Title: The Oil Bull Market Is Just Getting Started – Jeff Currie Show: Thoughtful Money (Adam Taggart) Guest: Jeff Currie (executive co-chairman, Abax Markets; senior advisor, Carlyle; ex-Goldman Sachs global head of commodities research) Date: 2026-06-17 URL: https://youtu.be/i2EZlkNGnWk Length: ~56 min Note: fillers (um/uh/you know/I mean) and stutters removed; wording otherwise verbatim. Timestamps preserved.
00:00 Do I want to be long oil, and do I want to be long the companies and all of the associated assets to them? The answer is absolutely yes. And I always like to say, get long, buckle your seatbelt, and hang on for the ride. And that's usually the case in commodities.
00:19 There is a long-term story here that's very much intact. It's been pulled forward and stronger. Today's pullback gives you a buying opportunity that's probably, it's a very unique opportunity right now today. You have a stronger fundamental picture on an already very bullish long-term outlook. So I'm a buyer here. >> Welcome to Thoughtful Money.
00:47 I'm its founder and your host, Adam Taggart. It's been 3 months since the outbreak of the US-Iran war, and the world is still dealing with the ongoing effects of the oil price shock it caused. Not only is it having an inflationary impact on the prices of many goods and services, but it's also raising increasing concerns about the availability of oil supplies.
01:08 Could the world soon start experiencing an inventory shortage of oil, the essential fuel that enables global commerce? Or will the recently announced peace deal between the US and Iran allow us to avoid that fate? To find out, we've got the great good fortune to talk today with Jeff Currie, executive co-chairman of Abax Markets.
01:27 Jeff, thanks so much for joining us today. >> Pleasure to be here. >> Thank you. Well, it's an honor to have you on the program. This is the first time you're on here, so welcome. I've been telling people for a while, Jeff, that you were coming on, and that you could basically cut the anticipation with a knife. So people are very excited it's finally happening.
01:43 So I've written up a whole bunch of questions. We're going to go through them. And as serendipity would have it, last night the US announced that it had reached a memorandum of understanding with Iran on the terms for a peace deal. So we're talking the morning after that, and there's an awful lot we still don't know, but I just want to note that that's been the big change in the past 24 hours.
02:09 I'm curious to hear what impact if any you think that has on the situation for oil inventories, but let's start there. What is your current assessment of the global oil market right now? >> It's getting tighter by the minute.
02:27 I mean, SPR now in the United States is at a 43-year low. Product inventories in the United States are now below the 5-year band, which is at a safety level. Inventories are dry. The only thing that's saving the market right now is the fact that you have the SPR in there. If you didn't have the SPR, you'd be in trouble on your commercial inventory.
02:51 So when we look at the inventory situation, it's getting tighter and increasing. Whether it's not going to make it past July or August. So that's part of the reason they're rushing to try to get a deal done so quickly. So from an inventory perspective, it's tight. The other thing that has happened is that you've seen a lot of oil leak out of the straits, as the president himself admitted to, barrels got through.
03:19 There was roughly somewhere around 110 to 120 million barrels that were trapped in the Gulf. That leak got roughly, they were basically ships floating in there. That leak got roughly somewhere around 40 to 50% of that trapped oil out, which has helped and why we're seeing the depression in prices.
03:49 I've also heard there was some production that was brought back online due to the leaks. But at most we're talking a million to 2 million barrels per day of extra supply against a disruption that started out around 12. So we assume the disruption is 12, it's now somewhere around 10. When we look at inventories, whether strategic reserves or commercial inventories, the draw rates are still somewhere in that 6 million barrels a day range, 5 to 6 million barrels per day. That's just unheard of.
04:21 That's why this is like a sinkhole. They're going down really fast, and you need to do something to stop this, which is why you're seeing the aggressive nature of the administration of trying to get this deal over the line. >> Okay, so you have talked in some of your recent appearances elsewhere about kind of a day zero, which is when the SPR, or maybe it's also just kind of all oil inventory, and I think this is relative to the states. But I think
04:52 you were saying we could hit that day zero as soon as July 4th. Is that still your estimated targeting, and is that inevitable or given the fact that the states maybe hopefully opening up and other things people are doing, can that get pushed out or maybe not even happen at some point? >> Yeah, sometime in the month of July.
05:15 If you do the SPR, a published report puts the bare minimum at 270. Some people put it at 300. 340 something in total chain. I think 341. Now that was as of Friday. Let's call it somewhere around 340. That means somewhere between 270 and 300 starts to have a problem. That means 40 to 50 million barrels from now.
05:38 And we're averaging somewhere between 7 and 10 a week. So you do the math on that. That puts you somewhere in that mid-July range, which is where originally. So the commercial inventories are already near critical levels. And so it won't, the question is when does the market really start to price it in? The reason why I chose July 4th is that's really when that's your peak driving season.
06:13 >> Mhm. >> And demand peaks, you got agriculture demand for the harvest. So third quarter is the global peak demand for oil. So that's when you have your max demand and when ultimately those inventories start to get low. Whether it is mid-July or July 4th or the end of July, we'll find out.
06:37 >> It's kind of immaterial, but yeah. >> Yeah, right. Sometime that period. And so I still think and I think that's part of the reason why you had a deal rushed as quickly as it is. I mean, so far there's not even, nobody has the details yet.
