Hello, and welcome to another episode of the All Thoughts Podcast. I'm Tracy Allaway and I'm Joe. Isn't the Joe. Have you looked at the price of oil recently? No? Is it? Is it doing something? Has oil been moving lately? I don't know, you hadn't noticed. Yes, it has. Um I think you know. We're recording this on March tenth. But just in the past couple of days, oil spiked almost and then came down by almost as well the next day.
So just incredibly volatile times for commodities across the complex. Yes. In fact, I think within the last week we both had the biggest update for the Bloomberg Commodity Spot Index its two thousand eight and the biggest down day for the same index's two thousand eight. Unreal volatility because you have the combination of an extremely tight market across the board, combined with geopolitical events that of course are inherent the uncertain,
non linear, and unpredictable. Yeah, and you kind of have to wonder what it's actually like to be trading commodities at the moment, because not only do you have this massive price volatility, but you also have everything that's going on in the background with financing and exchanges, them having to deal with this intense volatility and sometimes you know, sort of um canceling trades, which is something we saw from the London Medal. Exchange of financing has become an
issue people taking physically physical delivery of stuff. Is there actually going to be enough to settle some of these contracts. There's so many questions around the space right now, in addition to actually what's going on with Russia and Ukraine. Yeah, the degrees of uncertainty or the vectors of uncertainty, just because there's the pure price question. Then as you mentioned, the physical availability, the ability to move the oil, the
interaction between oil and sanctions or self sanctions unbelievably complicated times. Well, I am very pleased to say that we are going to be talking about all of this with really I know we say this all the time, but really the perfect guest, someone who has basically made a career out of trading oil and other commodities at very volatile times and has been very good at it um in recent years. We're going to be speaking with Pierre and Gerund, the
founder of Anderond Capital Management, big commodities hedge funds. So, Pierre, thank you so much for coming on my pleasure. High Joe High, Tracy, Hi, So I'm trying to think where to begin, but maybe maybe we just ask you, how have the past couple of weeks been for you? Well, I mean it's been a lot of work men. Clearly,
it's a new it's a market that's driven by geopolitical events. Um, there's been a lot of reading trying to understand, you know, how the war will turn out and the kind of sanctions and that that that that will happen and they'll keep on being added every day. So it's been, you know, lots of work and very stressful and also obviously very sad to witness that we have such a war now in the twenty one century. Um, we don't expect that, you know, we don't tell you very unnecessary war and
and really tragic. So, Um, a lot of emotions and and a lot of work and a lot of stress. Actually. So obviously we've seen this incredible well we've seen this huge surge in the price of oil that goes without saying this steep contango, which signifies the market is extremely tight.
Are there any historical periods maybe let's start there, like how novel does this feel in terms of the market or is this does it feel like the sort of general conditions are something you've seen before, Like how much is everyone in new territory here? Yeah, I think it's
a new territory. I can't speak of an event that will seemed over the last few decades really, um, So we started the year already with very low inventories, with the low spec capacity in the hands of Opeque and in general low production cacy production capacity, a low expected supply goes and high expected demand goes thanks to you know, the week of we from COVID. So we already started the year before the invasion with very very strong fundamentals
and the level of inventories are very low. The level of backqualation so actually, you know, the stronger backqualation and needs backqualation means the content the first contracts are much higher than the back contracts and and it means that the market is very tight physically. So we were already at two dollars a months backqualation before Russia invaded Ukraine and night between four and five dollars depending on the day for for the first three months, and gas all
went to crazy backualation. At some point it was above fifty dollars the bubble in one month, you know, between the March and April contracts. So we've never seen this type of backqualation and and and such a strong felical market. And it's only the start, you know, so far there's you know, they haven't been like massive dis options yet. It's just the the fears of how the sanctions will bite that that keeps the market tight. So it could be only the beginning, like it could be the end.
