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Week Ahead

Energy Market on the Brink: Russia, CNY, and the Fed’s Dilemma

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In the latest episode of The Week Ahead, Tony Nash is joined by Michael Nicoletos, Tracy Shuchart, and Albert Marko. The panel first explores Russia’s recent announcement that it would use CNY for trade settlement outside of the US and Europe. Michael Nicoletos explains that this move could be viable, but it would depend on whether all countries would accept the terms of trade.

Albert Marko believes that the recent rate hike was the right thing to do and predicted that the Fed would raise rates twice more. He also criticizes the lack of depth in the economics department of some central banks, citing examples from the RBNZ and the ECB.

The panel also analyzes the energy market and predicted when we might see an uptrend. Tracy Shuchart updates the chart and pointed out that crude seemed to break the down cycle a bit, leading to a good week for the commodity. The team answers a viewer’s question about the possibility of energy prices remaining low for a long time and offered their perspectives on the matter.

Finally, the panel discusses what they expected for the Week Ahead. Michael Nicoletos predicts that the energy market would remain volatile, and Tracy Shuchart believes that the focus would be on the stock market, particularly the Nasdaq. Albert Marko highlights the importance of watching the inflation data and suggests that investors should keep an eye on the bond market.

Key themes:
1. Russia ❤️ $CNY. Why?
2. Where does the Fed (and other central banks) go from here?
3. When will we see an uptrend in energy?

This is the 58th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

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Hi, and welcome to The Week Ahead. I’m Tony Nash and today we’re joined by Michael Nicoletos. Michael is the founder and CEO of DeFi Advisors based in Athens. We’re also joined by Tracy Shuchart of Hilltower Resource Advisors and Albert Marko. Guys, thanks so much for joining us. We have a couple of key themes and I was really in questioning mood when I put these together. The first one is around Russia and the CNY. There was an announcement this week. My question really is why? What’s the point of that? Next is where does the Fed go from here? And really where do all central banks go from here, but mainly the Fed, ECB. Albert is going to lead on that and I know Michael has some views on that as well. That’ll be really exciting to talk through. And then we’ll talk to Tracy about energy. For the first part of this week, we saw energy on an uptrend and we’ve seen a little bit of turbulence on Friday. So when do we expect to see an uptrend in energy? So again, guys, thanks for joining us. Michael, I really appreciate you taking the time from Athens to get involved with us today. Thanks so much.


Thank you. Happy to be here. Great, love to talk to you guys.


Great. So first, Michael, I know that you know a lot about China and you follow a lot of their economic activity. And I saw you commenting on this Russia announcement about CNY. Of course, they announced that they’ll use CNY for trade settlement outside of the US and Europe, which is Latin America, Africa and Asia is what they said in their announcement. So that’s about 37% of Russia’s exports. So I put a little chart together. I used UN ComTrade data.

This is 2021 data, which is the latest data that UN ComTrade has. So if they’re really doing that, Latin America is 2% of Russia’s trade, Africa is 3% of Russia’s trade. China is 14%. Okay? And so I guess is all of their trade with China settled in CNY? I seriously doubt it. And then Asia is rest of Asia is 18%. And of that about 1%, just under 1% is Taiwan. So I seriously doubt Taiwan would settle in CNY. But what’s obvious from looking at this chart is Europe is more than half of Russia’s trade. So it’s not as if this is necessarily a massive bold announcement that everything is going to be in CNY from here on out.


It really is just kind of putting a stake in the ground saying I think it’s almost a best efforts thing. So I guess is this viable? That’s really the question. And Michael, you put out this thought-provoking tweet.

You said if that were the case, China would have no issues running out of USDs. Let’s take that on and help me understand why is China trying to do this and what is the US dollar question that you have around this arrangement?


Well, first of all, again, thank you for having me. It’s great to be here. Now we need to segregate two things: wanting to do something and being able to do something. It’s clear that a lot of countries which are highly dependent on the US dollar for trading would rather be on something else and not be dependent on the dollar. We saw what happened with Russian FX Reserve when the war started. So clearly this was a warning shot or a lot of countries said we could be next if we go into a fight with the US. So clearly there is a tendency and China wants this to happen as soon as possible. Now, for this to happen, there are a lot of things that need to happen first. I’ll give just an anecdotal example because we get all this news flow and all these headlines where one signs an agreement with another and then two people or two prime ministers come up and say we’re going to do it, and everyone takes it for granted, especially on Twitter. It’s either a fanatic from one side or a fanatic from the other side. So again, I agree with everyone who is afraid of this happening in the sense that a lot of people are saying that the end of the dollar is close and that everyone’s going to go to something different.


I agree there is the willingness. I’m not sure this can happen soon, and I don’t think it can happen without some conflict occurring somewhere. So an example is that in 2018, Iran signed an agreement with China to sell oil in Yuan. Still, after four or five years, the volumes are ridiculously low. So again, there are agreements, but in order to enforce them and in order for them to happen, they take a lot more time than one would want. So Russia had no option. So because of the sanctions, they still sell to Europe, a few things, but they’re trying to outweigh it by selling more to China. And China and Russia are trying to make these agreements where they will be settling in Rubles or in Yuan. And they try to make these agreements. They want to expand them to other countries as well. However, you see, for example, India. India doesn’t want to settle in Yuan or doesn’t want to settle in ruble. They want to settle in Dirhams, which is back to the dollar. So you get all this information and the data, at least until now, does not support that there is a threat to the dollar.


There is a threat to the dollar in terms of willingness. There is no threat to the dollar in terms of data which says that this is going to happen tomorrow. So I think that this will eventually happen, but I don’t think it will happen soon. I think until it happens, we’re going to see a few episodes. And these episodes are not straightforward, how they will evolve.


Now, regarding China and its macro, the reason I’m saying what I’m saying and I’m saying that China needs dollars. China has been dependent, first of all, on its real estate, which was like 30% of its GDP. We saw what happened to the real estate. The second leg was it was highly dependent on exports. There’s a global slowdown. So these exports will have some issues. And now, how has China managed to keep this economy running? I’ll give you a few metrics to understand. The US is an economy which is like 26, I think 26 trillion of GDP. And if I’m not mistaken, its M2 is around 21 trillion. In China, the GDP is around 17 trillion, all in dollars. Okay? And M2 is $40 trillion. 40. Four, zero. So what does that mean?


The China government prints money. Prints money. Prints money. Because there are capital controls, the balloon gets bigger and bigger and bigger, but the money can’t leave, or it can leave for selected few, and I’ll explain how it leaves. And for the rest, because our capital control, the money can’t leave. So it stays in. But this is in one. Some try to buy gold, some try to invoice over invoice to Hong Kong and take it out of Hong Kong. But when the disparity is so big, clearly there is a problem. There’s an NPL problem. Chinese banks are like four times China’s GDP.


Sorry, NPL is non performing loans.


Non performing loans. Sorry. Sometimes they’re non performing. You cannot have an M2 of 40 trillion and a GDP of 17 trillion and not have non performing loans. Chinese banking system.


Sorry, I just want to go back and I don’t mean to interrupt you, but I just want to make sure that people understand. China has currency in circulation of $40 trillion, and they have a GDP of $17 trillion. Whereas the US has a GDP of what you say 24 trillion. I don’t remember what number you’re… 26 trillion. And they have 21 trillion in circulation. Right. So for all of these people who talk about China being this economic model for other people, why does it matter that their M2 is more than double the size of their economy?


Let me say something. First of all, let’s put something that the US. Is also the global reserve currency. So everyone in the world wants dollars. It’s not like only the US wants dollars. At this stage, less than 10% of the world wants Yuan. So it’s not like everyone wants to get.


I think it’s 2.1% of transactions or something like that.




2.8, yeah, transactions.


Okay. I saw a number which was around 6%. Maybe I’m wrong. Okay. But again, it’s a number which is very small. 


All this money that is in the economy, if Chinese people were given the choice, they would be able to take it out. The economy is growing at a faster pace than its potential. I’ll give you a number. Right now, Chinese banks are more than 50% of global GDP in terms of size. The US, I think its peak was 32% in 1985 and Japan’s 27% in 1994. So we’ve passed all metrics in terms of the world dominant power or the dominant economy, if you want to put it this way, being a percentage of GDP in terms of banking assets. So the banking assets clearly have a lot of bad debts in there, which we cannot know what they are because the Chinese economy wants the Chinese government wants to control that. Now, there was a special committee put in place this month, I think, in order to oversee the financial situation in China. So I’m pretty sure they’re a bit worried about it. They want to switch from an export oriented economy to a consumption driven economy. But this is still less than 40% of GDP and this takes a lot of time to go like the US is around 70%, but it takes a lot of time to go for 40%, 70%.


Now, all this money stays in China. They have no option, they can’t do anything. So it’s an issue. And I’ll give you a ratio. If you take their FX reserve, it’s around 3 point something trillion. If you divide FX to M2, it’s around 7%. So if that money were to want if that money wanted to leave, in theory, only 7% can be covered by FX reserves, the fixed reserves of the government. Just to clarify, the Asian tiger crisis in 97, the tigers collapsed when the ratio went below 25%. So they didn’t have that support to keep it up.