06:55 Also I want to emphasize this thing was the same deal that was announced to be signed sometime last week. Got announced to be signed on Sunday and now it's announced to be signed on Friday. >> Okay. Yeah, so lots we still don't know. And still plenty of opportunity too for things to go sideways. >> Oh, we will probably get into that later on. Absolutely.
07:16 >> So Jeff, I know you're looking at this as just like a math or a physics problem. So I guess the first question is, if everything were to go just the absolute best you could hope for from here, are we still going to hit this day zero or can we actually regain altitude before we hit bottom? >> If everything went perfectly, maybe you could regain altitude.
07:43 It depends on how fast you could get the ships. The odds are you're still going to hit day zero. Because you got to ask a couple really important questions. Let's say this is a done deal. Who's going to bring a ship back into that into the straits? >> Mhm. >> That's a big question.
08:03 Given the level of, I guess if you had everything signed this Friday, what's the sustainability of it? Israel could bomb, as you point out Israel could go in and bomb Lebanon. They probably might wait until Saturday to do it after they signed it. But then again, are the Iranians going to keep the strait open if Israel's hammering on Lebanon? Probably not.
08:24 Then there's also questions around the GCC countries in the neighboring area. Actually J.D. Vance just went on TV and told everybody that the GCC, our Gulf Coast friends, are going to pay the 300 billion in reparations. Mhm. And then let's talk about the logistics servicing fee that the Iranians are going to charge to use the straits.
08:50 So it's, and then the Iranians today were basically arguing that they're going to get the 12 billion up front of the 24. Plus the 300 billion. Those are big numbers. And that would be difficult to get >> for new oil sales on top of that. >> Yes.
09:11 So we'll see. I think the bigger issue is, talking about the oil market itself. Number one, what is the sustainability of this deal? Which means will the insurance guys let the ships back in? Do the ships want to go back in? Do the crews want to go back in? Because they got to go in to come back out, because most of the ships have been leaking out.
09:38 So the question is how much willingness are people to go back in? And then I think the other issue is how long is it going to take to get the wells up and running again? And then you got the ships, they're all in the wrong places. How long will it take to get them back there if they were to go in? The logistical issues that are involved in this.
10:00 Which means you're probably still going to be drawing inventories in parts of the world for a very long time even if there was a deal reached here that is sustainable. But I think the sustainability is really the issue that I'm thinking about when assessing it because if I were an insurance provider or a ship operator, I don't know if I'd bring a ship back in there.
10:26 I think Maersk just came out, they're not changing their plans. >> All right. So you've identified like seven threads I want to pull with you. I'll do my best to try to do them here. Yours is a really interesting question I haven't heard anybody really talk about yet, which is how many of the Iranian wells are actually shut in already, right? Once an oil well gets shut in, it's not an easy process to get it reopened again and working again and there's uncertainty, too, right? That
10:56 you might, it might never produce the way that it produced before. As I understand it and I'm no geologist or oil field expert, but what I hear from folks who are is that once the well is shut in, pressures can drop and stuff like that that don't come back necessarily again.
11:17 So do we have a sense for how compromised the Iranian oil production is even if it's able to unfettered open everything up again? >> Well, it's not even just the Iranians that suffered from this problem. It's Kuwait, it's Iraq, it's Bahrain, high amounts in Saudi. >> So it's all the Gulf producers. Saudi and the UAE are probably going to come back relatively quick because they've been doing high maintenance and they had alternative pipelines to ship their oil.
11:46 Some of their oil, they have more of it running but the stuff that shut in they'll be able to bring it back online because they cycle through this stuff a lot more frequently than the other producers but Kuwait and Iraq, the ones sitting on the far end of the Gulf, they're the ones that are in the most precarious situation and then your question about Iraq.
12:06 Now let's answer the question about how long that you asked. It'd be a few weeks with Saudi Arabia and UAE maybe three weeks. With the other ones it could be months if not take a year. Everybody goes we've never experienced this before, I go yes we did, we experienced it during COVID. And that's why we got up over $100 a barrel during COVID, not just, it was already above 100 before the Russia Ukraine invasion and the reason why is it took a long time to bring these wells back online after they were shut. You
12:39 look at US production it took two to three years to recover. So we have experienced this. We've seen it in Iran where in the revolution in 79, it took a while, they shut in 6 million barrels per day and ended up only getting four back. A lot of people will find out there could be permanent damage here because shutting them in like this the pressure goes down in some of these older fields, water cuts rise and you end up with more, we just don't
13:09 know the answer to that question. I think people are throwing around the numbers you could lose up to 20%, I simply don't know but where do I think the risk is going to be, the risk is going to take longer than what people suspected and that's what happened with COVID. Everybody was super bearish on oil thinking it's going to stay down at these low levels forever.
13:29 But what happens, it just took a lot longer. >> Went to zero briefly, right? Remember that? >> Yeah. By the way, this is just the opposite of that going to zero. Yeah, and Cushing could be the place again that creates the trigger. >> Okay, so we don't know, but it sounds like you think material risk and you're, I'll put words in your mouth, but it sounds like you're quite comfortable that the number is going to be less than 100% of what it was doing before.
13:54 It will be for a good long while. Okay, so let me go back to the US for a second and then we're going to go global again. So first off how big a deal is it if we hit day zero here in the states. So as I understand it that means with the SPR we get to a level where they say we just can't take any more out of this.
