Move over, America, Jeff Currie is bullish Europe

This transcript has been automatically generated and may contain errors or inaccuracies. It is provided for reference only and should not be considered a fully accurate record of the conversation.

Amrita

Welcome back Jeff.

Jeff

It's great to be back.

Amrita

It's been a while.

Jeff

A lot going on in the world right now.

Amrita

100 days for the president. OPEC policy that has shifted significantly. Oil prices are in the 50s. I think last when we spoke, it was a very different—it was earlier in the year. So it was a very different world that we lived in. So I mean, we can start in any of those places, but I think let's start with the uncertainty that's in the market right now. A huge bit of it being caused by the demand, called the trade wars and what that means for global oil demand, global growth generally. So let's start with that because then it of course has massive implications of OPEC starting to unwind faster in a market that is so weak.

Jeff

Right.

Amrita

So you know, how do you see the world right now?

Jeff

I think the downside is so large for all parties involved, whether it is OPEC on the supply side or for the Trump administration on the demand side, they're all likely to pivot. Let's start with the trade wars. The financial markets have stabilized, but we have the physical markets—that's incoming. It's going to happen over the next 3 to 4 weeks. You look at port loadings into the west coast of the US and even coming up the East Coast by the time you get to May 10th. That's it. That's a month after the liberation. I think that's when you're going to feel the pain, and that's when you're going to start to see the inflationary pressures.

Let's remember, Trump was not elected on creating jobs. He was elected on reducing inflation. That's his mandate.

Amrita

But how are trade wars going to reduce inflation?

Jeff

They can't. Which means he's going to be in a difficult situation. By the way, I saw a survey yesterday that showed only 45% of Americans know what a tariff is. They all believed that the Chinese were going to pay for this. So now they're getting that. That's part of the reason why I think the administration flipped out when Amazon was going to publish the magnitude of the tariff next to the price.

But I think that's probably one of the core issues. The one thing that nobody ever talks about is, they go, oh, it's a tactical error by Trump. This is going to be the largest tax take of any president, I think, in the history of the United States, which means he's probably not going to collect it all. Also, it's a regressive tax. It's a VAT like we have here in Europe, essentially. It's going to hit the lower incomes. So we'll see. What is the probability of a pivot? There's a couple ways. One is just unapologetically pivot, which is the usual way that the administration has dealt with these situations.

The other one is we see the Congress take back the emergency authority or overrule them. Actually, you probably would like option two and then you can blame it on Congress. But I think as it really begins to see the physical bite, also, let's think about going the other way. Everybody's focused on the imports in the US, but let's focus on the exports coming out of the US. When you look at the US economy, it's a barbell economy. It's commodity production on one end and tech on the other. By the way, everything in between is what China has.

But the reality is, and I've said this over and over, you want to own the stuff in the ground or the stuff coming out of people's brains. That's it. So the Americans have the two best parts of the barbell. But the reality is when they export, they're exporting grains, gas and oil. I like to call it the three Bs—barrels, bushels and bombs.

Amrita

Yeah.

Jeff

Bombs are good. They're going to keep exporting those. But the bushels and the barrels I think are going to go through a lot of pain. I think it's been two months since they've taken an LNG cargo. So they're going to push back.

Amrita

And ags as well, right? Completely kind of stalled buying that.

Jeff

The other thing goes into the plastics which are then shipped back to the US. So the US will just pay its own tariff on top of China's tariffs. Also, if you were China, the elasticity of demand for what the US imports from China is much steeper than the elasticity of demand for what the US exports. Meaning that China can call up Lula in Brazil and go, hey, you got any beans today? And they can send the beans to them from Brazil. In contrast, a lot of those are specialized products coming from China. The Americans can't get away. So it just goes directly into the bottom line as a tax to the consumer.

Amrita

And I think this is the thing. We've seen China just exempted some recently. And that's only because I think a lot of its own crop was just saying we can't get it from anywhere else. Propane remains under tariffs. We've seen a massive shift in trade flows as a result of that. Like you're saying, all that means is the finished products are going to come back to the US in some form from some other country. It's just going to be that much more expensive.

Jeff

Yep.