We don't know, So it makes it difficult to to to make strong calls like Tracy, did I say contango or vagradation? Of my question? I always get I always I always slip and say the wrong one, even if they're all these years of trying to memorize it. But I do know that the front month oil is far
more expensive than the oil further out. Yes, I only remember the term because of that oil buying a barrel of oil peace and then trying to buy a barrel of oil back when it was in contango and we could all store it under our beds and wait for prices to increase. But that is not the case. Anymore,
we are firmly in backwardation. Um, let me ask a very basic question, which is I feel like your fund is often described as having bullish bets on commodities, but I actually don't have a very good grasp of what those look like. How do you know how do you actually invest without revealing all of your trades and the book, but how do you actually invest in commodities? And what did your positions you know, generally look like going into
I guess the recent turmoil. Sure, so actually, you know, I'm quite agnostic to you know, over time if places go up or down. So I'm not a producer of oil.
So for me, I just you know, study the fundamental of the market, studies the growth of demand relative to the growth of supply, and as the wizard, uh, you know, have an idea if inventories are going to go up on or done it, and what kind of price would actually balance the market that we don't run out of inventories or we don't run out of of storage to to to put that inventory in. So actually I have
not always been bullish. You know. There are period of time where we had big based positions, such as second half of two thousand and eight, we were short. The end of two thousand and fourteen, we were shot the world of two thousand and fifteen. We were shot before COVID. I mean when COVID started, we were shot down to negative prices. Um. So I've not only been long, right, we happened where we're long people where we were shot. So for me, I'm trying to make money from the
large move in your market. So it means that sometimes will bet that prices will go up for sometimes for a few months or a few years, and and sometimes will bet that they go down over generally a few months, um,
but actually like a year even um. So to to bet on all prices going up, I mean what we do is we buy if we think that if we have a British view on the market, meaning that we expect prices to work, what we do is that we buy futures, and so for Apple brand futures or the ability and futures, or we can be heating oil or gas oil or gasoline futures, and we'll pick like a month for Apple if we want to belong the front month contracts for an Apple at the moment it's it's
May brand, or if we want to be long a bit more default on the care for an applegies some the brands UM and we also trade with options, so generally like we don't sell options, we either flat options or long options um so, meaning that they can be
longer call or longer puts. But I'm not going to be short to call or short to put UM And so when when we feel like the market is going to you know, make a big move in a short period of time, then we'll prefer to be UM to express that view with options relative to two futures, it's a way to have more leverage and have less risks. But you don't trade physical are presumably you would always try to avoid taking physical delivery of, you know, a
tankerful of oil. Sure, we don't do physical. I've never done physical. Understand the rules and height works, but but it's mainly to understand how it can impact the pricing. But I myself never to delivere or delivery of dabble for it. M It feels like the market at the moment, you know, obviously the commodity space is very financialized. There are a lot of traders such as yourselves who deal in these things. But it feels like the physical is
becoming much more important. And I've seen some people talk about the potential for a squeeze in the April contract, you know, sort of the reverse of what we saw in March or April of twenty when oil went negative. Maybe there won't actually be enough oil to deliver into these contracts this time around. So I'm just wondering how you're thinking about how the physical relates to the actual
trading at the moment. Well, that's um, it's really important to understand the vehicle because it's what's going to drive the place of oil. So an ample, let's say during the COVID times when the demand suddenly collapsed of the night, we built a lot of inventories of a shop period of time, and you know, the infrastructure of the your market, you know, it was not built to withstand those kind of events of losing twenty percent of worlds demand overnight.