14:18 So we're not going to release from the SPR anymore. Do gas prices immediately shoot the moon? Are there other things we can do to cushion the blow? Does what matters is how long we're at day zero? Like how big of a deal are you expecting this to be for America? >> For America it won't be that big of an issue.
14:38 I think for places like Europe and Asia it's going to be a much bigger issue. They're the ones because what is saving the world right now is the US is exporting that SPR. It's not staying at home. >> Mhm. And to a certain extent China is exporting its SPR to its neighbors, correct? >> Yeah, it's actually stopped its exports.
14:58 >> Has it? Oh, okay. >> Oh yeah, it's exporting its green goods around the world or actually electron goods I guess is the more PC term these days. But China's the electron super state and the United States is the molecule super state. Both are exporting their wares of what their energy sources.
15:22 But I think the key message here is China has throttled back its molecule exports and imports. So from a net basis it's collapsed. However, demand is unlikely to collapse at the same rate. It's a combination of moving into more EVs. The charging was up 54% during the May holiday, that May weekend holiday just now.
15:47 And when you look at which is more than the cars increase, the cars on the road. It just says, I have friends that are in China and they're driving their wives' EV to work for the first time. So it just tells you the overall demand for charged EVs in China is substantially higher than what it was going into this.
16:10 >> Going into this, right? And presumably China they had a monstrous SPR, right? Bigger I think almost than everybody else combined. And so presumably they're drawing that down and they're drawing it down domestically. >> I didn't list that because the reality is the satellite pictures don't confirm that they're drawing it down.
16:32 And they could be hiding that because they don't want the world knowing that they're doing it. But I didn't include it because that's kind of the big mystery of China is satellite data says they're not drawing it. Now, we do know they're drawing some in-use products particularly on the petrochemical side, but that big SPR they haven't tapped it and they're not exporting to the rest of the world, which tells you >> It's so interesting though because you said their imports are way down. And yeah, they're trying to
16:59 export their electrons as best they can, but I mean a fair amount of their economy must still run on oil, right? I mean it should be expected growth shrink in China as a result of this if they're truly not burning as much oil? >> Well, as I always said, they're an electron state. >> So they're getting more oil independent than maybe we expected? >> No, they use, they have all the EVs on the road because they have so much domestic coal that they produce the power
17:30 and then the power drives the cars. >> Yeah. I'm sorry, I meant they're getting much less oil dependent than maybe we're realizing. Yeah, >> They're more coal, they're electron dependent. >> Yeah, they're electron dependent. Yeah, and they have massive hydro and everything. Yeah. >> And the point I've always made was the hybrid car is the best kind of car out there because it can drive on oil and gas, solar, wind, uranium, coal, you name it.
17:54 It drives [laughter] on everything. And they have a lot of those hybrid cars and they have all the different inputs. The primary one's coal. I think you probably saw that report where one of the coal mines had an accident because they're just running the coal too hard. Thermal coal generation is up 160% in the first quarter.
18:15 So it tells you just how much coal they're generating right now. >> Wow. Wow. >> Coal-fired generation. >> And I've shown the electrical production capacity chart of China versus the US and Europe, you've probably seen it, US and Europe, they're very slowly growing but almost flat and then China's is almost a vertical line, right? I think they've got three times the capacity that we do right now.
18:39 >> Yep. >> Let me just share this screen real quick to really emphasize why you said Europe and ex-China Asia is likely to get really hit materially harder by sort of a day zero impact. This surprised me when I saw this because I knew most of the exports from the Gulf went to Asia or Europe, but I thought it was a little more balanced.
19:04 It's pretty much all Asia. With it looks like 5% Europe and 5% other. So if you are Japan, Korea, India, you're really sweating bullets right now, correct? >> Yeah, completely. That's why everybody goes, "Oh, there's no energy crisis in Asia." They're in one. Not in the US. Europe is only being saved because of the exports out of the US going to Europe.
19:30 >> Mhm. And exports out of the US. So my understanding is and you know much better than I that we have done what we can to increase our oil exports, our oil production, and oil exports. And oil exports really have kind of started to really take off here. How much of this gap can be made up by continuing to increase our production? Is that something that just isn't realistic because it materially takes years to really make a big difference in production, or can we do something in
20:06 the near term? >> No, you can't do anything in the near term. Just give you this idea of the numbers. You went from 4 to 6 million barrels per day of exports. So up 2 million barrels per day. You're drawing the SPR at over a million barrels per day. It's somewhere around 1.2 million barrels per day.
20:26 So a good portion, that export is coming straight >> Over half is just coming from the SPR. Got it. Yeah. >> And then there's refined products that represent another portion of it. But I think the key message you're asking is how does this stack up to production increases? The most that they could really increase out of production is, growth is you're lucky if you get 100 to 150,000 barrels per day year over year right now.
20:51 >> Mhm. Okay. >> I like to point this out. You look at production in the US, it peaked on the eve of COVID at 13 million barrels per day. You're running around 13.4, 13.5. Because it went up, collapsed during COVID, and it took a long time to get back up to the 13. It's struggling to get too far above 13. Maybe it'll reach 14 in the end game, I don't know, but that's not a lot of oil.