Amrita

So I don't see how—again, having said that, you've literally said it as well—they are already U-turning on a lot of these, right? We've dialed back a lot of the tariffs for some of the other countries. But don't you feel like the policy is—while you say they will U-turn on some of this—the policy is to decouple from China, though? Don't you feel like that's really set, like come what may?

Jeff

Well, I love the line that Trump has all the wrong prescription for all the right problems. You identify the right problem. Is this the right prescription and getting there? Probably not. There's other ways to have thought through this and done it a little bit more strategically. But I think it's going to hurt China. It's going to hurt the United States. We live here in Europe and I am so bullish Europe. It's European exceptionalism and if they can't capitalize on this, God help them. You look at the equity market in the US down 10% here. It's up 12–13%. That's almost a 25% swing. That's trillions and trillions of dollars sitting over here. Then you look at the move in the euro, it's 9–10%. It's the biggest one we've seen since I think 02–03.

I look in commodities—usually sit at the center of the big movements in capital flows globally. One occurred in 02–03. When everything left dot-com and went to China and it stayed there and China and you and I's as a mess, boom. Stayed there until 14 and 15. It left China in 14 and 15 and went back to Silicon Valley chasing Uber and Lyft. It ended up being the mag seven. Well, the Mag seven party's over. Where does it go next? It's going to come here. So I'm very bullish on Europe. In terms of looking at the investment, it's going to be a CapEx boom here that's going to rival anything data centers or the manufacturing of defense. They're going to have to build infrastructure, technology, infrastructure. We can talk about Spain and Portugal, and energy is going to be also at that center. The CapEx boom associated with it is going to be bigger than the BRICs. So, I'm really excited about what's happening here. I think it's going to be bullish commodities, oil and the rest of them.

Then if you put that on top of what's happening on the supply side—I've been the broken record on it, you've been better at it—but I'm a firm believer in the bull story on oil and commodities. You see it—the US rolling over. One of the big flies in the ointment was the strength in the dollar. The dollar's gone. It's gone to weaken. I think we're going through a breather right here. With the damage done to the dollar, it's not going to happen. People go, yeah, Curry, where are you going to get the $10 trillion for the Europeans to go do this? They've got 2 trillion in US treasuries and 8 trillion in US equities. They take their 10 trillion out of the United States and bring it back here. That's where they'll get the money. That will weaken the dollar. That would be really bullish for the overall commodity backdrop. You know China is going to stimulate off the back of it.

But I'm not going to deny it's going to be a really painful next three months. The physical markets are going to have to discipline the politics in the financial markets. We're going to start seeing round—we saw a round one of that, China–US from a financial side. We're going to have round one of the physical one. That one's probably going to hurt.

Amrita

Yeah. I like the way you phrased that—the physical has to discipline the politicians basically. Because until and unless you see it in the data and people are kicking and screaming, nothing's actually going to change. But the two things you mentioned, let's talk about the dollar first. Are you seeing signs of investors overall just saying the US is actually not as investable as we thought? Do you think the dollar now starts to weaken medium term?

Jeff

They are deer caught in the headlights. They're not willing to go there. When I tell this bullish European exceptionalism story, they go, yeah, I hear you.

Amrita

But there's no conviction.

Jeff

There's no conviction. They go back to one point. They go, yeah, I've heard it for 30 years. They can't get themselves together. They can never be coordinated. I go, there's two big differences today than at any other point in time in the last 30—I'm going to say 80—years: security is no longer free and capital is no longer free.

For the last 25 years, a quarter of a century, most of our adult lifetimes, security was taken as given, and capital was plentiful. Those two things are gone. If you think about it, Germany was the biggest victim to that.

Amrita

And they're suffering the most now.

Jeff

It's going to energy policy. We put this piece out called "New Jewel Order" a few months ago. We basically made the comment, you cannot get the ordering of security over affordability over environment. They put the environment above security and affordability. Why? Capital was free and security was free. That party's over.

When we look at what disciplines and creates the best economic results, whether it fits in climate change or whatever, it's when you're scared. Europeans are probably pretty scared right now. The Americans are walking away. The Trump administration goes, hey, we're successful. We got Germany to come together and spend €1.1 trillion. Oil is at 50-something. Interest rates are at 4% and the dollar is weaker. They look at that as a victory. I think the rest of us—well, yeah, you got there. $50 oil killing off the US shale patch. You got interest rates down to 4.1% by killing off global trade and/or weakening global demand. You got the dollar down by weakening global trade.