And just be clear for the US that’s 100%, right?


The US doesn’t have any problems. So this is something that needs to be addressed and I don’t know how they will address it. They try to make all these agreements so that the one becomes a tradable currency and they can invoicing one. So if the Yuan, in theory was to become the global reserve currency tomorrow morning, their debt would become the world’s problem. Now, they haven’t managed to export that, so they need these dollars to keep that balloon, let’s say, from all the area in the balloon to be taken up. They need these FX reserves to keep the money in and they need to build confidence, and they try to build confidence with narratives and not with data. But again, they don’t have a choice right now, in my opinion.


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The difference between, say, the onshore and offshore CNY or CNH or whatever, there is a huge difference in perceived value. I would think you can’t change the perceived value of CNY onshore, but offshore, if people are nominating contracts in, say, I’ll say “CNY” in quotes, there is an exchange right there. But again, this M2 issue, which I can’t stress how important that is, I haven’t heard anybody else talking about this. And it’s so critical to understand the fiat value of CNY itself, right, because it’s not limited, and the government because they’re effectively fun tickets with Mao’s face on it.


Right. And that’s how the PBOC was treating it. And again, when people talk about CNY as a global reserve currency, nobody is looking at the integrity of the PBOC and nobody is looking at how the PBOC manages monetary policy in China.


I’ll give you anecdotal information. I haven’t checked the number for a few years, but the last time I checked, if you look at the import-export numbers from Hong Kong to China, and you look at the PBOC, and then you go and see the same numbers in the HKMA, you would assume that these four numbers should be the same, not the same. Import should be export and export should be imports. The numbers should be very close. The discrepancy is huge. These numbers do not reconciliate, which means that in some form there is some over invoicing to Hong Kong.


And you’re not talking about 30%, you’re talking about multiples.


You’re talking about a lot. It’s ridiculous. So I think if you see the Hong Kong peg has been stable to the upper bound lately because I guess because of the interest rate differential, a lot of money is leaving. So it’s putting pressure on Hong Kong as well. So it remains to be seen what happens there.


So let me go to Tracy. Tracy, in terms of Russia using CNY, okay? And I know you look at a lot of their energy exports, and of course there’s all this official dumb around sanctions and stuff, but what’s your kind of guess on Russia using either USD or proxy USD, Dirhams or something else as currencies for collecting on energy exports or commodity exports more broadly?


Well, first, I think that they prefer dollars no matter what this kind of China saying we want to trade a Yuan. And Russia said, okay, but that was a suggestion. That does not mean that it’s necessarily happening. But what is really interesting is earlier this week, on Monday, Russia laid out conditions for extending the grain, the black seed grain deal, right? Because it was supposed to be for 90 days, but they cut it to 60 days because they’re trying to use that as leverage. And one of the things that they are trying to use as a leverage is they will extend the deal or they’ll give or the other part is they’ll give African countries just free grain instead of selling it. But one of the big conditions for that was for the removal of some Western sanction, specifically to get them back on Swift. And so if that happens, forget it. Everything’s going to be all the trade will be all euros and dollars.


I thought Swift was terrible and everybody wanted on Swift.


I just thought it was important to point out because if they get back on Swift, obviously that’s going to make trading in dollars easy for everything, all commodities across the board.


Right. And so that goes back to what Michael said initially about kind of these guys really want dollars and all this other stuff. There’s the official dumb of the prime ministers meeting each other, right. And then there’s the factual activities they undertake based on the reality of their position in the world economy. Right. What are your thoughts here?


I agree with Michael and Tracy to talk about the reserve currency. Switching from the dollar to the Yuan is a joke, to be honest with you. You do have some people in other countries in the Middle East and China and whatnot talking about the death of the dollar and actual serious tone. But anyone with even like a shred of financial backing and insight knows that it’s just an impossible thing. From what it sounds like, it’s more of like a barter system. But that introduces even bigger problems. I mean, you can’t scale it up. There’s no standardization. How do you value things to begin with?


That’s it.


Valuing goods and services without using the dollar right now is just an impossibility. And on top of that, you have the political problems that come along with it. I mean, like the Saudis, they want dollars for their oil. They need defense assistance. The Greeks needed US defense assistance. The Turks, as much as they want to make noise again, they’re reliant on the US and NATO for defense and whatnot. These components not just financially, what Michael talked about and decided much more eloquently than I would ever would, but there’s also political components that you just can’t get around in the near term.


But even if they had a barter system, they would reference the price in dollars, right?


Well, yeah.


10 billion.


Your chocolate is back to iran did that when they were first sanctioned over a decade ago. They were trading oil for gold, but it was still referencing dollars.


On top of that, you run the risk of hyperinflation eliminating dollars from your FX reserves and starting to trade away from the dollar. You’re going to end up in a hyperinflation event.




Can I say something? Can I say something? About all these points? I agree with all these points. There’s one more thing. Let’s say you trade in rubles and you trade in Yuan, okay? It means that you’re going to keep FX reserves in rubles or in Yuan. So you feel more comfortable keeping a currency from an authoritarian regime than holding the US. Dollar, which is fully liquid, fully tradable, and anyone in the street will take it at a split of a second. You need many years of track record to build that trust. There are a lot of bad things about the dollar. We agree that I don’t think anyone will say that it’s a perfect mechanism, but right now, it’s very functional, it’s very liquid. And if you want to keep your reserves in US Treasuries, you can sell them at the split of a second. You don’t have any issues with that. If you have Yuan, you’re going to do what? You’re going to buy Chinese government bonds? And how will you sell them if the PBOC calls you and says, it’s not a good idea to sell your Chinese bonds this week? We would prefer you didn’t.


Bet on the central bank, right? If you’re holding rubles, you’re betting that the Russian central bank is trustworthy. If you’re holding CNY, you’re betting that the Chinese center. So what central banks are out there that you could potentially trust? You have the Fed, you have the ECB, you have BOJ, right? Those are really the only three that are visible enough that have the scale and transparency to manage a currency. And look what the BOJ has done since Abenomics. And on and on and on. Do you trust the ECB? I don’t know. And it becomes, do you trust the ECB or the Fed more? I mean, sorry, but I just don’t trust the ECB.


I don’t trust ECB. But it’s relative. I mean, you don’t have a problem keeping Euros. Maybe it’s not your preferred choice, but you don’t lose your sleep on holding Euros. Let me put it at this stage.


That’s exactly right. That’s exactly right. Okay, guys, this is great. Let’s move on to the next thing, because I think we all agreed violently here, but I think we’re going to not agree on the next one, which I’m really excited about. So let’s talk about central banks. And where does the Fed and where do other central banks go from here? So, of course, we saw the Fed raise this week. I think it was the right thing to do. Albert, I know you think it’s the right thing to do. Markets have been up and down since then. And Albert, you’ve said that you expect the Fed to raise two more times, and I want to talk about kind of what’s behind that assertion. And then we get silly statements like this one from the RBNZ in New Zealand, where the chief economist basically says, if inflation expectations don’t fall, we’ll be forced to do more regarding interest rates.

Well, of course. Why wouldn’t you do that. So can you walk us through a little bit, kind of just very quick, because there have been thousands of hours of Fed analysis this week. But why do you think the Fed is going to raise two more times?


Supercore is trending up and it continues to trend up. Services are on fire. Real estate numbers have been on fire. There’s no slowdown in reality. I mean, even the layoffs have been slow. They’ve come from the tech sector. They haven’t come from construction or any other blue collar jobs at the moment. So until we see that, the economy is going to be red hot and it’s a problem for the Fed, inflation overall.


Okay, so play devil’s advocate here. Banking crisis, Fed had to bail out banks, all this other stuff. So why isn’t the Fed saying, let’s pause on the banking crisis worries?


Because banks are fully liquid. The big banks have no problem whatsoever. Some of these smaller banks that have no risk protocols are getting exposed. The tech heavy investments are getting exposed. Everyone knows that higher rates hurts the tech sector the most. And those banks were at fault. They didn’t hedge properly.


Now you have duration risk. I just want to be clear. I just want to make sure that people understand. You’re not saying that they failed necessarily because they’re tech, but they failed because of duration risk and then their tech depositors took their money out. Right?


Absolutely. But the banking system overall is not really at risk. They’re just shaking out some of the weaker players. But that was inevitable as interest rates have risen. A lot of the problems stem from the Fed and them guaranteeing four, five, 6% deposits, while the banks only do 1%. They can’t compete with that.


Right. Michael, I know that you think this wasn’t the right action. So what’s your perspective?


Well, let me say something first. I believe that it was a mistake, and I’ll say why it was a mistake. I think it’s a mistake when you raise interest rates as a central bank and the banks follow by raising rates on the loan side and on the deposit side, what do you do? You make debt more expensive and then you make people because you have, let’s say, a 5% interest rate on your bank, you create an opportunity cost so people want to save. So you reduce liquidity from the deposit side, and also you reduce loan demand because it’s more expensive, and that creates a slowdown. What happened now, because we had ten years of QE, everyone forgot that there was an interest rate on the deposit side. So the Fed, MDCB and all the central banks raised the interest rate. So the loan side adjusted. That became more expensive, but the deposit side stayed zero at 1%. I don’t know where this is in the US. But it’s really low. At some point, people started waking up when it arrived at 4% and they suddenly started saying, okay, I don’t have any interest on my deposit.