So the left of empty storage was um enough, was actually could only take one and a half months of this uh willy low demand before all the thanks were full, and so in April two thousand and twenty, when all the thanks were full. Basically, it's just in some production that needs to be moved. Nobody can buy that oil,
and that's where placed negative. And as you say, like when when when we're in the opposite scenario where inventories are very low and there are places in the world where a delivery of certain contracts such as Cushing in Oklahoma for doubl TI, where the tanks are all empty and there's no no all in those tanks anymore. If somebody is a long future, then try to take delivery of of oil at that at that place, at that point in time, well, nobody can deliver and then it
can go to any price. So generally what happens is that that's where the kind of so called speculators are in in in the middle to to help make the price moving. After that, we're never in a situation where either the tanks are full or either the tanks are empty. So it means some high it means you know that prices have not gone up fast enough and for long enough to either bring more extra supply or actually we
use demand before we run out of inventories. And that's where sometimes people want to know what is the role of speculators. I mean, it's actually a price discovery and and also giving the white signal to producers and consumers in order not to run out of storage capacity or um not to run out of inventories, because then prices can go anywhere. Right if somebody has to buy the oilatiny price, you know, you could go to you know, five dollars bubble back coalition, you can't go anywhere. So
that's where generally what what the price should do. The price should move in order to keep the the inventories within kind of kind of you know hand that makes the market function. Let's talk a little bit more about the fundamentals themselves. And there's like a furious debate obviously in the US context, in particular why we haven't seen a more aggressive ramp up in UH in drilling and
explorations such that I get greater supply. Why haven't we in your view, because we've had other theories, But what's your explanation for why we haven't seen a more aggressive supply response. I think there's two reasons, um. So the first one is that all the all the I mean a lot of the easy oil in the US has
been drilled. You know, generally when you come with like a new field, a new basin, well, the producers will will go way, it will drill way, it's easier to get the oil, and over time they'll get where it's a bit more challenging. So I would say that now US shell has been producing you know, at scale for ten years, and they're still room you know for another ten years of also of strong supply. But I'm not sure there's a room for you know, many decades of
high production and definitely high production goals. So some of it is due to the fact that it gets the fields are getting a bit more mature, and and another reason is also because you know a lot of the shallow producers in the US have lost a lot of money. They have been focused on on wasising production over the years, uh and taking some debt against it and actually not being profitable. You know, the most of them lost a
lot of money. At some point, the whole industry had burned through six hundred billion dollars of cash and the shareholders had taken a big hit. So producers like production was growing up in the US, but the films were not profitable. Now now there's they start to be profitable.
So now finally at current prices um they get poditive cash flow and good profits, and the shareholders of those companies pressure the the CEOs to not grow production too fast because if they're going to fast, then prices question again and then the cab with money. And also there is some pressure you know for climate change, basically not to grow supply too fast in order to find a
solution and replacement to focil fuels in terms of of supplier. Actually, but the issue is, you know, there's been a lot of work on pressurizing those companies not to grow supply too fast or even to to to have production decline, but there hasn't been a lot of work in giving a solution for the consumers right to have another choice but to buy oil. So, okay, we have like more electric cars every year, and that we car and going.
But then the electricity that is being used for those electric cars us to be produced, and that depends where in the world some of it. Some of that electricity is still produced by cool or natural gas, still by fossil fuel, and some of it is renewables such as solar and wind. But we we need the big Now we have the issue that we have some shortage of electricity and oil. So it's a bit tricky, you know, Like I mean, in the US you have a bit
less of a polem. I think in Europe it's a much bigger problem where you know, if we were to replace normal cars, like you know, gasoline or diesel cars by by evs, because there's not enough power to charge those evs. So we we really have an issue at least in Europe in fending a solution for for our supply. How are you actually thinking about renewables at the moment, because I know, I think you were quite polish on emissions related credits, so basically making a bet on decarbonization.
But on the other hand, you know, in the past couple of weeks, we've seen a lot of people, including some people who have been on this podcast, talking about the idea that renewables are not going to be able to ramp up enough to replace lost supply from the Russia situation, and that actually we might have to you know, stick with traditional oil and gas for longer than perhaps
some people expected. Yeah, I mean, you know, this Russian situation was not expected, right, So the plan in terms of the Calbanization was to go supply of renewables you know, every year by quite a large amount that uh and and to have a gross in evase so you have more power supply coming from from renewables and then you have more evs and then you have the electricity to
charge those evs and and it's all good. The issue so making the plant is for like a twenty year transitional so where you have more evis every year and more renewable um like power. That's something that can work on a long term basis, yes, but it cannot you know, change overnight. I mean, it takes time to build solar panels and with meals and to build enough evs and
enough charging stations and all that. One issue that we've been aware of on our side for for quite a few years now is that the growth of supply in metals is not going to be large enough to build as many evs and to electrify the world as fast as we'd like because the miners have not invested enough. So you know, the miners also there have been under pressure not to mind because of you know, the E.
S G pressure. But then it means, okay, we don't We're not going to get enough metals in the medium to long term to build the power supply with renewables because that takes a lot of metals. Takes a lot of metals to to build renewables and then a lot of metals to build batteries. Uh, and the evs take a lot more cooper um. And we won't have enough of that in the long term. So that's the long
term theology. It's the challenge. I think metal spaces will have to go up a lot in order to incentivize enough like goals to be able to recombinize the world over time. Now, if we lose you know, five million balls a day from Russian all overnight, we can't have certainly a lot more power coming from renewables overnight and a lot more heavies overnight. It takes time to build all that. So it's already at capacity. Um. So there's the things that can really change in the very short term.