Amrita

Why talk about doing that, Fox? Get the story?

Jeff

I have, and I've consistently said this—that we will get $50 oil under Trump, but not for the reasons that he's claimed, which was, oh, we're going to surge production. It's going to be because demand is going to be dying, right? The causality matters—what's driving what. But on the second point, which was on shale, I've just spent about three weeks or so in the US over the last month and a bit, back and forth. I was even in Midland, literally with the operators, saw some of the operations. I don't think the administration—I shouldn't say administration, I think the Energy Ministry or the Energy Department understands it very, very well. But I'm not sure the White House understands the biggest difference between Trump 1.2 and Trump 2.0 is the oil side of shale is just very different. What used to be, I would argue, the floor—or rather the ceiling—of oil prices for shale back then is now the floor. People are talking about in the 60s, they're talking about dropping rigs, which is unheard of. In the 50s, even in the Permian, you might drop some. So that is the biggest challenge where everybody I was talking to in Midland, which is at the heart of the Permian Basin, they're telling us it's getting so gassy, like the whole acreage is getting gasier and gasier, which means crude production—the peak is pretty much around the corner. And then just by not drilling, we're going to get some really steep declines. I think the general disappointment in the industry for—like, we're getting a lot of stuff done on the deregulation side, which is great, but the international policies are killing us.

Jeff

Yeah.

Amrita

And I think that's the bit. For me, yes, like you said, it's going to be very painful the next few months. But somehow I think the rebalancing this time around for oil will be a lot quicker. Do you agree?

Jeff

100%. Let's throw in Russia on top. You're 50% of the world's oil production comes from US, Saudi and Russia. US spends all of their CapEx on either a trade war or share buybacks or something, but not putting it in the ground. The Russians spend all their CapEx on a war in Ukraine. By the way, they're rolling over too. Saudi spends all of their CapEx on Vision 2030. They actually cut rigs yesterday. So, I look at it—your three biggest producers in the world who drive all the growth are not spending. Then you get outside of that—Mexico and all those other places—they're rolling over. Brazil's having problems. Guyana is the only one that actually you could say has an optimistic outlook. It's not going to drive global demand.

Let's go back to net zero 2050. Everybody believed that demand was going to roll over. By the way, that piece that we put out, "New Jewel Order," made the argument, peak oil started out being peak supply. Then peak oil became peak demand. By the way, that's done. We're now on peak trade.

Amrita

And I really like that argument. I think peak trade even more so now with the trade war.

Jeff

Oh yeah. But the peak demand, I think, is out. I use your numbers. You guys have no investment in refining after 2027. The non-OPEC just falls off a cliff. Sorry—slashing rig counts. Prices are sitting at a point we're not investing. I know I sound like a broken record on the supercycle story. It's coming. There was a lot of headwinds with the dollar. We squeezed out every bout of supply we can get out of the system. Iran is at max, Venezuela's at max, you've got everything out there and there's no investment.

I just don't see how—demand's going to power ahead because we've abandoned the net zero. I don't believe we ever really focused on it, but I think people didn't invest because they believed in it too. But the reality is demand is going to keep going. You guys have 700 a day. We'll see what ends up with after they pivot.

Amrita

After the—if they pivot, then of course the number is going to be higher.

Jeff

Yeah. Let's say we go 1.1 million barrels per day of demand growth. There's no supply in 27 or beyond.

Amrita

So I think for me it's more that this year is the pain and next year onwards is the big kind of interesting thing. In some ways maybe we needed this for the supercycle to play out because we were just stuck in that low 80s. Again, investment was neither here nor there. You almost get this downturn, it creates opportunities because if shale is rolling over already and the 26 numbers—again, if right now, the damage to sentiment on the business side is just too much. But 26, if we get more clarity, the demand numbers are better, I think the market's just starting—will start to look so different. Because right here, right now, there's no inventory.