Let me put my money in the money market fund. How much does it give? Three, four, 5%? I don’t know. It’s a much higher rate. So I think I saw somewhere today that around 5 trillion have gone into money market funds. The numbers close to that. So when you take your money out of the deposit and you take it to a money market fund, this is the equivalent of a bank run for the bank that you’re taking the money, it’s a deposit living. It might not feel like a bank run, but on the balance sheet of a bank, it’s a bank run. So this started happening, and again, because of what you mentioned, they had invested in Treasuries and the duration risk was a mismatch. They didn’t do some of them at least hadn’t done appropriate hedging. They started losing money and they started selling this bond at a loss, although they had them at the Healthy Maturity portfolio where you don’t need to take a mark to market loss. And suddenly both sides of the balance sheet were screwed. Let me put it this way. So a few banks started going under. Now, I know that the central bank has come up and I know a lot of people come up.


And I do agree that there’s no systemic risk. And I mean that I don’t see a cascade of people losing their deposits. But nevertheless, people feel uncomfortable and try to do something about it. Either take them more money market funds or take their money from a regional bank, if they can. To JP morgan or one of the big guys. This creates a big problem for the economy. Yes, there are some signs which show that the economy is still robust. But I think a lot of leading indicators suggest that the economy is slowing down and most of the metrics coming from the inflation side have collapsed. Yes, core CPI is still high and it’s a lagging indicator, so it will take time for it to come down. But I think that given the stress we saw this week and why do I say that? Because we look at the US as a closed system. It’s not. When you raise interest rates as the Fed and you are the global reserve currency, you create a global credit crunch. You saw that last week. The Fed had come out with swap lines for everyone. You saw today that foreign banks borrowed 60 billion in liquidity, the ones that didn’t have a swap line.


And we see today Deutsche Bank being in the headlines and Commerce Bank being in the gate. So you might think that the US system is okay, but it creates a domino effect, which we’re starting to see. We saw Credit Suisse going under in a deal, which was not, I’d say, what we would think of. I believe that that deal in combination with the high rates is probably the root of the problem in the sense that they destroyed the capital structure, they wiped out all the 80 ones without wiping out the equity holders. Which means now that in Europe everyone’s wondering if my 81 is of any value. And that creates another uncertainty in combination with the higher interest rates and the stress that has started to build up. I think we’ve passed the moment where, okay, it could be debatable if they did right or if they did wrong. The US bond market is saying that it was wrong. It was a mistake. The two years at 370. And so the bond market went from the one side and the Fed went on the other side.


Why? The two year at 270 is important.


373, 70. Sorry, yeah. Three seven. Because if in two years you’re getting 3.7% and the Fed fund rate is five someone, it means that someone is buying a two year bond getting much less. Which means what? It means that the market is saying rate cuts are coming soon. So the market is saying there’s no way we can keep it this way. And the Fed is saying the opposite. Historically speaking, the bond market has been right. If you take it into context, it could be this time that they are wrong. It feels to me, at least from the stress I look in global markets and not in US. Only, that things are getting a bit out of hand. And having a bank like Credit Suisse go under, which is a big bank, and having all the central banks come in together on a Sunday night to give up swap lines, it means that the stress in the system, it’s much bigger than with yeah, but Sunday night.


Is the best time to get swap lines. Okay, so you talk about European banks, but we had Mueller from the ECB out this week saying, I wouldn’t worry about a financial crisis in Europe.

So we have ECB guys out there going, yeah, Credit Suisse happened and we know Deutsche is an issue, but I wouldn’t worry about that in Europe. So I think we’re seeing statements from Yellen, the Fed, the ECB, other guys who are saying, no, there’s nothing to see here, but then we see things kind of blowing up all over the place. Right, and then we have a question especially specifically for you, Michael, from a viewer who said, I’d like Michael’s thoughts on the EU, particularly banks, pensions and future growth prospects. So can you talk us through? How do these banking issues in Europe flow through to European pensions?


First of all, let’s say something. We’re talking about the US and.




Risk on the bond losses. Let’s remind everyone that at the peak of QE 18 1818 trillion worth of bonds had negative yield, and these were mostly Europe and Asia. So pension funds and banks in Europe which are forced to buy these bonds were buying bonds. With a negative yield. So they were losing on day one these bonds from -50 basis bonds have gone to two and 3%, the losses on these are much greater and pension funds will have much bigger issues than the ones that have in the US we were talking about a pension crisis in the US. But the European one is pretty bad too. Just look at in France, they raised this week the year that you take your pension from 62 years old to 64 and the country is burning to the ground. Now, you understand that it’s 62 to 64. It’s not like they made 62 to 70 years old. So it’s very delicate. And the situation in Europe, given the negative bonds, given the interest rate hikes and given one more thing in Europe, given that Europe doesn’t have the dollar and it has the Euro was mostly a supply driven issue.


It means that we were importing oil and energy from Russia and from everywhere and all these commodities were priced in dollars. So as a Europe tell, the price of these commodities were more expensive. So inflation was a supply driven problem. I think there’s a report, I think from the San Francisco Fed two thirds of the inflation was supply driven in Europe. So when inflation is supply driven and you raise rates to stop it, you’re using the wrong medicine to stop the problem. You need to crash the economy in order for this to stop. This is not really efficient. Now, in the meantime, you have yields going higher and now the yields that we see on our screen on Bloomberg or anywhere are not the yield real yields because the ECB is in and tries to contain the spreads. If you left the market low, I’m pretty sure the spreads would be much, much wider. And you have the new thing which came up this week when the Swiss National Bank decided that tier one, additional tier ones would be written off and equity holder, an equity holder would be saved. Now, imagine what happened. You probably saw what happened this week, all the 80 ones in Europe got smashed because everyone says I don’t trust this instrument.


I don’t know. Yes, central bankers will come out.


These are the cocoa bonds that came out in I think, 2013, right?


Yeah, there are a few of them, yeah, but it’s a cocoa, it’s contingent convertible. It means that they’re convertible be converted to equity if something happens. Let me put it as simple as it is, but these are supposed to be wiped out before the equity. So the question is what prevents for something else similar to happen again, the ECB came out, BoE came out, they said this is not accepted. But the fear and the is now everywhere. So you have a combination of factors. You have a factor that this ECB has been raising rates when I don’t think it’s a proper mechanism to address inflation in europe, they’ve created a slowdown. If you see Germany’s numbers and everywhere’s numbers in Europe, the economy is slowing down fast. You have a discussion on the capital structure of lending, which is very critical in the way companies and banks go and borrow themselves and all this at the same time and when the US. Is draining liquidity from the global system. I think the situation in Europe is very tough. Again, after 2008, I don’t think we have a systemic risk on our hands and the risks never materialize in the same place.


But I think things are about to get tough and it’s going to be much worse before it gets any better.


So what I would offer back, and I think everything you’re saying is valid and Albert Tracy, let me know if you want to think about this, but in the US. We have a presidential election next year. There is almost no way that we will see the US economy crash in the next 24 months because Janet Yellen won’t let that happen. And so we may see issues in Europe and we may see Europe and the rest of the world suffer based on US interest rate and monetary policy. But the US. Will do everything, the current administration will do everything they can to keep the US. From crashing in that time. And I’m not just saying this because they’re Democrats, Republicans would do the same thing to keep the economy afloat in the year before an election.


Albert, what do you think about that? It depends on what is happening specifically with debt ceiling, right? I mean, Janet Yellen and the Biden administration would gladly let the economy sink, the market sink anyways if they could blame it on escape both the GOP on the debt ceiling not getting hyped. So that’s definitely something you need to watch over the next six months because it is campaign fundraising season and they can’t really agitate their voters all that much, to be honest with you. Certainly the political component is going to be high over the next twelve months.


Okay, great. Let’s move on. Thank you for that, guys. Let’s move on to energy.


Can I say something?


Absolutely. Yes, please.


What appears to be happening right now, at least in my eyes, is that the Fed is using interest rates to attack inflation and it’s using the balance sheet to give liquidity. So these two do not go in the same direction at this point. The question is if they can do this for a long time. It doesn’t feel to me that they can. But at least right now they’re giving liquidity on the one side and they’re raising rates on the other side. I’m not sure they can do this for us.


We’ve actually talked about that at length here. But it’s not the Fed. It’s really the treasury. Sterilizing QT They’re coordinating.


They’re coordinating.


Of course they coordinate for the most part, but sometimes in the last six months or the last twelve months. Powell and Yellen have been at odds with each other in policy. So this is a lot of the reasons why the markets has just been topsy turbine. Don’t understand which way it’s going because you have conflicting policy and agendas from the treasury and the Fed.


So you feel it’s conflicting or do you think it’s coordinating? They’re doing it on purpose. That’s what I haven’t figured out yet.