So I said we place Russian oil ry. Now, let's say over the next two years. What we can do is, so let's say if we if we are losing four million balls today of Russian oil for the next two years, we can replace I guess the saudiast and create a new ways could but actually increase production by one and a half million today. They will not do it before they understand that the Russian oil is out and will not come back in time soon, so they will not
do it preemptively. But I believe they will increase production once that that Rasian supply is out of the market and there's visibility on on how much and for how long. So I believe they can bring one and a half million bars today, which is not high by historical standard, but it is something. Is that your gut take that the Russian oil that's been taken out of the market is gone for good or at least for the foreseeable future. It will depend, you know, if we're going to have
some kind of regime changing in Russia. So for me, it's not only about the sea fire. But I still think that the sanctions will stay on Russia until the West can feel like they can trust them and that they will not go attack another neighbor like a few months later, or attack NATO countries. Um. So I think that there's need to be once it's over, there will be there will need to be a trust that it will be um we gained. And for that trust to be we gained, I don't think it can be with
the current regime. I mean, you can't go from being scared of them or using nuclear strikes and using chemical weapons and and biological weapons to certainly like negotiate and give the money again. Um So, I think that will need to be a regime change in some way with the regime that we feel we can trust as we as the West, before the sanctions are lifted, or at
least a big part of the sanctions are lifted. Um So, in in that way, I think, yes, we could be in a situation where we will lose rational for some time until there's a regime change. But let's say if that's a origin change in one week. I mean I think it's unlikely, but you never know. Um then and if we if we can have good relationship with that regime, then then we could get the rational again in in a few months time. So it's very you know, it really depends on on on a lot of Uh, it's
going to pan out. But I don't think that certainly, if they started fighting, they start fighting, the oil comes back, It's not going to be the case. The oil is going to be gone for good. And even though the only the US put sanctions on on a rational US and UK for now you can still buy it, and and the rest of the world. Um, there's a lot of self sanctioning going on, so a lot of the re finals, you know, they don't want to be uh, to be facing a PR disaster if they buy Rational oils.
They don't want to contribute to you know, financing uh, like a war on on Ukraine and and potentially European and the rest of the world. So there's a lot at stake here, right, It's a it's a lot. It's about trying to avoid World War three, and we have to understand that that's going to because to pay. So I think, you know, like there's some issues as well with insurance or being able to ensure the ships that go take delivery of the Rasian oil. There's a PR disasters.
There's also a financing issue where new banks want to give a letter of credit, even Chinese banks don't want to give a letter of credit to to for for aversion oil cargo. So even though we don't have formal sanctions yet from the EU, in practice U not everybody can buy oil. And there's a lot of logistical issues as well, and that will probably last for some time.
So I think in the next few weeks, if that's still the case, Russia will have to stop production because they will run out of storage capacity at their points and and and so they will need to cut production by two at least two million partiday partentially fwi million parthday.
And then it takes time to bring that supply back, you know, like if if the tanks are full at the at the parts, they can't carry on producing and and that's it, and then we lose it for some time until there's like a piece like a piece and a better relationship with Russia. So I think we could lose defensive original for for some time Russian gas making.
Europe is very dependent on Russian gas. Gas has been natural gas Mali, Germany and Italy uh and they're working on some kind of work plants on how they could survive in case Rossia cloud is the tope or or could they actually you know, we use their demand so that they don't pay Russia as much money um. And so there will be some kind of rationing potentially in in in Europe, like to bring a natural gas demand down, and they will look at what they can do to
accelerate the energy transition. So but that will require metals as well, and Russia is a big exporter of metals. So it's not it's not going to be busy, but it's it is what it is, right like, we have to find a solution. But to finish my point about how the version would be replaced, Um, if we lose four million barllars a day for some time, let's say we get one and a half million bills a day
from from Gulf countries. Um, then it's to one half two point five million bars a day that we we have to we have to find some of it could be supplied by the global SPR, so the strategic reserves that the I manage, So some of it is in the US, but you have also a lot of city countries with SPR, and they could release up to five million ballars a day for twelve months. So let's say they could easy they could easily go to two million bars a day for you know, two and a half years.