Jeff

That's the thing about the downside. I agree with you—the risks are to the downside right now. But that's the—everybody has that trade on, positioning there. Everybody believes it. We all know there's a forward story out there. The market's got no inventory. It could be bearish over the next 3 to 6 months or whatever. But I think what's going to happen is those ports are going to drop, panic's going to set in, they're going to pivot. Let me remember too—in fact, I was having this argument every day in 2018 and 19. Remember when oil just collapsed in November and the equity market was coming off and it was all about tariffs, kind of like right now. People were scared. The hard data never showed anything moved over that time period in the survey data. The other thing is you can't—all the survey data talking about the empire and everything like that, that reflects what people think. The reality is when you go back to 18 or 19, you can't see anything in the hard data.

That's easy to say now. But that period between November—it was actually Thanksgiving weekend of 2018 through about February. Actually, it was the IP week. Then it came back up. But it was pretty scary over that time period. But the reality is nothing happened.

Amrita

I think the difference, though, this time, we would argue, is that the actual volume of tariffs he's actually put is the highest in a century. So I do agree that ultimately it won't happen, but they have to walk some of it back.

Jeff

Yeah. But this is the argument I had. If you go and you look at Los Angeles port data, it went down sharply over this week. But if you go three weeks out, it's back up. So why is it back up? Are the ships going to Vladivostok, pulling off? Maybe.

Amrita

I don't think so.

Jeff

And invade in Russia. Then leave it. I mean, we know what happens in oil. Why aren't they doing that in goods? So, is there a lot of bluster here and not a lot of chest pounding by the Chinese and the Americans? But the reality, it's business as usual in the hard data.

I don't know, but what I'm saying is everybody believes in the negative story. Everybody's bearish right now. Something tells me inside—fade that bearishness because you're right. The story is very bullish on the back side.

Amrita

Yeah, I think that's the interesting thing. I've never seen a curve which is this backward at the front and then this much contango at the back, where it's like a Nike-shaped swoosh. Because everybody's saying there is a recession coming. Nobody knows when. Nobody knows the scale of it. But I've spoken to so many people who are like, we have to have some kind of short in our portfolio. So let's just short the back. And yet the front keeps rolling up because we don't seem to be able to build inventories. So I do think the next few months—and I think it's a good time to talk about OPEC. If OPEC starts to unwind quickly, we will build a lot. We will pivot into contango.

But that's where the demand does matter. If demand manages to hold up, different. If it doesn't, which is kind of what we are thinking, that we see the real weakness from kind of Q2, Q3, then that's the pain point, but then we will rebalance kind of second half 26 onwards. But then let's talk about OPEC now because we've talked a lot about the demand side. Timing is not great. But then, you know, they have a different agenda. What's your read of the situation?

Jeff

Yeah, there's a lot of crosscurrents going in there, particularly with the Russian CPC. One interesting factoid I picked up yesterday is the Iranians are trying to do crude swaps with the Russians in the Caspian, which says they can't get this stuff out. Which is maybe you have a situation in Iran that's a lot worse than what we think.

Amrita

Yeah. Because right now the market's like, talks are going, well, there'll be a deal. So that's also been—the bullish Iran story is also being priced out, right?

Jeff

Yeah. But the reality is, everybody's talking about we're at 100 days, there's still no deal in Ukraine–Russia. We've been talking about a deal in Iran forever. The production is going out as much, but I tend to look at that. Yes, there has to be a shot across the bow by core OPEC to signal to the other OPEC plus members they need to get in line because they've been the biggest benefactors of the actions over the last two and a half years. But beyond that, what is the effectiveness of really creating a price war and trying to punish everybody, particularly when, let's say, in Kazakhstan and Chevron or in the Permian, it's Exxon, Chevron—it's big. The small little independents, they're decimated. They're already gone.

If you're waiting for the rollover of the shale patch, it's happening.

Amrita

I don't get the sense that this has ever been a policy about the US or non-OPEC. It's very much, like you say, it's compliance within the group.