I think the want to eliminate excess cash in the system is coordinated but I think the policy of how they’re doing that is conflicting and that’s going to be a bigger problem, say second half of this year.


Okay, sounds logical, but it’s one of these things that pass on me. I don’t know if they’re doing it on purpose or if they do any as you say, because they’re using other tools and they step on each other doing so.


My rule of thumb is to side with incompetence rather than conspiracy.




It’s not conspiracy when the Fed chairman talks with the treasury guy?


No, I am absolutely in your corner on this one. I absolutely believe that they talk and coordinate things for sure. I just think that their agenda at the moment doesn’t line up 100% of the time.




Very good. Okay, thanks for that guys. Tracy, let’s talk about energy for a while. Up until Friday we had a pretty good week for crude. I thought we were breaking that down cycle a bit, but we’re seeing some chop in energy markets. And so we had a question for you from a viewer saying when do you see oil and natty in a sustainable uptrend?


Yeah, nat gas is a whole other issue. I think it’s going to be very difficult really. We’re trading in the range that we’ve been trading in most of the time for the last 20 years or so. That $2, $3 range has been very comfortable for nat gas. We produce a lot of nat gas. Yes, we are building out LNG facilities and yes, we have had problems with freeport and such. I just think that we probably won’t really see a big spike in prices unless we see another energy crisis in Europe, do you know what I’m saying? And then we’re going to have to force to sell even more. So for right now I would kind of get comfortable with nat gas about that range. But if it starts breaking above like 375 or so I would start getting bullish. But for right now, just kind of in that area where it’s been comfortable most of the time. Right. So I think it’s going to be a while for that. So we got to kind of assess the situation in Europe as we get to summer air conditioning use and to next winter if they have a bad winter, I think it’s going to be a few more months at least down the line for natural gas as far as oil is concerned.


Brent said about $75 right now, saudi Arabia would like it around 80, 90 range is where they’re really comfortable. I think right now what we’re going to have to get through is we’re going to have to really assess we need more time to assess Russia’s situation. They just extended that 500,000 barrel a day cut out until June. The latest records do show that they actually have cut that much so far in March. So the cut is happening, which also means that they’re experiencing kind of a pullback in demand, even though they have really it’s more on the product end rather than, I should say, rather than the crude oil end, because they have floating storage, they have ships piling up everywhere with product. And so I think that will help clear their excess product a little more. So it’s really on the product end and that we also have to see everybody’s freaking if the Fed again decides to stop raising rates or pause. I think commodities really like that situation just because of the cost of carry and transportation and storage for all these commodities is very expensive. Right.




You get bank credit lines for that. Right. And so I think that’s putting downward pressure on markets right now. And then obviously fear of recession is kind of kicking in again after the recent bank crisis in the US. And in Europe. And so I really don’t think that we’ll see higher prices. I mean, typically this is the time of year we do start seeing higher prices heading into high summer demand season. But we’ve also been seeing, I think everybody expected China. China demanded to shoot up right away. That’s taking longer than anticipated, which I kind of have been saying that on this show for quite a few months.


Long time. Exactly.


So I think that there’s a lot of factors involved right now. I do think, again, it’s higher for longer. Historically still, prices at $70 is high for oil. The market is crashing by any means, just coming down from geopolitically induced spike last year. I think it’s higher for longer. And definitely I could see prices go into that $110 range, but likely into 2024. Not really this year, obviously, unless something happens. Okay.


Do you think if the Fed poses or whatever reason, or if they do a rate cut, do you think that commodities will explode or do you think.


I think if they cut, commodities would get really excited. I think if they pause, they would get excited. Right. I think we would see a rebound in a lot of these commodities, grains, things of that base metals and industrial metals and oil. But if they start cutting, then I think that they’ll really like that because then they don’t have to throw product at the market because they can’t afford to store it.


Thank you.


I’m actually quite bullish for oil in the near term. One of the reasons is I’ve heard through the grapevine that the Chicanery and the futures market and I’m reading that hedge funds and other money managers sold the equivalent of 139,000,000 barrels of oil in futures over seven days a week and a half ago. So, I mean, to me, it’s like they’re almost out of ammo when it comes to suppressing oil at the moment. And any little flare up or anything is probably going to be bullish for oil and probably shoot right back up to 80.


So what could that be, Albert?


It could be a natural event. It could be weather, I mean, some kind of economic policy stimulus from Europe coming out there, or even the United States going into, like Tracy was saying, the travel season and whatnot. It could be anything, really. I mean, I think the market is just begging for some kind of bullish signal for them to run it up.


Okay. And Tracy, if you’re sitting in Europe because energy prices were such a factor in 2022, what are the main things that you’re worried about? Their nat gas storage. Has that been depleted much over the winter?


No, it wasn’t depleted. They just had to start injections again because what we are seeing is that this really started in fall of 2021. Everybody kind of forgets that the crisis started before the Ukraine invasion, but what we saw is industry start to shut down, especially industry like smelting and glass blowing and things of that nature that require a lot of energy. Right when nat gas prices started spiking, and that was well before that summer of 2022 spike, they didn’t need to spike much where we saw a lot of those industries shut down. So what we’re seeing now is that since prices have been muted for long enough now, now we are seeing manufacturing and whatnot pick up with the numbers came in overnight for Europe. We’re seeing manufacturing pick up again. We’re starting to see some drawdowns finally in storage. Spain in particular has really ramped up a lot of their industry that had shut down prior. I have to say, natural gas prices are still more expensive than they typically are in Europe. Even at this price, right, they’re still higher than normal. So this is also why we’re not seeing a flurry of activity.


As soon as prices came down, you have to realize that relative to where they were, they’re still generally high. But we are seeing, I think people are getting used to kind of this price range for Ttf, which is Dutchnet gas. And so we are seeing in manufacturing and industry pick up again in some of these traditional industries that require a lot of energy. So we’ll have to see, and if that really picks up, companies are going back to where they went to fuel instead of gas. We’re seeing them go back to gas now. And so that’s really what I’m watching on the energy end. Is this just one off, kind of, or does this continue throughout the summer?






And then everybody’s favorite energy secretary, Jennifer Grandholm, had some comments about refilling the Spr this week. Can you fill us in on that? And what does that mean for markets?


Basically, she said we’re not filling in the Spr, refilling the Spr anytime soon.




She said a few years, which means a lot more years unless there’s a change of administration and a policy change. But I would say from until the election not going to see an Sbr, which makes sense because they know that if they fill the Spr, what’s going to happen? Oil prices are likely going to go higher, and they can’t afford that going heading into an election year. And so I think that’s really why they kind of pushed that off. That’s kind of what’s going on with that.


Can they be saying something and doing something else?


Yeah, but we would know if they’re actually filling the Spr or not because it’s a public auction.


Okay, why don’t we just stop calling it the Strategic Petroleum Reserve and just call it the Petroleum Reserve? Nothing strategic about the way they’re using the Tactical Petroleum Reserve.


They’re using it as a piggy bank. Right.


Instead of strategic, you use slush fund, petroleum reserve.


Right, exactly. Okay, guys, one last question, I guess. What are you looking for in the week ahead? We’ve had a lot of volatility over the past couple of weeks. Michael, what are you looking for in the week ahead?


I’m focusing on central banks and interest rates. I think the issue will be banks. Again, I think the big stress in the economy is private markets and not public markets. BCS, private equity, all these investments need to do write downs. It will take a bit more time for them to do that. It doesn’t happen that fast. They don’t adjust as fast as public market. I believe that bank we will see that stress mostly on banking stocks. A because the cost of funding goes up, b because the capital structure is put into a discussion. C because they continue to raise interest rates. And there is a stress within, I think, focusing on what happens to the banks and to the two central banks. Again, we’re looking at the same thing, unfortunately, but the problem is not in the same place. But these are the indicators you need to look. I believe that you’re going to see inflation coming down fast. That’s my expectation. Maybe I’m wrong, but if you see inflation coming down, it’ll make the life much easier for central bank. Yeah.


And for all of us. Do you expect to see, like VCs, for example, some VCs close up because of the cost of funds and a lot of these banking issues, or do you think it really doesn’t impact them much?


I don’t know if they’re going to close down because it’s a 510 year investment. It depends if they can reinvest or if they have to liquidate. But I think funds that are coming up to their maturity, they need to liquidate or they need to roll over. It’s going to happen at a much lower price than they thought, or they’ll have to wait one or two years more. So I think that stress is going to show up somewhere.


Tracy, what do you see over the next week?


I think it’s type based markets. There’s not really a lot coming up as far as oil is concerned. OPEC meeting is the following week, which we already know they’re going to do nothing. So really, next week, end of month stuff, there’s not a whole lot going on in the commodities world, really newswise next week. So I think probably see the same sideways action.


Okay, great. Robert, what are you looking for? Let me ask a little bit of a kind of loaded question with that. As springtime is coming in in Ukraine, do we expect that to heat up at all as things warm a bit there?


Well, yeah, I would say yes. Geopolitically? I think it would be advantageous for Russia to do something to stay face. Absolutely. But for the week ahead, I think the narrative shift I’m watching for the narrative shift of interest rates to banking, like Michael was talking about, I think Yellen is most likely going to come out and try to guarantee 500,000 in deposits and even talk about 750 and get it up there and just get the crisis over and done with. So that’s what I’m looking for.