But then that means that in two an a half years there will be you know, you know, all the ESPR will be empty and they will have to be to re supply the ESPR. And I think we have to accept some demand destruction, you know, like we really have to save energy as much as we can UM.
And and if we can find some kind of government mandate and it's not easy to bring the demand down, UM mandate could be something like a confinement, right like we saw it two years ago with COVID we had some kind of global lockdown, global confinement that bote all demands down by here if we just need to think of bringing all demands down by two percent, it's not going to be as drastic as the global lockdown, but there there could be some either some government mon dates
to bring demand down or it will have to be coming from price, and then the price will have to be high enough to bring that demand down by one and a half million barllars a day or so. What is right now as we're talking brent oils at a hundred and fourteen w as less, What does that mean is that are these demand destruction levels? Is they're driving or flying or something else that is not happening at these levels or does it need to go higher in
order to really move the needle on the demand side. Yeah, So basically, when when people speak about demand destruction, UM, you know, you can think of it in many, many different ways. Um, you don't really generally have such things as demand destruction for oil, because you can't really replace in the shop term, you know, driving you know, your
car by something. So sure some people will decide to walk or take a bike, but that's very marginal, um Journally the car is used to doing like longer distance and and I guess some of it there could be at the margin a bit more public transport and these kind of things, but it stays quite quite mad general. Generally, what brings the demand destruction is some kind of economic crisis.
I mean, you also have you know, demand destruction. You sent that if people seeing the prices are high, maybe they'll use their cars a bit less for one or two months, and then they'll get used to the new price and carry on using their cars as they were before. So that's not really demand destruction is just like a slowdown in demand for one or two months, and then the demand comes back, Um, and then it's a question of you know, at what price do do we have?
Like a large recession that then brings you know, lower economic goals and as a result, lower all demand. And that's generally what really brings prices down is when we eventually and and what brings demand down, that's when we have a large recessions, so not small recessions, but large recessions. And that price will always depend on what economic environment
we will be. So example, for two in two seven and eight, we went up to dred and forty seven dollars the battle, which is equivalent to around two hundred dollars a bottle of two days dollars, and the you know at the time, but we didn't see that demand was being hit. But when Leman went burst and there was no UM, then when the financial crisis started, then there was a collapse of the trade of financing and
then all demand collapsed as a result. UM in two thousand eleven to thirteen, even like first half, like two thousand fourteen, we had brand was averaging hundred and ten dollars a battle, which is equivalent to one and fifty dollars barttle two days dollars, and we had European sovereign
crisis at the time. UM and the economy could you know handle hundred fifty dollars of two days dollars for for three and a half years, you know, And I believe they called me today before before the Russian invasion, at least, because we don't understand what will be you know, all the impact going forward, UM could definitely handle more than so For me, UM, I was expecting already prices to above went fifty before the Version invasion. UM, so
I was already Britia. I don't think that all the move up in oil is due to Russia, you know, it's uh, it's the the acceleration of the move up of the last two weeks is due to it. But we would have gone to those places anywhere and higher this time. It would have been a bit more steady, but it would have been it would have gone higher. So it means to me the fact that we only at d and fourteen dollar brand now, it tells me that the market doesn't believe that UM, we will lose
this oil for very long. I mean, how high do you think it could go and what level would be worrying to you in terms of demand destruction? Well, I think UM like close to two battle, so much higher than today. I feel like there's no demand destruction all brands, and we'll have to go significantly high before dement can go down by enough. But that's also assuming there's no government mondate in some kind of confinements. Well, let's say two days amounts, we are not doing anything and we
are in confinement for two days amounts. I mean that could be some some solutions like that to bring demand down. But if there's no no government mondates, then I think that oil will be enough to to bring demand down to balance the market. Could we see two hundred dollar oil this year? Yes? I think so? Yes? Can I just ask I want to stand back. You mentioned, you know, the potential supply response from Saudi equate from the other
Golf states. I find it striking, And we did an oil episode a few weeks ago that OPAC is no longer the first thing we talked about when we talked about oil. We always talk about shale, the shale response first, whereas several years ago, if you talk oil, the first thing everyone would talk about is well, what's OPEC gonna do? And now it feels like they're almost playing a second fiddle. What is the politics at OPEC right now? And how are the open leaders thinking about it? What is your