21:17 So it's struggling around 13.5. And by the way, it's been declining more recently because nobody's drilling. >> You said nobody's drilling, but all right, so here's a bigger question I was going to get to later, but let's bring it up now. So you were making some comments about maybe even if the strait opens, like is everybody wanting to do the same amount of business they did there before or not, right? Are they going to be once bitten, twice shy kind of deal, right? Um, I'm sort of a similar mind and I've
21:48 mentioned that before. Could this in the long term be a real boon for the other oil exporting regions of the world? Well, hopefully the strait opens, business kind of goes back to normal, but from what I've heard, like 20% or so of the world's energy was getting exported through the Gulf.
22:12 Maybe that only goes back to 12% or 15%, right? But the rest of the world absorbs that demand by increasing its production. And all the other players too say, look, I don't want to buy as much as I did from the Gulf because I'm worried about the geopolitical risk there.
22:27 I'll still buy some, but I want to have some other safer sources. So could this actually be a long-term boon for the US's and Canada's and Mexico's and Brazil's and Venezuela's? >> The problem is the ability to increase production. They could if they could, they would.
22:51 Even Russia was struggling before the Ukrainian invasion. You look at Canada, it's a question of access to markets with the pipelines, but even there, the production growth that you got over the previous decade was from investments in opening up places from the investment boom of that 2002 to 2014 period.
23:16 Brazil came out of that. Guyana came out of that, so a lot of this is historical investment boom oil. You look at overall capex in the sector. It's running around 400 billion a year. It needs to be up in that 750 range. Reserves are going down. So not only do we have inventories going down, reserves are going down.
23:40 So underneath the ground and oil above the ground are being depleted. Prices are not high enough to meet this. I think the key message we were saying before the war, we called it the revenge of the old economy. Old economy is underinvested and as a result, it doesn't have the capacity to grow production like it used to and we need to rotate capital out of the new economy into the old economy to the tune of, we're talking trillions to get back into the space, and it's not just oil and gas, it's metals, which I like to
24:10 call atoms. Oil and gas are molecules and both atoms and molecules help create electrons in the commodity space and the electrons are the area where it's going to grow, but I think the key message here is the investment in the commodity space is insufficient to meet future demand.
24:37 >> Okay, really important point and I don't know if you know Rick Rule, the natural resources investor, but I interview him quite frequently. In fact, I just interviewed him. That interview is going to come out a little bit later this week after yours releases, Jeff. And Rick has said for a long time, when I've interviewed him and he reiterated this in the most recent one, which is that we for a lot of key commodities he's worried that we're going to have increased scarcity going on in the
25:10 next decade or so. Not so much because of the increased demand for them, and there is increasing demand for them for a lot of this CapEx build out and stuff like that, but for what he refers to as the sins of the past, which is we just underinvested in CapEx for far too long. That even if demand were to kind of remain steady, we'd still get into some supply issues with a lot of these key commodities.
25:31 I hear you saying more or less exactly the same thing, correct? >> Yeah. And it's been going on for nearly a decade since 2014. I like to point out in 2014 you could not give away Microsoft or a tech company. The investors hated it. All they wanted was oil and gas. >> Mhm. >> They wanted the energy guys, the shale boom. That was the technology.
25:56 And the end of 2014, prices collapsed from, they went from 110 to 120 all the way down to 33. >> So do you expect a similar shift of the pendulum back here at some point? >> Yeah. >> Yeah. >> Because the tech, the telltale sign it was over with is that those oil producers were investing 120% of free cash flow or of cash flow.
26:25 There was no free cash flow left over. 120% of earnings. And we're getting that close on the tech side. They're burning through the cash. Free cash flow yields are likely even at Google are likely to go negative. Which is telling you they're investing too much. And so you look at the free cash flow yields in the energy guys, they're >> Mhm.
26:49 >> So which one do you want to be, which one's going to have a rising ROC? It's going to be the oil guys, not the tech guys. >> Not the tech guys. >> Now right now I go out and say that in public, I'll get booed off the stage. Nobody wants to hear it. But you couldn't have told anybody that tech was a bad investment back in 2014 because they believed in it wholeheartedly.
27:16 And I think it's the same dynamic in reverse here. >> Okay. So number of questions coming out of this, but I guess the first one is when do you expect the world to be forced to wake up to this dynamic? >> That's a question I get over and over. >> Mhm. >> We went through this dynamic once before in 01, 02.
27:42 All I think that got them out, that forced the rotation was a collapse in the technology sector, which made the commodity guys start to look more attractive. >> Mhm. >> But again it's something we were forecasting. We called it the revenge of the old economy because it was against the new economy, which was dot com at the time.
28:08 But the reality was that nobody believed it. It was another one, actually, somebody told me the other day and I think this is spot on. He goes, "Jeff, I believe you. I know that story's out there, but I don't want to get it on right now. I'm dancing by the door, ready to jump out when I see the door is about ready to close.
28:24 But right now" And by the way, that person said it to me about four or five weeks ago. And boy, have they made a lot of money staying dancing on the dance floor. I'm on the side of the door. I got out of there too late or too early. I think what's going to happen here is it's a similar dynamic.
28:40 Once they realize it's time to exit, they're going to run. And the question is who gets to the door? >> Right. >> So you want to stay in close to it. >> You want to stand close to it. Okay. And so I've, this may be old news now, but you talked about old economy, new economy was sort of your catchphrase.
29:01 I think one of your newer ones was sell the tweet, buy the molecule, which was every time that Trump or the leaders were trying to jawbone down, "Hey, oil's going to come down because peace is close." You're basically saying, "Look, I think the world's going to be in need of molecules for a lot longer than people are imagining right now.