Wow. Would that require congressional no, they can use emergency powers. Everything’s. Emergency power is great. Perfect. Okay, thanks, guys. Thank you very much. Really appreciate your time and all your insight, and have a great week ahead.




Thank you very much. Have a great weekend, too.


Thank you.

Week Ahead

Crude Oil Supply: The Week Ahead – 29 Aug 2022

Learn more about CI Futures here:

Crude and energy are on everybody’s minds, and we spent a lot of the Week Ahead parsing the details. Saudi Arabia came out with some comments about restricting their crude supplies to global markets, and we also have a detailed discussion on the SPR release in the US – when will it end, how will that impact crude prices, etc. 

We also discussed Jackson Hole drama and the conclusions of Powell’s latest speech. Powell really didn’t say anything new, so why are equity markets reacting so dramatically?

And will we finally get some stimulus from China’s government? We’ve seen movement in tech stocks and some talks of the stimulus release, but we expect more after the US election. 

Key themes

1. Crude oil supply: Saudi/UAE cuts vs SPR

2. Jackson Hole Drama

3. China Stimulus (Finally?)

4. What’s ahead for next week?

This is the 31st episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.

Follow The Week Ahead panel on Twitter:





Listen on Spotify:


Tony Nash: Hi, and welcome to The Week Ahead. I’m Tony Nash. This week, we’re joined by Josh Young for the first time. So I want to thank Josh a lot for taking the time to join us. We’ve got Albert Marko and Samuel Rines. We’re lucky to have these three really valuable guests.

Before we get started, I’d like to ask you to like and subscribe to this YouTube channel. You’ll get reminded every week. Give us comments on the show. We always look at the comments. We always respond to the comments. So thanks for taking the time to do that.

We also have a promo for our product, CI Futures. That product is $50 a month right now. You can go month to month with it, try it out. We cover about 900 assets with weekly forecasts, and we do about 2000 economic variables with monthly forecasts. So check it out. We’re transparent. We disclose our error rates for every month. So it’s good information.

We have a couple of key items this week. First is the crude oil supply. We had Saudi Arabia come out with some comments about restricting their supply. We also have some information on the SPR release in the US. So we’re going to ask Josh to leave the discussion on that. 

Obviously, Jackson Hole drama. We’re probably the only people not leading the Jackson Hole today. But there are some meaningful things happening. There are some things happening that are not meaningful, and Sam will talk us through that. 

And then when we finally get some China stimulus, I think that’s a real question and Albert will lead us on that.

So Josh, thanks again for joining us. You put out a tweet earlier today about the UAE supporting the Saudi comments on supply restrictions.

Can you talk us through that and help us understand why did that happen and why is that important?

Josh Young: So the UAE is supporting what the Saudis and other OPEC members are doing in terms

of threatening to cut production based on the combination of lower price, as well as their observation that there may be some paper market price manipulation and disconnect from what they’re seeing as the largest sort of combined suppliers in the oil market. And it’s particularly important that the UAE did this because what we saw at Bison was that most of the OPEC members were actually producing their maximum production capacity. And when you produce that maximum, the fields aren’t designed for that. It’s sort of like driving with your foot all the way down on the gas 100% of the time. You’ll break your car and you’ll crash.

And so a lot of these fields and their processing facilities, they’re just not designed to run at this. It’s a theoretical capacity that’s supposed to run for a week, a month, three months, not how they’ve been running it. And so there’s a lot of pressure on a lot of fields in many of the OPEC countries to actually reduce production slightly, so it’s not a surprise.

And we forecast that there would be some discussion of this given the high run rate versus their spare capacity. UAE in particular does have some remaining spare capacity, so what we’re seeing is cohesion within OPEC along with supply exhaustion of the other OPEC members. So it’s actually a pretty big thing, and I don’t think people are really picking up on it too much. Although maybe it’s why oils flat up a little.

TN: With the market down a lot today. Is this something that will start small incrementally and then it will accelerate? Meaning will they cut off a little bit of supply and then over time, maybe they take some fields down for maintenance or something like that, and then you start to see bigger chunks? Is that a possible scenario?

JY: Yeah. Honestly, I don’t know exactly what the path will be. I just know that they see it. We were joking before the show that, hey, maybe they’re following my Twitter feed and a few other people’s been observing these problems with the oil market and sort of weird trading patterns versus very strong physical demand and sort of very strong indicators.

And you see Saudi has a very high price relative to their benchmarks. Right. Their poster price, especially Asia, has been very high and usually that’s associated with price strength, and instead we’ve seen price weakness. So I think they’re very frustrated by that, but they may wait for some other things. So oil prices to fall a little more or some other sort of signal, maybe some small amount of demand destruction to the extent that happens. I think it’s a little hard, just given the Saudi relationship  with the US and their sort of hope to maintain a lot of their alliance and their alignment with the west. 

So I think they need sort of an additional catalyst. That being said, once they do it, they might… I don’t know if they start small and then go big, or they might just go big. They might just say, hey, we’re cutting by a million barrels a day. We increased by four over the last year and a half, and we’re fully supportive of the market. We might go a lot bigger if necessary, and there’s a disconnect and we’re going to support it.

TN: Okay, so how much of this is related to the SPR release? Is the SPR release having such an impact on prices that the Saudis are kind of fed up with it, or are there other factors?

JY: I actually don’t think it’s related to the SPR release almost at all. It does look like it’s a little related to some of the job owning around a potential agreement with Iran. And there’s a lot of disagreement in terms of how much oil production could come on if Iran came to an agreement with the west and sort of restarted. JCPOA. I’m in the camp that there’s not a lot left to produce and to export. You can see the amount is getting exported to India and various other countries. It’s up a lot from the last time this was floated, six or seven months ago. So whatever that capacity was for Iran to export, it’s less.

But I think it’s partly tied to that because Iran is a regional foe of Saudi Arabia and UAE and several other OPEC countries. So I think it’s a little bit of that. And I think it’s a lot related to the paper market trading patterns and just this really big weird disconnect where you see consumption fine and you see price down and it’s probably messing up your CI Futures forecasting a little because you’re probably tracking the consumption and the consumption is fine and the price is down. And it’s like. Okay. The inventories are down. This is weird. Again, excluding SPR, when the SPR stops releasing, obviously you’d expect price to recover substantially absent a million barrels a day of demand structure.

TN: Is that what you expect when the SPR release is done, that’s late October or something, right, do you expect prices to rise notably? 

JY: Yeah. And I think like, the EIA forecast for shale production growth and sort of overall US oil production is just totally off base. They haven’t reset it, even though I think they had like a million barrels a day or something forecast for growth. And I think we’re at sort of 300,000 barrels a day so far this year and pretty flat. And the rig count is not up that much, and the frac stack count is definitely not up enough. So I think there’s sort of this disconnect. 

There also in terms of this mark to model from a production perspective versus what’s actually happening in the field.  And then you look at it’s not hard to see who the big producers are on the public side and then which ones had forecast growth and how much they’re actually achieving. 

It’s really hard to reconcile their forecast for production growth versus what’s actually happening. And we’re really well situated for this because we spend most of our time we talk a lot about macro, we spend most of our time just like looking at individual companies and evaluating them and evaluating their securities. And so I think it’s part of why we’ve had such a powerful voice from a macro perspective, because we’re spending most of our time talking to these companies, looking at the rigs, looking at other services, figuring out the bottlenecks, and looking at some of the local stuff.

And when you do that and you step back and say, these numbers don’t make sense, and the companies are not tracking anywhere close to that. So back to SPR, that matters a lot because we’re not achieving the production that is being forecast. And it seems like a lot of market participants, or at least prognosticators, are just accepting as a given. That means that at whatever point… I’m not saying that the SPR release stops in October. They may continue it, but at whatever point, there is a finite amount of oil there. And we’re hitting tank bottom on some of those caverns that are releasing oil. At some point we just run out or we stop releasing and whatever that point is, absent significant demand destruction in a very deep recession, I think we see a lot higher oil prices.

TN: So in terms of the SPR release, you said, you talk about being empty, this sort of thing. How much do you think are you still thinking kind of October? Are you thinking they’re going to continue, but it would kind of have to trickle out, not at the same rate they had been releasing to date. Right? Because they are short on supply in the SPR.

JY: Yeah, I don’t think it has to trickle out. I think they could produce pretty hard for another month or so, and then it starts becoming more of an issue. But as you get down to it, looks like the numbers around 20% or so for any of the individual storage facilities, and for some of them, it might be a little higher, some of it might be a little lower. You start having issues with contamination as well as just physical deliverability, actually extracting it out. 

And I think people take the numbers a little too seriously. And it’s very weird because no one trusts the government about certain things and then other things they just blindly say, oh yeah, it’s right. It’s from, okay, try to reconcile that.

And I think when you talk to engineers and some of the people that have worked on these facilities, their observation is that it’s reasonable to expect less deliverability. But there are enough of the facilities that aren’t drawn down enough that they should be able to supply. I don’t think we’re really hitting deliverability issues yet, but I think we’re likely to start to hit them, let’s say over the next month or so.