forecast generally for how how that group is going to behave? Okay, so first I was, you know, really impressed by the reaction in March April when the collectively you know, agreed to cut collection by one ten million dollars a day. Uh, prices were very low, um, so they were struggling, but they got together and agreed to cut ten million bars today. Otherwise we would have had negative prices for some time. You know, that would have led to a much larger
collapse in the supply today. And then they stayed quite compliant, you know, over the over time, so even when prices were we're covering in second half twenty twenty and then one, they were really careful about bringing oil back to the market. So they did it gradually, really together, doing really respecting the quarta that they put. Very few countries to did, if any. And what we noticed is quite a few
countries in Opaque plus could not meet their quota. Many of the African countries they could not produce as much as what they were allowed to because of under investment. So over the years there's been like under investments that brought to bote the fields to decline. There was no new fields coming and the production was going down. So that's why now there's only like a little bit of production capacity I think I won one and a half
million dollars a day. You know, when I when I say spec capacity is production that can be brought on and kept for one or two years. I think it's probably only Saudi create a new a and that's pretty much it. I think most of the other countries are at at maximum so in a way because they could not. You know, their quota has been going up every months for the last few months, but the production has not because they don't manage to UM. So that's why I think it's you know, we know that they can bring
one and a half niversity. We'll probably get to deal with Iran bringing a million balls to day back, but that's expected by the market and UM and then you you need more more supply from from the US, but that will take you know, twelve months also for for the US to be able to bring higher levels of
supply than what is expected today for next year. One of the big picture ideas that's been going around at the moment is this idea that as sanctions are imposed on Russia and it becomes clear that you know, the dollar and the dollar payment system can be weaponized to some extent against Western enemies, that maybe the dollar loses its position as reserve currency. Maybe Russia has to depend more on gold. And I guess we're sort of seeing a return of talk about commodity money or money that
is backed by an actual thing. Is that something that you see happening? And I guess more broadly, you know, gazing into the future, do you see a world that is more tied to commodities or less tied to them, given the kind of volatility that we've seen recently. Sure? So first about the currency and the potential you know, loss of with a council for the dollar, I think
it's overstated. I think uh, I think ability if a country had a currency back to gold or something, well, the Western world could still sanction that currency even if it's backed by gold. So you know, even now like Russia having having gold in reserves, where do they keep it? You know, maybe some of it could be frozen as well, even though it's gold, So it doesn't necessarily save you.
Even same for cryptos, right like cryptos, Uh, some people think it's the stort of valuable When things get really bad and if you have no power, what happens to your krypto? What you can't really use it either. So there's always some situations that are difficult, but I would say currencies in general, it's always gonna be countries that have a strong rule of law and and trust and a strong financial market that will be able to have
a strong currency. So for now, we have that in the US, in Europe, in Japan, and then when you look at China there's still a lot of capital control so and and it's not a consumer economy. They export a lot and so they hold a lot of U. S. Treasuries,
so they are dependent on on on on on the US. Right, so I think to really have a strong currency, and that's what those countries don't understand, the more autocratic countries, is that if they don't have enough freedom and m low low enough level of corruption and uh you know, enough entrepreneurship and a strong rule of flaw, then they will never be able to have a strong currency. So
then then we go into commodities. Okay, if people are worried about the value of currency because there's because of potential you know, high inflation, then I mean to protect oneself against high inflation, you have to belong things that the world needs. And you know, some people think that we need cryptocurrencies, but no, it's not something we need. It's maybe nice to have for some people, but it's not something we absolutely need. What we need is to
be able to eat and move. So it's energy. Uh, it's energy, it's agricultural products, it's food, it's metal. So these are like the old school commodities that first people should be you know, should I should have enough exposure to in order not to be hit by inflation to negatively.
And that's you know, despite the large move over the last couple of years, I mean coming from a very low base and now we're starting to be at relatively high historical numbers, we haven't seen a lot of investment going into commodities, right, Like most of the pension funds don't have the box thing. We have to be long communities, you know, like there's only long equities and bonds and they're looking at cup tools, but they have their litle commodities.