29:21 " I guess let me ask you this. How, well, now that a peace deal has been announced and oil futures have dropped notably. Not crazily, but oil futures but >> the companies have dropped crazily. They're back to like January levels. That's why I like the companies better than the oil right now.
29:43 >> Oil, okay. And do you think that if oil, let's just say oil did, so right now it's trading about 80. Oil futures are trading about 80. If they drop down to 60 or below, do you think that the producers have already kind of pre-corrected here or do you think they'd still get eviscerated with that further decline? >> Is it possibly going to get eviscerated more? Yeah, I do think because at this point, the market is more passive and more momentum-driven right now than any other point in my career, which
30:18 means the people will sort of, they don't even know where fair value of any of this stuff really is. They're going, "This is going up. This is going down." And so I think that's, I don't want to say it won't happen, but I would really think it done.
30:34 By the way, I don't know why it'd get eviscerated and go to 60. I agree with you it could happen. So I'm not saying it can't, but logically, you're almost to the point that the price going into this war was somewhere around 70, 72. You're almost unwound everything. And structurally, nothing has improved around the story of trying to get this thing open.
30:58 And because you don't have Israel to deal. The GCC countries have not been consulted. It's the same deal that was promised to be signed on Sunday. Now it says Friday. There's nothing sustainable about it, but the market's trying to price it in now. We've almost erased everything.
31:15 Fundamentally, this market is way worse off today than what it was 3 months ago. Yet the price is 10 bucks off the levels it was before it started and the companies are worth less today than when it started. >> And they were very cheap coming into >> Yes. >> 2026. >> Very cheap. >> Yeah.
31:37 So it is interesting. There's a number of people that I interview, Jeff, who are hard asset oriented. I mean, experienced hard asset investors who again before the war were saying, "Look, oil's, like it or not, it's still the most important fuel source in the world. It's going to be needed for a long time.
31:57 These companies have been in the doldrums forever. Like oil looks like it's going to start having its day pretty soon." And none of them were expecting the war, right? So, and they all admit that. But you're basically saying this war to a certain extent is actually exacerbating the conditions that we had even prior to it because it's drained things down even faster now.
32:17 Less, more molecules above ground, less molecules in the ground. So at some point here there'll be a nice sustainable bull market in this space and I think the vibe I'm getting from you is today's price is pretty damn attractive for, you think they're likely going to go up during this bull market.
32:37 And what's nice about this space, too, is it pays you along the way, right? These companies, at least the bigger guys, tend to be pretty good dividend payers. So how are you thinking of playing this? Is it just own the beta and own an ETF of the sector? Is it try to own the crown jewels, the big producers, the blue chip companies? Is it being a little bit more risk-seeking than that? How do you look at this? >> I have, a long time, a friend of mine at Goldman, a very senior partner, ran a lot of the
33:09 businesses. He said, "Jeff, if I ever hear the word alpha come out of your mouth again, stop it. Own the beta. Just get the >> Just play it safe and ride what you have the most confidence in. >> And I just say again, it's just, look at the share of the overall market. With the collapse in these prices of the shares, it's not just oil, it's commodities more broadly, metals and mining.
33:35 I mean, the whole materials sector. It's, it was energy was 3% of the index. I think it got up to four at its peak a few months or so ago. We're back down to around three. I mean, like Exxon was near 170, today it's trading around 140. And that should be one of the most stable, highest dividend-paying grandma type of stock, and it's been hammered on this.
34:00 Yet the long-term outlook for it is probably never been better because not only do you have the underinvestment, demand remains robust, but you've now lost supplies out of the Middle East. You've lost refineries. The refined products story looks great. So I'm at a loss of words, but I think to answer your question, just get the exposure.
34:24 Because most people do not have the exposure. They're all in on tech. >> Right. Right. I'm resisting asking you what you think could happen with tech because I have those discussions a lot with other people and I don't know how much your background, how comfortable you feel commenting on the tech space but I will say the consensus of the folks that I talked to is that look if there is a material correction in tech, if there is a disappointment in the AI story
34:57 the aftermath of that is going to be really bad just because anything tech related has been bid up to such high levels of valuation but also it just such a huge percentage now of both GDP growth in the economy and in the market cap of the major indices, you're nodding as I'm saying all this >> Yeah no, tax revenues in the US too, it's something like, it's huge >> Yeah so if, well I don't want to put words in your mouth but if that were to correct materially it would be a big deal for a
35:30 lot of people and do you think that, let's assume that happens, do you think the commodity complex would kind of ride down the general wave of just everything correcting or would it really be a capital rotation where money would start fleeing from speculative tech into quote unquote safe >> Historically it's always been a rotation. This rotation started in 21, 22, that's when we first started pounding the table on it, then ChatGPT was announced in November, it slowed and then it reversed in 24, 25, by the end of 25 people started to do
36:05 the rotation again, remember tech was down, people were not long tech going into this, they were starting to get long commodities and short tech, that was how we kicked off this year and it worked all the way up until the ceasefire then the rotation violently moved the other direction again >> Yeah I mean really one of the most violent reversals we've had ever in the markets.
36:29 >> Yes. Okay, yeah. No, I think this is a matter of time. Every valuation metric you look on tells you that it's probably over, the most important one I think that's overlooked is these tech guys now look like commodity guys. They produce AI compute. AI compute is like an oil refinery.