Jeff

Right. Exactly. I don't see that, but I also—I don't know. Let's go back to the three big oil producers: US, Saudi and Russia. Can the three of them really withstand $40 oil for three months? I don't think any of them can withstand it. You look at Aramco, they lowered the dividend they paid the government from 31 billion to 19 billion right now, versus 7 billion of cash flow. That's a problem. Russia rolling over, US not drilling. Again, 50% of the world's oil production can't handle it. So I don't think it's in anybody's interest to take it back further. I've been on the flip side—they have to send the signal. But is a signal going to be effective with the likes of Chevron? I still go back to the one issue—after the hike last month, the next day, the Russians go, oh, you can turn the Russian CPC pipeline back on. What is that telling us?

But I think the fact of the matter is you just can't get the oil out now, and I think the ability to take this thing—if the kingdom was in super financial health and didn't have Vision 2030, the right answer here would be take it to $30 and create a lot of pain for everybody because they'd be the biggest benefactors on the back end. But I don't think the financial well-being of the kingdom or even the US—I mean, Trump will be calling up the kingdom, go ahead, do something about this, because the likes of Harold Hamm will be calling him. So I just think it's going to be very tenuous, the ability to take all of that to 2 million barrels per day and put it on the market at a very rapid pace.

Amrita

I think—and we are hearing that—I think there'll probably be some project cancellations. There has to be. You can't have it both ways. Cut some spending. But like you said, it will be costly for everybody in different ways. I think the Saudis can probably sustain it longer than some of the other members if they were to cancel projects, etc. But at some point, at these price levels, if you are going to be in the 50s and let's say we go down a little bit further, there's going to be calls made. Imagine Brent in the 50s, WTI is even in the mid to lower 50s. I'm pretty sure the US producers are only getting more and more worried by the second.

Jeff

People still come to me, oh yeah, let's go to the Middle East and go find some money. I'm going, guys, the money is right here in Europe right now. It's done in the Middle East. It's not the United States. It's not in China. It's actually right here in Europe. Because I think the pressure you're putting on places like the Middle East—and by the way, you asked Texas—it's not the same world we lived in a year ago.

Amrita

So in terms of your preferred trades right now, because you are painting a picture, and it's quite refreshing to hear because we've just been surrounded with conversations about just how bad things are, which they are. But you are kind of taking a slightly longer-term view and saying, actually, there are some opportunities here. So what would be your three picks? I can sense European something is going down.

Jeff

I think if you look at the energy complex, power is trading one and a half times value. Gas is fairly valued at 1%, but oil is trading 70% below its fair value. I would say anything in the oil space is where you find the value.

Amrita

But back end, further out?

Jeff

But even if you're in the asset space, as well as on the market, further out. I think the upside going into the end of this year or next year, if you have the dollar start moving and we reprice—a lot of it will be how bad does it get in? When we look at German bonds, they've been trading like what a reserve currency should pay. Been solid as a rock throughout all of this.

Amrita

While the dollar has not.

Jeff

Been all over the map. If you get to a point where people lose faith and you have a failed auction—my understanding is what caused that pivot backing was a failed auction. Absolutely. Everybody goes, I'm not buying that until you do something.

Amrita

And then they did.

Jeff

They did it. So you're getting close to creating that unwind. You get that unwind and the dollar falls out of bed, that's going to be bullish—the commodity space, very bullish.

Amrita

And any other asset classes generally?

Jeff

Gold I think has probably run its course.

Amrita

Going up.

Jeff

And I think one way to raise cash to create that sovereign wealth fund—so the gold and do something of that nature. That's why I would be a little cautious on the gold side. But copper I really like. Oil and copper are the ones I own. I sound like a broken record. Copper worked for a little bit at the beginning of the year. But again, the inventories are low. The administration's made it very clear they're focused on the critical minerals. Our view on the energy transition is it's going to accelerate.

Amrita

And you've said this right from the start. Remember we did a podcast where you said, under Democrats usually oil production increases, on the Republicans it's the other way around. But yeah, he says exactly that.

Jeff

And you're going to need a lot of copper for it and a lot of critical minerals. The administration's made it very clear they want to go out and get this stuff.

Amrita

So you think energy transition accelerates.

Jeff

Yeah, I think it's going to accelerate. But I think accelerate in the right ways. What happened in Spain and Portugal—they've been very quiet about it. But clearly, as somebody said, it's like trying to blame a car that has only an accelerator and no brakes because there's no brakes on the renewable. You can't turn them off and the wind blows too much and the sun's too bright. You're going to have a problem with overloading the system.