TN: Okay. So kind of when we take what you’re talking about and we look at, say, the potential impact of crude prices and refined product prices on inflation and energy prices generally on inflation, seems to me that you’re implying that towards the end of the year we could see those prices rise fairly quickly. Is that fair to say?

JY: It is. But at the same time, gasoline prices are still down a lot. These will start to tick back up the gasoline, which is a big consumer factor, as well as it gets felt through a number of different aspects of the economy. So at least for now, that’s not so much of a risk. But yeah, definitely. Sort of later on in the year, one could expect that. 

And one other way to look at that is there’s been a divergence, and I’ve ignored these historically, to my detriment. There’s been a divergence in between the oil price and oil and gas equity prices and oil and gas equities have done a lot better over the last, let’s say, month and a half than oil prices have. And it looks like the equity market is telling us that the companies… 

I mean, one, the companies are just very cheap, so I would think naturally they should rise. But the degree of divergence is so much that it seems like the equity market is making a forward looking bet on higher than strip prices in the future. And the forward market and the oil paper market is making the bet that it will be lower.

So there does seem to be a noteworthy divergence that could mean much higher inflation, like you’re saying, but it might also be that shelter matters a lot more and some other stuff matters a lot more, and it might really take diesel rising a lot and gasoline rising a lot to actually shift back into high inflation.

TN: Okay, is that divergence between only upstream companies or is it upstream midstream? Is it the whole stack? What is that divergence? What does that include?

JY: So I’m most focused on upstream. I don’t actually remember whether it also included the pipelines and services. But on the upstream, definitely both the large cap, the XLE ETF that includes Exxon and Chevron and stuff, as well as XOP, which includes sort of independence.

TN: Fantastic. Okay, Josh, that is excellent. Thank you so much for that. On that inflation topic,

let’s move to Jackson Hole. Of course, there’s a lot of breathy analysis of Jackson Hole over the last couple of days, and there will be over the weekend. But Sam Rines, who has the most valuable newsletter that I know of that’s available in America today, covered this week, and there’s a chart that he has in there looking at the meeting probabilities and also looking at the headlines that may or may not come out of Jackson Hole.

Sam, can you talk us through that? And what do you expect some of the conclusions to be?

Sam Rines: Yeah, so I thought it was really interesting. The Fed said nothing all that interesting today. I mean, it might have been a shock to people who weren’t paying attention, but the Fed just reiterated about, I don’t know, 99% of what it’s already said and set it in different words. And Powell said it basically eight and a half minutes. Right. That was the big change. All he did was take a bunch of time out of the speech, condense it and say, we’re not pivoting. They were never pivoting. The pivot was out of the picture at the last meeting. He made that pretty clear during that press conference. 

So it’s really interesting to me that there was an actual equity reaction to it. It’s also really interesting

that there was relatively little reaction out of Currencies, relatively little reaction out of global interest rates and only a reaction on the equity front. It was like it was a shock to the equity guys, and everybody else was like, yeah, we need that. So I think that was really the big takeaway was it was a shock to the equity

markets, but everyone who had to be paying attention for the last six months was like, yeah, no big deal.

So Jackson Hole I think one of the things that I had said about it in the newsletter was, you’re not going

to learn anything new. And the only thing that we learned was that Paul was going to say absolutely nothing new and absolutely nothing interesting, and equity markets would still react to it in a pretty meaningful way. The idea that we were going to go to 4% and then stay at 4% was already priced in to Fed fund futures through the end of ’23.

So this whole idea that Powell somehow shocked the market. It’s one of the more entertaining things

today, in my opinion, is just that equity markets were so taken aback by it while you had three or four basis point moves in interest rates across the US curve. And just a big shrug. 

To me, the big news today was probably out of Europe where people were potentially discussing 75 basis

point hike from the ECB. The Czech Republic doing an emergency meeting on energy.

There were some more interesting things that happened in the market today, but I think I overlooked in favor of an eight and a half minute speech by somebody just re iterating what he had already said 900 times.

TN: So let’s talk about Europe a little bit, because that’s interesting. I mean, Europe is in a world of hurt, right? We’ve talked about that several times. So what do you think the path for the ECB is from here? Do you think they’re going to hike 75?

SR: No, I think they hike 50. I think 75 is probably a little too aggressive for them. I mean, we were talking about ten basis points three months ago as being something that we thought would be interesting. And now the idea of floating 75, I think that was mostly to defend the currency, right. They knew that there was a known that you were going into Jackson Hole and if you front ran that with the leak that you might go 75, you’re going to defend your currency somewhat against a potentially hawkish Powell. It’s pretty straightforward in terms of defending a Euro at one. So I think that was basically the case. Call 50, maybe 75, I don’t really care. They’re going to hike, and they’re going to hike in a pretty meaningful way, particularly for a place that is already screwed. Right into the recession, right? Yeah.

I think it’s a pretty interesting opportunity to go long the long-end booned and short the Euro. Yeah, we’ve talked about that a few times here and that’s great.

TN: Okay, guys, what else do you have on the, Albert, Josh? Are you guys hearing anything else on US economy or Jackson Hole? 

Albert Marko: Sam mentioned about the equity reaction. How much of that is really because

of the low liquidity right now? There’s no traders really out there, no volume out there really, at the moment. 

SR: But liquidity works both ways, right? If you have low liquidity, you can rip it. It can get ripped either way. And I think what you saw immediately following his speech was you saw a leg down, then you saw 1% leg down, 1% leg back up, and then a two to 3% leg down, depending on what industry you want to look at. Right. So liquidity works.

AM: But you’re right, nothing was new. That rally that they launched for the weeks prior to that, you expected them to go hawkish after that, what are they going to do? Go dovish and go to 4400, 4500 and look ridiculous? Nothing new came out of this. He’s right about that. 

SR: I think there was an opportunity for them to potentially begin to say, hey, we’re going 50s and then 25s, and then we’re going to pause at 4% and we’re going to see how much we’ve ruined everything. There was the potential for that.

But then when you get STIs, you get financial conditions ripping higher, you have meme stocks

coming back into the news. Yeah. The Fed is not going to consider that type policy. If anything, they’re going to look at that and say, hey, it looks like short term neutral is a little bit higher than we thought it was. We need to move a little further and then begin to pause.

So if anything, the equity rally going into Jackson Hole was more problematic for equity markets than people thought. 

TN: So do you think some of those 25 expected 25s could be 50s in say, Q4?

SR: I don’t care if they’re going to get to four and then they’re going to stop and they’re going to get to four before they’re going to get to four around December and then they’re going to see what kind of carnage they’ve done. If they haven’t done enough carnage, they go higher. Pause there.

TN: That makes sense.

SR: The pace is probably I would say the pace kind of matters for shock and all purposes,

but in general the pace is kind of meh.

The end is really important and the length of staying at the peak is what is truly the most important thing here. If they’re there for a year and a half and they don’t care about a recession, that’s one thing. If they’re there for six months and cut by 75 because we’re in a recession, then go back, that’s a different thing. But I really don’t care how quickly they get there.

TN: Okay. And the run up to the midterms has no bearing on what the Fed is going to do, is that? 

SR: None.

TN: None. Okay. I just hear that from time to time. Well, the midterms are coming, so the Fed

is going to just relax for a few months.

AM: You hear that mainly from me. From my perspective, it’s always been like when I say Fed, I want to say Treasury and Fed together because of Yellen.  But sometimes they have those concerns. Like they don’t want the current administration looking bad. I had a midterm. Yeah.

SR: That should sail.

AM: Well, that should sail because just because of the ridiculous antics that they pulled recently with inflation, it’s being ridiculous. So you’re right, that ship has sailed.

TN: Well, I mean, are they ridiculous or not? I mean, inflation has definitely risen and they’ve definitely taken action to offset inflation.

AM: Yeah, they’ve done that in a vacuum because China is not online yet and Europe is a complete disaster at the moment. Right. And we haven’t had a real event to drive oil up into like the 130s, 140s again. God forbid we have a hurricane in like a week that goes into the Gulf of Mexico while Grandhome is sending out letters to all the refiners saying you can’t export anything anymore. There’s plenty of room. 

TN: She’s encouraging them. She’s not requiring them. Right?

AM: Yeah. Okay, well, we’ll see about that.

JY: She’s making them an offer that they can’t refuse. So my general take was just like, I’m not a Fed watcher. My general take was kind of stagflation coming out of this. Right? It’s like policy that can’t get too extreme to really like they’re going to try to torch the economy, but they’re also not going to go to a 15 interest rate or anything like that. They’re going to go to a four or whatever, and maybe they’ll go slower or faster.

I think there’s some political motivation there. So maybe they go slower and then they turn on higher after the election. Maybe not. Unclear. Kind of doesn’t matter from my perspective.