36:53 You put in data and you put in electrons. A lot of commodities go into those electrons. A lot of commodities go into those data centers and it produces a commodity called AI compute, a bit atom commodity. >> Mhm. >> They're putting steel in the ground. People who put steel in the ground don't get 30-plus multiples. They get like 10 to 12.
37:16 So I'm at a loss of words on that. How does a cyclical company, because they're now cyclical by definition if you have all that big capex? They got the big valuations because they were asset light, infinitely scalable businesses at zero marginal cost. >> Right. >> With huge positive cash flows, which are now getting >> Yes.
37:36 >> used up. Yeah. >> Completely. So I'm at a loss of words on why they're getting valuations. It'd be like valuing, even at the peak in the shale revolution, the oil guys were getting somewhere around 20, 21. They haven't gotten to the 30s. >> Mhm. >> So why is a bunch of, they're basically like big shovel and big oil put together now getting, I think on average they're 32.
38:05 I don't know after last week who knows where they're at. 40? I don't know lately. But I wouldn't be surprised they're at 40 now because I know the energy guys got slammed last week. >> Well, that's such an interesting way to look at it. And with any commodity company or any commodity sector, it gets hot and a lot of capital flows in there, what happens? You get overproduction.
38:25 >> Yep. >> Right. You go from scarcity to glut. So why should this be any different? I don't think, I think you would say it shouldn't be. >> No. They're cyclical. >> Okay. All right. So, >> [sighs] >> this has been awesome, by the way, Jeff. Thank you so much. I'm so glad we were able to make this happen.
38:43 I'm going to start landing the plane pretty soon, but a couple of quick questions beforehand. One is, I sort of asked you a variant of this, but just to clarify for folks, so gas in the US, I think today, on the peace deal news, the MOU news, I think it's just dropped below $4 a gallon nationally for the first time.
39:02 Now, obviously you think there could be some additional shoes to drop in the story still. If we hit day zero and some of your fears become realized, how bad do you think it's going to get at the pump in America? Are we talking $4.50 or are we talking $6 gas? Like what is your gut tell you? >> There's no reason it should get that painful because they'll just shut down exports to the rest of the world.
39:27 >> Okay. So we can self-sustain more or less, but rest of the world >> That's a fear a lot of these investors make about getting tied to the US is that you will see exports banned, like China did, to protect the US consumer. >> What do you think the odds of that are? Above 50? >> I don't know.
39:57 You're talking about a policy decision that is not very pro-market, pro-capitalism, pro-anything. If we did get in that environment, I'd say it's a non-, I don't want to put a probability on it, but it's a non-trivial probability that they do something like that. >> Okay.
40:18 And that was maybe the way to ask it, which is I think you think hitting day zero is pretty probable, right? Is that accurate? >> Yeah, I want to also emphasize so everybody knows hitting day zero has nothing to do with running to very tank bottoms. It's just like the system, it needs pressure in it. You got to keep most of that oil flowing to the system.
40:37 >> It's like an oil well, right? >> Yeah, like an oil well. You can't take the pressure down to zero. And so people act like we haven't hit this before. We have hit it many, many times. It's seen explosion in prices. We saw it in Europe in 2022. To a lesser extent on a global basis and China saw it in '21.
40:57 With coal and gas and copper. So we've seen this before. If you ask me in oil how many times, I started doing this in the '90s, I saw it once in '96, I saw it another time in 2000 right before the end of that commodity boom, another time in '07, '08, another time after Libya in '12 and '13.
41:22 We saw it another time in '22. So it's not like we haven't seen these explosive prices off the back of hitting tank bottoms. Where the market's really mispriced is people don't believe the long-term story. That's where the mispricing really is. Because they think this is just a transient event.
41:44 Yes, it this will be, it'll be a transient event, but it raises the overall cost structure and creates that longer-term issue. >> Yeah. And why do you suppose that? Because the longer-term oil futures never really responded all that much to this kind, yeah. And are they just wrong or are they pinning their hopes on something? >> The companies and long-term oil futures are one in the same.
42:09 It's the companies are sitting lower today than what they were before the war started. I think you probably reversed them all the way back into like February or January. And they had a big rally at the beginning of the year based upon the IEA coming out and saying peak demand is not going to happen. And then they rallied off that.
42:25 They've even given that up. >> Wow, that's, Okay. So let me ask you this then. When you look at the oil market related to what's happening with the US-Iran situation, what do you think the worst case scenario looks like? What do you think the best case scenario looks like? And then what do you think is most likely to happen? >> I'd say the worst case scenario is they can't reopen this and this drags on into the end of this year.
42:59 And you end up with global recession out of it. Iran doesn't want to kill the mouth that feeds it. So I don't know, nobody's interested in that worst case scenario. >> Yeah, I think Iran has to open for them given because they just need the oil revenues. But >> Right.
43:15 >> worst case scenario is it doesn't. So what happens in that case scenario? Where's oil trading at? Where it is now just for longer or what? >> It would be like what we saw in European gas when the Russians did that to the Europeans. Spiked. By the way, also it didn't happen immediately.
43:31 They cut it off I think it was in June or July of '22. Prices didn't spike until like September or October. >> Yeah, until it started getting cold, yeah. >> Until it started getting cold. It took a while. And boy, did they go up? They went from right now, to give people who don't really, they're trading around 40 euros a megawatt hour.
