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Jeff Carry of Carlile writing this, even if a ceasefires reached in the coming days, it would take time to restart the energy supply chain. A legend of energy research joints around the table, Jeff joints is for Morejef go morning, got to see great to be here. We've got time here. So let's take a step back. You believe that even if there's a ceasefire tomorrow, right now, the next five minutes, the world's changed.
What's changed. For one, you've disrupted global supply chains. This is not just a disruption oil. It's gas, it's fertilizers, it's metals, it's petrochemicals. The list goes on and on, and then you've disrupted supply chains in countries all over the world. The ships are in the wrong places, the insurances are being canceled. You've taken the pressure out of the fields that you've shut in in places like Saudi Arabia or Iraq or even in the uae I can
just the list goes on and on. The damage is going to take months unwined, but I want to bring it to the immediate. There is no policy response that can stop this assent and crude none and yes you've paid this four hundred million barrel headline flow rate is what matters. You know, the maximum sustainable flow rate is two million barrels per day, so four hundred That will take them two hundred days to get that out. And you put that in the context of a disruption of
you know, let's net it out of disrupt house. It's got to be somewhere around eighteen million barrels per day right now. You're just a minuscule in terms of offsetting it. So again, there's not any options here.
What would you call this then a pan campaign.
In terms of doing this. It's all they have. They're going to do whatever they can't. But I think the key issue here keep the hoarding down because we know what happened in the nineteen seventies when you got the hoarding. You know, it created an increase of demand somewhere around two million barrels per day in the size of this market, try three million barrels per day on top of the disruption of somewhere around eighteen.
That word comes up in your research repeatedly. Holding China has been rewarded for doing absolutely over the last twelve months, you think count this will follow now.
They already are, you know where there's places like Japan and Korea. They're hoarding anything they can get their hands on at this point. And it even happens down to people driving. Keep your tank filled up, by the way, that's meaningful in terms of the demand pulls. You know, most people drive and they take it down to about a quarter filled and then refill it. Now they're going to be going into the gas station filling it back up every time it gets to a half or even three quarters.
So what kind of premium Mary talking about?
Longer term?
We were just speaking with Steve Ath, a Federated Hermes earlier saying that if oil prices goobe of ninety dollars for a prolonged period of time, that will cause real damage to the underlying economy.
Is that a base case for you, by the way, is the one thing? And we're going through a regime change. This is not a trade. This is a regime change. We're moving from that world that was defined from twenty fourteen to twenty twenty four you know. Is the new economy boom driven by mag seven is a technology boom asset light somewhere to what wesaw the dot com boom? What came after the dot com boom? I remember, it was the exact same thing. You had a geopolitical event
switched you in two thousand and one. And then actually directly connected to the nine to eleven was China's admission a WTO. By the way they were connected, George Bush Junior needed to use force in the Middle East. He needed a vote in the UN Security Council. He traded a mission of China into the WTO to get that vote. Boom, You're off to the races. You were in an asset heavy boom that lasted for over a decade of twenty fourteen.
And then we went into the current light asset one and look where again in one of these huge geopolitical events. And I think the big thing to watch is when she and President Trump meet at the end of this month, and that's going to be where the negotiation happens.
You could argue that twenty twenty was a real jump start to the readultableization the world because people realize, oh, and the physical world actually takes time, unlike sending things digitally. I just wonder how much still needs to be priced in to the physical world. And we've just been highlighted. We've just been shown the risk in the oil markets, but more broadly, how much are we underpricing.
Some of what I don't think we know what can happen here and what's going to happen is we're going to reprice everything. I mean, it started and by the way, metals since twenty twenty or just a straight line going up. Everybody looks at the last couple of months, but it's just and when here's a point I like to say is that you looked at the returns of companies in two thousand, when we were at twenty dollars oil, they
were like twenty or thirty percent. By the time we were around two thousand and five or six, you're at sixty three times on the oil price. What do you think the returns were? They were going down because the overall cost structure the industry was rising. So we ask about how high it can go. Metals are going up, you know, your cost of capital's going up, the currencies weekend, your labor goes up. All of this begins to happen,
you repriced. I don't want to speculate. I like to say, get long, buckle your seat belt, hang on for the ride, and we're going to reprice this thing where it reprices. I got in trouble back in you know, the two thousands with I'm not going to repeat the numbers again, but I think the key point here what do you want to own? Own the hard assets, own the halos, own the anything that you know. And I love that
two term. The term we called it in the two thousands was the revenge of the old economy because it was coming off the back of the dot com boom. This time around, I love that term halo heavy asset, low obsolescence. Own those assets and hang on. And I want to own metal. I want to own gold. I want to own oil. And by the way, again this is a huge disruption. It's just not isolated to oil.
What do you make though about central banks right now, some of the dwindling reserves and some of their appetite to buy gold.
I think what you're going to see is even more demand for gold out of this, because ultimately you're really going to abate question. What how is the financial situation to the US. I'm going to go talk about what is really different about this time versus any other time in the last fifty years. In oil, anytime the oil price would spike pre twenty two, before the US and Europe froze central bank assets on Russia, anytime oil prices would spike,
you would have capital rotate into the US. The recycling that was the petro dollars, that would act like QE buffer. It is called a shock absorber to the rest of the economy that goes into gold. Now so ever, since twenty twenty two, commodity prices spike, these emerging markets get money.
What do they buy. They buy gold, they buy anything but dollar denominated assets because they don't want to get sanctions imposed on them, like what happened to the Russians, And as a result, you don't have that money coming back. One other point you got to keep in mind is now transfer payments are bigger, the US debt is bigger, the interest payments are bigger. So when oil prices go up,
headline inflation goes up, that gets much bigger. In fact, we estimate you go to one twenty and stay there, you're going to crowd out one hundred and fifty billion dollars of private credit, because you're going to have to be basically issue that in public credit.
If you think the world is more vulnerable now than they were in nineteen seventy three, But the US right now isn't an exporter.
Oh net exporter at the income cash loaf level, meaning they produce as much as they consume roughly, and I think you get an access of around eighty billion dollars on a thirty trillion dollar economy. But let's say put it this way. I call it the paradox of energy dominance. Let's go to the wealth level. Let's look at the equity market energy three percent of the market. Three. How big are the things that are short fifty three percent? So you're long three. It's short fifty three at the
wealth level. And what is the multiple on that three? It's like twelve or thirteen? What is the multiple on the other one thirty six? You're in trouble at the wealth level. You may be safe at the income level, but you're in real trouble at the wealth level. Then you get at the credit level. Now you got that. Now you've taken your shock absorber because of the sanctions you imposed on Russia Essential Bank and turned it into
a shock amplifier. So again I agree with you one hundred percent energy dominance at the cash flow level, but not at the wealth level and not at the credit level.
Jeff, final question, it's on Aisha refine its there have clearly got a bit of a Can you tell us how big that cushion is and how quickly before we start to see headlines across the Bloomberg on shortages?
Oh you already are jet fuel in Singapore spiked to over two hundred and thirty dollars a barrel. Yeah, you're you're at that point, and that's that the hoarding is only amplifying it. And you just took out a nine hundred thousand barrel per day refinery that was bombed in there in the in the Gulf. So the situation on refined products is and I think the key point here is it's Asia is going to be the one that's going to be in the deepest problem big time.
Jeff is going to see it right than its sutuable day always could. Jeff carried there of Carlisle on the commodity market with corewth this morning around ninety dollars a barrel