So I think there will be more interesting commodities and there should be more investment um to to eventually bring more supply and to to be able to we stand against shocks requescying today. You know, this is a theme that comes up over and over again on on our episodes. Which is under investment? And you mentioned that some of the OPEC plus countries, particularly in Africa, we're not even able to sell as much oil as they were allotted
because they didn't have the capacity. Can you talk a little bit about sort of across commodities, this is how sort of under investment are weally? And then how long is this cycle? Like are we going to see an increased investment cycle for five a decade to come? Like what is the sort of flip side of this decade of under investment gonna look at as every every country wants to sort of beef up it beef up its domestic capacity. So for agricultural products it's pretty fast, like
within a year you can change things. But for metals it takes anywhere between seven and fifteen years. So you have to to build new minds. Um well, I think, and then you have to exploit those minds. But I mean, I think that there will be a different lengths of the cycle of when there's a shortage and when there's
no shortage. So you know, in the past it could take quite a few years before getting the approval to build a mine, and that will probably be much faster now going forward when we'll get much higher prices, But only you know, it's going to be at least five years before the decision when the company decides to bring the production of subtle metals or minerals up and when that supply will come. So there's no like short term institution in terms of getting more metals for next year
or in two years. It tends to be more like five years plus down the road. For oil outside of USHL, it's similar um it's for any any new projects journally today would bring oil supply in seven years time. So there's a lot of hesitation about going to invest in those long lead time projects today because you get all comes out in nine twenty thirty. People don't know what
the demand levels will be by then. So I think that's that's kind of twacky in the long term to bring two I mean yeah, in the short term, to bring more more, more production. Only the US has a shorter circle of probably twelve before the decision to increase capex and getting more oil because they know where the oils have, all the infrastructures, they know, you know, they about the uh enough kind of capacity from the service
companies to to actually bring bring that toil. So I would expect more coming from the US in the next few years and then from the rest of the world a bit later. Um, but I think we'll have to live with how your prices to keep you know, demand down, to keep to to be treated a bit more as a luxury product, and also to accelerate the energy transition.
Just real quickly is the shortage of metals, I mean we hear about the same shortage we hear about obviously steel prices do then also trip up the ability to increase oil production. The fact that if you have tight commodity markets elsewhere, it makes new investment more difficult. Yeah, it does. Actually you you have I mean, as we saw last year, there's a lot of bottlenecks and you
know everywhere, um due to COVID. And then once we get less supply of in the other communities and also very low unemployment number, you know, how to find the people and then to get all the technology you know, enough volume and at the white time to to to bring supply up. So it's going to be challeging any thing. Over the next ten years. Communities are gonna cap the community supply actually not only price, but level of supply will actually capt the type of economic goals we will
be able to have. So I think a lot of people just assume we'll, you know, in their economic model, that we can have as most community as we want. Is just a question of demand, But no, I mean
this time it will be supply constraints. I just want to go back to the idea of two d dollar per barrel oil because I'm sure some people who hear that number, um and think back to the previous record, which I think was almost a hundred and fifty dollars per barrel, They're going to be shocked and worried and wondering how exactly, you know, we get to a point in the market where oil can go up over a hundred dollars in less than a year potentially, can you
maybe walk us through exactly what needs to happen in order to get to a number like that, Like, what exactly is the process that is going to take place in order to get to two hundred dollars per barrel? Okay, So I think it's um, you know, there's a lot of recently bias to people's mind. Johnny, we get choosed
to with some prices. And at first we think andred is expensive, we complain, I mean once we let people in general complain, uh, and then they get used too hundred, and then they complain when it's one twenty, and then the complay went one forty. And but they get choosed to higher levels of the time. So the antiquation of it is still worth using this oil, you know. But and if you look at seems to certain an eight um so d and fifty dollars, then is two dollars
today in two days dollars? If you as an inflation measure, you take the GDP global GDP flatter, then it's two twenty. So the way I think of it is, is it more bullish today's and then yes, it's more bullish today than then. And then we had USHL to compail us out a few years after in two thousand and ten eleven.
This time we might not have it. So I think it's it's just people, you know, people slowly realizing that prices have to go up and accepting it, and and and and then the price goes upen and all the usage of all that is not really necessarily get cut. So people were you know, driving for could end up taking the bus intead of taking the car, or people going for some long trip, well they do short trips. And the kind of things for for you demand to
go down and for the market to be balanced. And the thing is if people if prices stay too low for too long, what happens is it can be what's gonna happen soon is that eventually you run out of inventories to deliver on the screen, and then the price can go anywhere. So it's very important that the price moved in line with fundamentals so that we don't run out of inventors eventually, because then it goes to you know anything, it can go anywhere um as a price.