43:49 They went all the way to I think 300, 400 euros a megawatt hour. That's massive. That's 10x. But where do you think they were in December? Minus negative. Because they did so much damage to the energy intensive sectors of Europe, they went negative off the back of it. That's why you don't want that kind of thing. >> Demand crashed.
44:09 >> Demand crashed. >> Yeah. >> Well, anyway, everybody goes, "Oh, look, Europe got through it. They were unscathed with that energy crisis." Yeah, they got through it. They lost 20% of their manufacturing, energy intensive manufacturing sector. That's not getting through it. >> That's getting quite scathed.
44:25 No, I agree. So okay, worst-case scenario, and I'm not trying to put necessarily a number in your mouth, but like just order of magnitude. So to me, I'm thinking 200-plus a barrel oil potentially? >> At the initial response in Europe when countries were in trouble, you would see that demand would cave out and they would find alternative sources right around 200.
44:47 I think the highest ever reported in Asia during this crisis is a barrel went for like 250. And you got to figure that's like an ultimate extreme. But anyway, I don't know if you'll see that, it's just hard to say you'd ever see that on a WTI basis. >> Okay. >> Because you're >> Well, certainly WTI, yeah.
45:07 >> Yeah, because you're not going to cut the rest of the world off. >> [clears throat] >> Okay. All right, so that's worst-case scenario. Best-case scenario? >> Best-case scenario, the thing gets signed on Friday and it has sustainability to it and they rush to get the oil out.
45:25 You can, I like to say is with the ships that left, you can get that, squeeze them out, out of the Gulf as fast as you can. That puts some downward pressure immediately on price. Then your question about how long will it take to get the rest of those wells back on.
45:45 Let's say they can do it in 2 months. That's same amount of time to get the ships back on. So you probably have bought your, you can resolve this in 30 days almost right around your day zero, or you just cross. And you stay, oil prices stay around 100, 85 to $100 a barrel and we get through this thing, but you still have a longer-term issue.
46:08 From an oil and company investor in a long-term perspective, you prefer that outcome. You don't want the spike and crash scenario. >> Right. >> I don't think anybody wants, a spike is not a good opportunity for anyone. Probably you're looking at something, my concern is Israel's not on board. What are the odds of Israel doing something to derail this signing? Probably pretty high.
46:33 >> Or maybe a better question, what are the odds of Hezbollah doing something because Iran always has to respond to Hezbollah, yeah. >> Yep. And so they are in Lebanon. Yeah, one of the two is going to do something because what happened, you think about it, so they clearly promised Iran the 300 billion.
46:52 Iran throws Hezbollah under the bus. The US throws Israel under the bus and both of them are sitting there going, "Hey, wait." >> [laughter] >> It's just it's not a sustainable outcome right now and I think that's why the two extremes we just portrayed, I don't see either one of them happening.
47:09 It's probably somewhere in between. >> Right. And that was my last question is what do you think is most likely? And real quick before we get there, so in your best-case scenario to me it doesn't sound like you see oil really dropping below 80 sustainably for any time in the foreseeable future. Is that true? >> I would have been shocked, I was shocked, I would have said if you asked me two weeks ago, four weeks ago, could it drop below 85? No, that's like the new floor.
47:37 You need 85 there to get any investment. But again, the back end is not telling you that, none of the investors, people who are close to this would agree with that. But the market's not interested in making those bets right now and it's pretty clear from the price. >> Yep. But again, you just don't think we're going to see $70, $60 oil really anytime this year.
47:58 Seems to be what you're saying. And one of the reasons I'm finding >> Barring a recession, the answer is no. >> No, okay. Yep. So just to put it in contrast, the president has been saying for months now, "Hey, this deal gets struck, oil is going to drop like a rock." You don't agree with that.
48:14 You feel the drop's already happened, basically. >> By the way, I say it won't drop like a rock assuming that the investors are rational and they're willing to buy it. The one thing that's very clear in the oil market is you have lost most of the players. The one thing that has occurred, the policy uncertainty and the back and forth, 85, 120, 85, 120.
48:36 I don't know how many times it's hit both in this last 3 months. Nobody has the stomach for that volatility. They're not willing to play in the market anymore. >> Yeah. >> They've been chased away. And I think that that's another very bullish long-term driver here. Whether it's the companies, the markets, anything, people don't want the space.
48:55 It's just too painful to hold the risk. And because of that, people really are not interested in coming back that have gotten out. The market got off the low. My bet is the only one that's going to come back is going to be China in size. But they're just buying the physical. >> All right.
49:13 So fair to say that what's left is sort of speculators. And one of the big opportunities here is when the fundamentalists finally decide to get back in, when whenever it is they decide, A, it's safer, and B, they start to see that longer-term opportunity you were talking about because of that we've underinvested in CapEx. >> Yep.
49:32 Yeah, that's a good summary. >> Okay. So sorry, last point on this. You said you think probably what's most likely is somewhere in the middle. So do you, I don't know if you actually offer oil price targets or things like that, but what do you think in general folks should expect for the rest of this year? >> Yeah, it's still really uncertain on this.
49:58 But I think I don't like giving oil price targets because that can drive the oil price level. Do I want to be long oil and do I want to be long the companies and all of the associated assets to them? The answer is absolutely yes. And I always like to say, get long, buckle your seatbelt and hang on for the ride.