What does matter is, like Albert was saying, I think there’s a decent shot that we end up with higher oil prices. We end up with other factors. So, like, there are various drivers that are pushing, especially in the rental market, shelter higher, not lower. And so with persistent inflation in the biggest household bucket, and then with a likely move higher this winter in oil and diesel and probably also gasoline, it’s going to look pretty ugly. And if you have them stopping kind of at four, maybe going to let’s say five or something, but inflation is at ten or nine or whatever, right? Some directionally, really high number. At some point, you just start ticking in where you have negative real and positive nominal, and that’s just hard to break unless they go a lot higher. But if the economy is sucking, that makes it really hard. So that was my sort of general take from what they were saying.

AM: I wanted to come back and ask you about the SPR just real quick about the oil in it. Some of it has got to have degradation, and there’s a lot less barrels there that they can actually release. They might have to stop in end of September. You might start seeing oil rise even before October.

JY: Yes. My base case is not that. My base case is there’s a little bit of contamination, but they’ve managed to reduce that either by not pulling from the caverns that have had contamination historically or by treating the oil or something. My base case is that the oil there is extractable, except they can’t get the last barrel because there’s a certain percentage that needs to be there for the caverns to continue to be

functional, and they’re not going to destroy the storage caverns just to get the last oil. That’s my base case.

But I think there’s a reasonable expectation that there’s less oil there, given the history of contamination and the issues. And they did have a big draw this past week, but prior to that, they had multiple smaller draws. There’s also the crude quality thing, which I’m not really in the crude quality matters camp. I think there’s sort of this bizarre notion that crude, which is mostly fungible, really matters. It did to some extent before you could export oil and before various changes in US refineries.

At this point, it matters a little in terms of getting a couple of dollars, more or less per barrel, depending on transport cost. But I don’t think that’s really affecting the global balance. And I think it’s sort of like

a magic trick, right? It’s like focus on this and not like the thing that actually matters.

And so I’m glad you didn’t bring it up. I guess I brought it up and I just don’t think it matters, though.

TN: Great. Thanks for that, guys. Okay, let’s move on to China. Albert, over the past a week or so, we’ve seen a number of stories saying that China fiscal stimulus may finally be coming.

And we’ve seen some movements, say, in China, tech stocks, these sorts of things. So can you talk us through what you’re seeing with China in the stimulus camping? And why now? They’ve waited so long. Why would it be coming now?

AM: Well, it’s coming out because the policy and the dollar is so high, the Chinese economy is struggling at the moment and they come out with these mini stimulus announcements and there were shots across the bow. I mean, the worst thing right now that the Fed can happen is China stimulating commodities ripping at the moment, that would be absolutely atrocious. Inflation will start going higher and we seen like Josh said a 10% CPI prints coming out and they’re going to be forced to do 75 basis points again. It would throw a wrench in a lot of things and it’s not good if they stimulate it right now. 

But after the election, after the US election, they can do what they want to do because they have their own interests at heart at the moment. They cannot let the Chinese economy fall to a point where they can’t recover in the near future.

TN: So what do you see coming out in the near term? This $229 billion bond sale? That was a start, right? So do you see more than that or dramatically more than that coming out? And how quickly do you expect? 

AM: Yeah, I expect by January that will have a significant stimulus package coming out. This little SEC audit deal was basically a gift to delay it as much as long as they can.

TN: Okay, very good. And then so you don’t expect a significant amount of Chinese stimulus before, say, December or something like that?

AM: Yeah, before December. 

TN: Okay. Sam, what do you think about that? Do you think China stimulus hurts the US? 

SR: I really don’t think that the Fed would care or go 75. I mean, it’s commodities, right? And the Fed tries to ignore commodities as much as possible. So yeah, you’re going to get a rip in oil because there’s not enough oil to go around, there’s not enough oil for China and it’s going to coincide with the end of the SPR release. So you’re kind of screwed there. 

Copper, all that stuff goes higher. I don’t think the Fed cares. The Fed is going to try to cut that out. Then they’ll pivot core and you’re going to have a really weak Renminbi and you’re going to have probably at least a little bit of a pass through to US consumers on the goods front as you get goods to flow back. 

So you could actually see kind of an interesting offset where core goods kind of begins to decline on a Chinese reopen. Commodities rip and you get the, hey look, it looks like core is moving back towards two. We’re not going to have to raise rates as much because we don’t really care about headline, we can’t control oil, we can’t pump more oil. 

So I think it’s a weird kind of catch 22 where the Fed is going to have to pivot from talking about headline to talking about core. But I think they’re happy to do it as long as that core is really moving lower because I think they know they’re screwed on energy. They’re in so much trouble in energy, commodities, et cetera, that there’s nothing they can do.

TN: I think you’re right and we’ve needed a weaker CNY for about six, seven months now. So I think it’s about time and we’ve started to see it move, but I think we’ll start to see it move more dramatically soon.

Okay, guys, let’s start looking at the week ahead. Just a quick kind of round the horn of what do you think, Albert, what are you looking for for the coming week?

AM: I’m looking for a little bit of a rally back off these loads here, try to bring it back to 4200. I just personally think that the economy is in trouble, they’re delaying a recession as long as they possibly can, but it’s coming. So I think a little bit of a pump next week and then probably heading back down into September.

TN: Okay, Sam? 

SR: Oh, I agree with Albert there. I think the knee jerk reaction today to the Fed is going to be unloud as people begin to look at what really went on in rates. What’s going on in FX. The concentration should be on what’s going on in Europe. And the flow versus the stock problem that nobody seems to be able to figure out. Which is you can stock as much gas as you want in a bunch of caverns in Europe. If you don’t have flow over the winter, your stocks really don’t matter. I think there’s going to be a little bit of a realization that stock versus flow matter more than stocks and at some point you’ve got to figure that one out. So that’s what I’m watching.

TN: Interesting. Okay, Josh, what are you looking for in the week ahead?

JY: Just more information on oil demand. So we’re starting to see reports of surprise, higher oil demand than people would have thought, which coincide with actual reports of oil demand when you look at the raw data. So that should be interesting to see sort of how that gets processed and then sort of how oil price may or may not get suppressed. Again, just as we get more good data points, price should go higher, but it doesn’t seem to want you for now.

TN: Very good. From the energy capital of the Universe in Houston, Texas, Josh Young, Sam Rines.

Guys. Thanks very much. Albert, thanks. Have a great day, have a great weekend and a great week ahead.


Rotating Permanently into Cyclicals

In this Morning Run BFM episode, Tony Nash shares his views where equities are heading now that the 2020 Election has concluded. Will the new administration reverse China policies by Trump? Also, what is the implication to the world exports with a weaker USD and stronger CNY? Lastly on oil: what is its future? Will the rally continue? Does it have enough support?


This podcast first appeared and originally published at on January 7, 2021.


❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

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BFM Description


With a blue wave in Georgia, what does this mean for the US economy and equity market? Tony Nash, CEO of Complete Intelligence, tells us that the rotational play is now here to stay while giving us his view on oil prices.


Produced by: Mike Gong


Presented by: Lyn Mak, Wong Shou Ning



Show Notes


WSN: Joining us on the line for his take on where markets are headed is Tony Nash, CEO of Complete Intelligence. Equity and currency markets were waiting for the Georgia election results, which have just come out. Given that outcome, where the Democrats have won, where do you see U.S. equities heading?


TN: We don’t see major upside for U.S. equities without significant short-term intervention by the Fed or by some stimulus or infrastructure package. Given where Congress is, I’m not sure that there would be the ability to get much through Congress so it would have to come from the Fed. It’s possible, but we see more the hard assets like gold and commodities. And then you see crypto currencies rising pretty fast as well. But the risk really with equities is to the downside more than to the upside.


WSN: But if we just look at last night’s flows, there was some rotation into cyclicals like banks and small caps with less fund flow into big tech, perhaps over concerns of increased litigation action against them. Do you think this will change into a more long-term kind of rotation?


TN: We’ve expected that for some time. That rotation is long overdue. But the Fed have enabled tech and crypto to have a longer run. That rotation has been put off a bit. So if now is the time, great. We would definitely welcome it. We’re just overexposed in certain sectors.


WSN: And meanwhile, last night, US 10-year treasuries top two percent. What does that tell us?


TN: The U.S. is having a harder time raising money? They need to pay a little bit more to get money. I don’t necessarily think it’s a harbinger of inflation. Although it’s possible with a weaker dollar. I would say higher import prices. Chinese yuan on the run, strengthening. You may have higher import prices, but people have been warning about inflation for years now and we just have not seen it register. I think it just means that that the U.S. Treasury has to pay more to raise money.


WSN: And with Biden coming in on January 20th as the next US president, I would like to see a reversal of Trump’s more adversarial policies with China?


TN: Biden will be very accommodating to China. I think you’ll see different parts of the House and the Senate not be happy about it. But he’ll be absolutely extremely accommodating. More accommodating than Obama was.


WSN: What impact do you think that might have on the U.S. economy? Because in the past there was some shift into more U.S. based manufacturing. Will that then reverse?


TN: With the USMCA, the NAFTA number two agreement, I think there’s more incentive for companies to have facilities in the NAFTA zone. China obviously is more expensive and with an appreciating CNY, that makes it more difficult to invest while you get less for your money in China. China is becoming an increasingly hard sell. That has been the case since 2017, 2018. It’s not going to turn back. Until there is a reciprocal and enforceable investment agreement in place with China, I think China is where it is. I don’t think you would see a mad rush of direct investment going to China.