So I think that the process is that people you know generally get get used to it little by little um. And also you know, the economy is taking less oil per unit of GDP, so today for one unit of GDP, where we're using fifteen percent less oil than in in two thousand and eight. So also that justifies you know the fact that maybe to have the equionomy to have the same impact on the economy at the high price of two thousand and eight when it was one fifty
might be actually closer today. So that's the way I think of it, And that's jolly. People get you know, they don't know, they get used to new prices and then accept it and and it is what you know. That's why it's a it's a long process. And and demand doesn't you know, go down right away because there's not a lot of there's no no identity. Really, yeah, it feels like this is a lesson that everyone is learning all at the same time. Pierre, thank you so
much for coming on all thoughts. Really appreciate you taking the time during this very busy moment in markets to give us your thoughts, my pleasure. Thanks for patrinity, and you'll have a good rest of the day and good luck everything. Thanks Joe. I mean, I thought that was a very thoughtful conversation that actually wrapped up a lot of the different strands that we've been dealing with in
separate episodes. But the thing that I keep coming back to is this idea that you know, any problem that can be solved with money probably isn't that big of a problem, which is actually, now that I think about it, a very mmt thing to say. But coming over to the dark set. That's not what I mean at all, but it is true that you know, even if you throw a lot of money at this problem, you know, you can't make the oil producers necessarily drill. Like it takes a while to ramp up capacity to build out
alternative energy sources. And when you have a big shock like we just saw in Russia, that I mean, it just sort of destabilizes everything and it creates even more lead times that are very difficult to deal with. No, I think I had the exact same thought, And maybe it was like when he pointed out that, you know, we could be looking at seven year cycles for something
like ramping up medals. And of course we're talking a lot about oil, but we saw the price of nickel go absolutely wild over this past week, and we're gonna need regardless of what happens right now, we're gonna need more nickel and other sort of other and other specific medals for car batteries and d vs, etcetera. The commodity that's in short of supply is kind of a cliche kind of galaxy brain is time, and that is like the one thing that no amount of money can fix.
There's just a certain amount of time it takes to build a mind, and there's no immediate supply response. You know, maybe shale can ramp up with the next six months, but they're all kinds of other things they can't. I mean, the other thing that was quite worrying. So obviously it's concerning whenever anyone says two for barrel oil is a possibility.
But the other thing that struck me was this idea of maybe something happens in the actual commodities market sort of similar to what we saw in March or April, but in reverse. So you know, someone can't ship out physical delivery of oil that they that they owe to, you know, to fulfill a futures contract, and at that point you get like a very big squeeze upwards in
the price. It feels like that's a possibility. Yeah, I thought that was really interesting him talking about the scenario in which Russian oil could be out of the market
for a long time. And so you have these companies self sanctioning, people call it or withdrawing, maybe partly for pr reasons, because they don't want to be perceived or in fact do not want to be a part of helping fund this war and then the oil piles up the docks at the ships, there's no more, and then you have to turn off production because there's literally no more place to story. And then you automatically, regardless of what happens, get this very long lead time before that
supply can come on again. And I also thought it was interesting and this is gonna be a big question. Like the other side of the sanctions, Pierre's argument is that it will be very hard to lift them under the Putin administration. Is something to think about in terms
of what are we looking at in terms of time frame. Again, I was about to say it goes back to time, because even if everything was resolved tomorrow, you know, in a ceasefire was actually declared, it seems very unlikely that you're going to get a complete roll back very quickly
of everything that's just happened. From a sanctions perspective, under investment rules everything around me, I feel like every story comes back to that and the point about OPEC not even be able able to you know, normally we think of OPEC or OPEC plus members is cheating, always trying to sell more oil than they have, whereas right now the problem seems to be the opposite. All right, let's leave it there. All right, this has been another episode
of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart. Follow our guest Pierre on d Round. He's at on Durron Pierre and I want to thank our producers call It Tipton and Magnus Hendrickson. Follow the Bloomberg head of podcast Francesco lead at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.