50:21 And that's usually the case in commodities. There is a long-term story here that's very much intact. It's been pulled forward and stronger. Today's pullback gives you a buying opportunity that's probably, it's a very unique opportunity right now today. The companies, the market's at 80. Its fair value should be 85 even without the war.
50:41 You look at the companies, they've erased their gains going all the way back to earlier this year. Everything is below the war or starting levels with the exception of spot so a little bit above. Every other asset is below. And you have a stronger fundamental picture on an already very bullish long-term outlook.
51:04 So I'm a buyer here. And the other thing with oil, it's the shape of the curve that gives you your returns, not the price level. And so again, even the companies, the dividends, as you're pointing out, they're great. And it's like oil's dividend is the real yield. These assets give you cash today.
51:22 And that's really important. By the way, I asked ChatGPT the other day, who's wealthier? Elon Musk or J.D. Rockefeller? And the answer was, as a share of GDP, they're about the same. But Rockefeller was a different kind of rich. And that means cash, cash flow. And that's what these companies give.
51:43 I like to point out all those tech guys go down to the Middle East to get money to fund all of this. The reason why the Middle East is the one with the cash. And I think that's one thing investors have to remember, they pay dividends. They give you cash. A lot of assets don't do that anymore.
52:01 >> So, Jeff Currie, molecules and cash are king. >> Yep, exactly. >> Okay. This is fantastic. I'm going to say, too, the vibe I'm getting from you, so correct me if I'm wrong, is great opportunity here. It's a long-term opportunity. Some great prices right now. So good chance in the immediate term to deploy some cash at good valuations.
52:25 I don't get the sense that you're saying this is the moment to go all in with everything because this could take a while to play out. I hear you more sort of saying like get your initial positions and then just kind of be dollar cost averaging or be opportunistic along the way because the tide is going to be rising over the next couple years.
52:43 Is that accurate? >> Actually, no. I would be a little bit more aggressive. >> You would be more aggressive. Okay. >> If it's just because you look at something like it goes, let's go back to the cash is king point. They pay you cash. They pay you dividends. And let's say the tech story's got to be running out of steam right now.
53:01 We'll see where, I think SpaceX is up 7%. I don't, we don't need to get into that discussion. >> Before we hopped on, it was up 10%. >> [laughter] >> But the point being is every metric is telling you the tech space is overvalued and it means the S&P is overvalued.
53:19 So owning the only story in town left, which is the molecules and atoms, like the metals and mining as much as I like the oil and gas guys. And then the picks and shovels that go with both of them. Owning this space and all in right now, not all in, but a fairly substantial amount of all in gives you a lot of protection just in case we're in an environment where higher inflation, higher rates, you end up with the tech space being hit.
53:44 A diversification play as much as it is an income generation play. >> Okay. I very much appreciate you providing that clarification. It's super useful for the viewers, Jeff. Okay, so I have resisted asking you questions about the minerals because we've got a lot of interest in that as well. And it's unfair to ask you to try to address them here at the very end of the conversation.
54:12 So, Jeff, I'd love to have you back on again in a couple months, provide us an update, an audible update on where we are in the oil situation, but then maybe do a much deeper dive >> Yeah. >> on where you see opportunity elsewhere in the commodity space. That would be great. Just as a teaser, is there a particular other commodity out there that has your attention a lot right now besides oil? >> Copper, copper, copper.
54:33 I mean >> Copper. >> Because if we're going into the electrification of the world, copper is the king. In fact, I like to say copper is the new oil. It's the strategically most important commodity. By the way, it's survived all of this noise fairly well. It's still sitting around 13,600.
54:52 That big spike in January before all of this started, it went to 14,000. So it went to an all-time high a few months ago, or actually like 4 weeks ago, but I think the key message here, it's just ridden the storm out incredibly well. >> All right. So folks, we've done a deep dive with Jeff Currie on oil.
55:10 We hope to do a deep dive with him on copper and any other minerals he cares to talk about later this summer. Please let them know in the comments section below how excited you are for that to happen. Jeff, again, thanks so much for coming on. For folks that would like to follow you and your work in between now and your next appearance, where should they go? >> Actually right now best place to, Carlyle, I'm still publishing there.
55:34 There's one there and that's the compass I just published, which was called the Abundance Illusion. That's one that's worth a read right now. >> All right, fantastic. And Jeff, what I'll do is I'll put the URL up on the screen when I edit this, so folks know where to go. Folks, the link will be in the description below the video, too, so you can get there with one click.
55:51 All right. Well, folks, please help me in thanking Jeff for coming on giving his such a busy schedule. He's a guy who's in very high demand right now. And giving such an excellent full-throated layout of everything that he sees going on here. Please let him know that by hitting the like button and then clicking on the subscribe button below, as well as that bell icon right next to it.
56:11 And if you would like to take perhaps some action in your portfolio based upon any of the insights that Jeff has shared with us here, if you don't already have a good financial advisor advising you, particularly one that's experienced investing in the commodity sector, because there definitely are some idiosyncrasies and nuances on how to do that well, if you don't already have one advising you there, would you consider talking to one of the ones that Thoughtful Money endorses.
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56:53 Jeff, this has been such a real pleasure. Thank you so much. Very much appreciate you taking the time to come on. It's been great to get to meet you for the first time and look forward to having you on the program again soon. >> Thank you. I appreciate you inviting me on. It was a pleasure. >> Thanks so much. All right. And everybody else, thanks so much for watching.