there is only one endgame"

• "What are the Americans going to do — ask the Iranians for permission to bring the USS Abraham Lincoln into Bahrain? That's not a superpower… It has to take control of that strait."
• Why they haven't: it would be "really, really, really bloody." All it takes to deny the strait is a man with a launcher — now with drones and hypersonic accuracy. "Artificial muscle is not doing too well against artificial intelligence." The Iranians want the photo op of destroyers leaving — the Saigon-helicopter image.
• His read on why prices stay calm: "people look at it and go, it's so bad they're not going to do it."

30:22 Carter's sweater speech and the abundance illusion

• February 1977, cardigan, thermostat turned down, "we have an energy crisis" — and the next day, panic. "The moral of the story was never admit to the scarcity. Create the illusion of abundance."
• Every president since Bush senior has used the SPR and the language around it to talk the market down; "what Trump's doing is no different. The difference with Trump is can he last this thing out" — and this time the buffers are thinner and the weapons are far more accurate.

32:29 Energy and tech: the two barbells that always rotate

• "If you can't turn the lights on, nothing happens. If you don't innovate, you'll never progress" — so the bottleneck is always one of the two. For 100 years the energy names were the biggest companies in the world, then IBM, Microsoft, Nvidia.
• He's lived two rotations: out of dot-com into commodities (2001–02) and out of commodities into tech (2014–16). Both were "absolutely violent, brutal" — "you couldn't give Microsoft away."

34:21 Everything reprices — the 25% → 17% IRR lesson

• Against "oil can't go to $300": in 2000 oil was $20 and companies earned mid-20s IRRs; by 2006–07 oil was 3x higher and returns were lower, because costs repriced with it.
• The reverse case he actually ran: a Calgary upstream PE asset underwritten in 2012–13 on a ~$110 deck at a ~25% IRR. By 2016 oil was $40 — down ~66% — and the return was still about 17%. Steel, copper, labour, the Canadian dollar (a ~60% move), food and fertilizer all repriced. "You'll live through it if you let it reprice."
• Who does get killed: "those companies like Chesapeake who own the physical, the land… and probably the same thing with the AI guys — the guys who own the land are going to get in trouble because they can't handle the repricing."
• And the flow: "all the money is sitting in AI right now. What happens when that money leaves AI? It goes to oil."

37:32 Why he co-founded 1947 Oil & Gas — and Rockefeller cash vs Musk paper

• "Oil is the cheapest thing on your screen… and inside oil, shallow water is the cheapest asset inside oil. People just don't want it." Reserves acquired at roughly $4/bbl; the research-report title he loves: "Shallow Water, Deep Value."
• IPO "in a few weeks," a 5% dividend, CEO Tim Duncan (who built Talos), completing the Renaissance acquisition — 11 producing fields, 23 offshore platforms, 88 active wells, ~3,000 boe/d, ~250 miles of pipe — as "the base and the cash flow to roll up more assets," with targets already identified and production expected up to "four and change" quickly.
• The cash argument: asked who was wealthier, Musk or Rockefeller, the answer came back "about the same share of GDP — but Rockefeller was a different kind of rich." Cash. "All these tech guys go to the Middle East to get cash. Oil and commodities create cash… they're rich on paper."

41:48 Canada: the asset base was never the problem — egress was

• "I'm a big fan of the Canadian asset base. The question is can you get out?" Transportation is the issue that has come to the forefront.
• Trump "rattling the cage over tariffs" will "speed up that process with First Nations" — and the expectation now is a million barrels a day of extra Canadian oil on water, out to Vancouver or into the Atlantic.
• "The joke was, what's the one country that has one commodity with one customer? Canada. Well, that's no longer the case." Pipelines being seriously built and discussed "would have been unthinkable" when he was at Goldman — "a defining difference for Canada." He reads the political messages as very serious: in a fragmented world everyone is looking after their own citizens first.

44:32 Shallow water, Borr Drilling and the marginal barrel

• "I'm also on the board of Borr. I'm a big believer of Borr" — the highest-quality shallow-water rigs, drilling "those marginal barrels" in the Middle East, the Gulf of America and Asia.
• Offtake is a non-issue in the US Gulf: barrels go straight into Gulf Coast refineries across a century of built-out infrastructure — "you'd be mind-boggled" at the pipe, ~250 miles of it attached to 1947's assets alone.

46:51 "Growth is a dirty little four-letter word" — and tech's 120% moment

• Buying mature-basin assets on the flat tail of the decline curve, the job is "providing cash and dividends and returns to investors," growing only by roll-up acquisition — because "the investor base today doesn't want that world of 2012 and 2013."
• The cycle he's seen: commodity producers spent 120% of cash flow in 2013–14 — "when you're at 120% and the thing dies, it's game over." The survivors swear never again, capital discipline holds until prices scream, then a new management team arrives and does it all over (of 13 companies at the 2014 LME dinner, only one management team was unchanged from 2012).
• His read on the AI names: same script. "It's cyclical. They're going to have to learn how to get much lower multiples, more like what the energy guys did."

49:18 US gas gets short; US oil has plateaued — "that ship sailed"

• Gas: "there's going to be a period we're going to be short." Rig counts low, returns poor, and the US is being asked to replace missing gas everywhere — not just Russia but Qatar's Ras Laffan, ~20% of the world's LNG market, out. "Lots of room for investment… a tight environment over the next several years." Long-run he's comfortable: molecules are easier to get out of the ground in gas than in oil.
• Oil: 13 mb/d on the eve of COVID, 13.4–13.5 now. "Whether we ever get to 14, I don't know. But that story is over with. That ship sailed."

50:58 What would change his mind on the super cycle

• He killed his own thesis once, when shale arrived — so the question is fair. The answer: long-run supply and technology are "relatively predictable"; you position in the big structural thematic and accept "you're never going to predict the turns."
• "I was a perma-bear before I was a perma-bull" — bearish through the '90s. On the 4 mb/d-surplus bears: "I don't know where you're going to find it," and they've been saying it for over two years.
• The tell that would matter is behavioural: producers leaving capital-preservation mode. "They'll be in there until the investors change their mind and go grow, grow, grow — and I don't know if they're going to."

53:18 The parting call: gold, silver, agriculture

• "As soon as I'm off this call, I'm buying gold." He was short gold from March to around June (rate-hike fear took the wind out of the sails), then flat — "and I think right now is the time to go into silver," only 7–8% into the move. "Gold could go to 10,000. I'm in that camp. Silver could go to 300."
• Agriculture too: Ukrainian strikes on Russian supply, disappointing US yields, fertilizer problems, a super El Niño.
• Energy: "I'm just long, so I'm not going to add anything at the margin on that. But the one I would want to get back to… is the precious space."