Amrita

But that's why you need baseload, which is more stable.

Jeff

Yeah, yeah. We'll wait and see what the final verdict is. But I haven't heard them saying—means you need to have investments in grid, investments in storage, batteries, chemical storage and the rest of that. All that requires metal. Whether it's hyperscalers in the US, you need copper, you need metal for a grid, and the US needs grid. It goes back to my point—the investment outlook for the space is huge. Grid, battery storage, all of that. One way, like I say, what was the benefit of the net zero 2050 investment boom? It was getting the AES down on renewables. They got it down. But it's so low now that it's immaterial. What's material is the ROI. The only way—and this is why—because we're in a grid, we can produce negative power. Why? Nobody can use it. It's produce power when you need it, not when you produce it. Exactly. The point here is you want to invest in things that are going to improve ROI. That's just the natural extension. We don't need net zero 2050 to motivate people to chase ROI and that's why we call it the new jewel order. Just focus on the jewels, not on the green, not on the brown. Focus on getting delivered energy to a consumer. You're going to make money in that space.

Amrita

And then regionally, definitely Europe is your pick.

Jeff

Absolutely. I think finally after years and years...

Amrita

And...

Jeff

Ultimately, this probably should have happened in the 90s. Then interest rates went to zero and everybody forgot about it because the peace dividend was spent. It happened in the 90s and then everybody forgot about it. US kept doing, you know, make the point that the US Navy was the one that—even the Russians and the Chinese were getting a free ride off the Americans policing Somali pirates in the Red Sea. It stopped last year when the Americans should have gone in there and given a very stiff warning to the Houthis. They didn't, which tells you they don't care anymore. It's your own. That's your problem. You deal with it, you pay for it. I think that's why it's very different. This area is going to have to do a catch up, and it's going to put security on top of affordability, on affordability on top of the environment and do the right thing.

Whether—a point we made in that piece is by doing the right thing, putting security first, you end up with a cleaner outcome. You look at France, cleanest place in the world, and it didn't do it because it wanted to save the climate. It did it because it wanted to protect itself.

Amrita

Yeah. I think that's the thing. Maybe, you know, the fallout of all of these policies is that Europe actually does get its act together, and it does become a superpower, which it used to be right back in the day. And it's kind of lost the path, finally.

Jeff

On that point, on the superpower, the one thing I sort of think is where we go is, they can't cooperate. Actually, just give it up. They're never going to cooperate and use the Airbus model. It's like a Lego kit. Different pieces. Just treat it as a big Lego. We had a whole group, and I think we're going to end up with Fortress America, Fortress Europe, Fortress Russia, and Fortress China. We'll probably end up trading with everyone. But the one out of those three that's the furthest behind is Europe. It's going to have to catch up because it freerided off the Americans for 80 years.

Amrita

So final question. Have you seen a sense or sensed a change amongst when you're going and talking to investors? Are they really worried about investing right now or are they actually saying, no, there's still going to be some great opportunities?

Jeff

They're worried. They haven't stopped. But their willingness to engage clearly has taken a backseat. My response is, it's not so bad out there.

Amrita

This is also the time to do it. And once you get a conviction...

Jeff

Yeah, yeah. 18 and 19 was much more painful. Oil went from 88 all the way down to 40, 50. Something like that in the equity market. That was a lot more painful. This may get more painful, but so far, it's relatively stable. I don't think the tolerance for pain this time around is that high with anybody. So we'll see if it changes. But to answer your question, yes, people are like deer—they're deer in the headlights. They don't know where to go, but their inclination is go back to American exceptionalism. And that hasn't changed. They just think, oh, we'll wake up tomorrow, it's going back. I disagree. Toothpaste is out of the tube. You're not going back to American exceptionalism.

Amrita

I think that's it. And that's the best note to end on, because I do think the world order is shifting. And yeah, I'm glad that we got to discuss it here. Great. Thanks for your thoughts. Always good to have you.

Jeff

I have to.

Amrita

Come back soon. So. Yeah. There you go. Great. Thank you.