WSN: What are your views in terms of where the U.S. dollar is hitting? Because you just mentioned that the Yen is likely to appreciate?


TN: It already has. The Chinese officials are becoming a little bit nervous about how strong CNY has become because it’ll put a real damper on their their ability to export. You have the Euro versus CNY weakening. You have the Dollar versus CNY weakening. It’s coming to a point where it could be somewhat problematic for China. So they will push to weaken their currency, maybe not immediately, but say in first quarter. As you see more stability, post Brexit with the new normal Europe. As you see more stability in the US with the new administration, I think you’ll see a bit of relative strengthening of those two currencies versus CNY.


WSN: And shifting our attention to one of the commodities: oil. Yesterday, Saudi Arabia’s cutting oil output while Russia is increasing theirs. What’s the rationale for this? And OPEC members then divide it on production quotas?


TN: OPEC members may verbally agree to things. Whether or not they comply with that has been a burden for OPEC for decades. So what they all want is more volume export and the prices is the real issue.


So I think there’s an intention to present mixed messages so that there’s uncertainty in the market so that we see Brent price that’s sustainably above 50 dollars. That is is good for OPEC. That’s good for some of the producers like Malaysia and Texas where I live. I think consumers, we don’t necessarily to expect to see a sustainably strong oil price because we don’t necessarily expect to see a dramatic recovery in 2021. But we don’t expect to see a dramatic recovery that would spike oil prices up to 70, 80 dollars.


WSN: Do you expect oil prices to be where it is, which is currently around 50 U.S. dollars per barrel for WTI?


TN: For six plus months, we’ve expected a spike in January. And we’ve been telling people since July, August that we would see a spike in oil prices in January. And this is exactly what our artificial intelligence platform has told us for quite a long time. So we’re seeing what we’ve expected. We’ve also expected a fall going into February. Like I said, this is great. This is very much in line with what we thought would happen. But we expect there to be some downside to this and downward pressure within the next 30 to 60 days.


WSN: All right. Thank you for your time. That was Tony Nesh, CEO of Complete Intelligence, giving us his views on where markets are heading. And it seems like it’s not surprising that there’s a bit of a market correction or at least a market rotational flow out of tech, which valuations have kind of hit all time high and some rotation into the cyclicals like banks and small caps. But I think his views on oil are pretty interesting that it’s you know, we are going to see maybe a bit of downside from here.


What will he take? Reasoning?


LM: I think his comments about particularly what we can expect out of a Biden administration were quite interesting because commentators now kind of are kind of split over how they believe Joe Biden will kind of stack up compared to Barack Obama once he is inaugurated as president of the U.S. And the idea of Joe Biden being more accommodating than Obama, particularly with Trump also still continuing his crackdowns on China. It’s almost enough to give you whiplash, isn’t it? Because once January 20 is rolls around, how much of Trump’s measures will be rolled back?


I mean, only recently he’s just signed an executive order as well, banning several Chinese payment apps over security concerns. So this affects eight payment apps and it’s supposed to take an IT take effect in 45 days after Trump has left office.


WSN: Yeah, and what’s interesting is these eight p.m. apps are very well known to include the likes of ADP, Tencent, Cucu and even WeChat P now in the executive order, said that these apps captures swaths of information, including sensitive, personally identifiable information and private information. Now, how much of this an impact will have is unclear, since it’s understood that the usage of these apps outside of China remains limited. For example, the ALP has roughly one billion users, but they are mostly in China.


However, it does have deals with merchants in the U.S. such as Walgreens, and claims to work with more than two hundred and fifty overseas partners. Now, separately, the New York Stock Exchange has made another U-turn on its earlier U-turn to delist three Chinese telecom companies, which be. Going round and round and round, yeah, it’s like a mini roundabout now, so and these three companies are China Mobile, China Telecom and China Unicom.


LM: So the NYSE first announced that it would delist the companies on New Year’s Eve before changing course four days later. And the delisting complies with Trump’s executive order banning investment in Chinese companies with purported ties to the military. So the exchange said its latest decision is based on new specific guidance received on Tuesday provided by the Treasury Department. Treasury Secretary Steve Mnuchin reportedly called the NYSE president, Stacie Cunningham, to voice his displeasure with the decision to allow these three companies to remain on the big board.


WSN: Well, I think this story will just get the plot will get thicker and thicker, and whether the roundabout will get bigger and bigger, we’ll just have to find out. But up next, we ask the question, what can you do to attract more foreign direct investment for us? Ross, the senior economist with Mark, will be joining us for that discussion. Stay tuned for that BFM eighty nine point nine.


Visual (Videos)

What negative oil prices mean for the COVID-19 economy


There was a worldwide shock when U.S. ended with negative oil prices for May contracts. It dropped to minus 38 dollars a barrel this week, crashing into negative territory for the first time in history.


While demand has dried up as the COVID-19 pandemic paralyzes economies and keeps people at home,… excess supply is in limbo not helped by an intense price war between Russia and Saudi Arabia.


What do these ultra-low oil prices mean for producers and what does it tell us about the world economy as it grapples with the coronavirus?


Today, we’re joined by Dr. Graham Ong-Webb who joins us from Singapore’s Nanyang University and Tony Nash, CEO and Founder of Complete Intelligence.

Arirang interview on negative oil prices


Show Transcript

AN: We start an in-depth discussion with experts from around the world. There was a worldwide shock when US oil contracts for May dropped to minus $38 a barrel this week, crashing into negative territory for the first time in history. While demand has dried up, has the COVID-19 pandemic paralyzes economies and keeps people at home? Excess supply is in limbo, not helped by an intense price war between Russia and Saudi Arabia. What do these ultra low oil prices mean for producers?And what does it tell us about the world’s economy as it grapples with the Corona virus? Today, we’re joined by Dr. Gray Ong WebB, who joins us from Singapore’s Nanyang Technological University. And Tony Nash, CEO and founder of Complete Intelligence.


AN: My first question to you, Dr. Ong-Webb. First, what caused the US oil prices this week to fall to such historically low levels?


OW: Well, we’ve seen the slashing of oil prices all around West Texas and intermediate and global crude oil have plummeted because of the severe price for it occurred over the weekend, particularly led by Saudi Arabia that sought to slash oil prices by about four to seven dollars a barrel. And this price war was triggered by the implosion of the OPEC Plus Alliance a week before between, in terms of the breakdown in the orchestration between Russia and OPEC led by Saudi Arabia trying to come to an agreement about the cut in production. As you know, previously there was no agreement to cut production by 7 million barrels.


OW: But of course, the Russians withdrew from this discussion with the concern that this would be using a lot of space to U.S. shale oil companies to occupy the gap. So Saudi Arabia went onto this price war, which then triggered a cascade into negative territory, which was, as you mentioned, unprecedented in history. But really, I think this is the story about the collapse in oil prices is a confluence of a lot of factors that you can discuss today. This is a very interesting industry, as you know, because of the way the oil sector is set up.


AN: Right. In Russia and Saudi Arabia, they did come to an agreement eventually. But people are saying that the OPEC’s decision to cut oil production came much too late. And while, Mr. Nash, all eyes are now on the futures contracts for June, but that really hasn’t been much cause for optimism has that admit this pandemic can as for calls for a swift economic recovery get thinner and thinner. Actually, some analysts are saying that oil prices for JUne, they could actually fall to minus a $100 per barrel. What’s your take on this?


TN: No, I think it really all depends on how soon economies get back to work. We have a couple of states here in the US, Georgia and Tennessee, that have said that they’ll get back on line very soon, possibly by next week. So if other states follow them, I think you’ll start to see demand pulled and crude oil pulled along with that demand if it gets started. If it gets pushed back in the president’s daily briefing, he just said today that they may consider, you know, pushing some of these social distancing and other requirements further into the summer if the state level economies stay as locked up as they’ve been.


TN: I think it yeah, it could be pretty terrible for crude oil and it could be pretty terrible for most commodities. So, again, it really all depends on how quickly the countries around the world get back to work. And it really depends on the local governments as well as the national governments making those decisions to put people back to work. What’s interesting here in the states is we’ve started to see people protest in cities across the country to get back to work. And so there is a couple of restaurants here in Houston, a couple of businesses around the country that are insisting that they stay open. A restaurant here in Houston will start sitting people this Friday night.


AN: And the businesses may want to go back to normal. But, well, it looks like demand might not pick up quickly, I mean. But then this also isn’t just a U.S. problem as you mentioned. Brent crude has been faring better than U.S. shale for sure, but it’s also taking a hit amid a supply glut lessened by the price for that Dr. Webb just mentioned between Russia and Saudi Arabia. And when in this situation when demand has plunged as much as 30 percent globally and as much as 70 percent in countries like India could Brent also flip negative do you think, Mr. Nash?


TN: Now, look, the reason that Brent that WTI went negative was it’s a function of the exchange that it trades on and on the NYMEX exchange, they let those prices go negative because of, partly because of physical delivery of crude oil. But WTI also traded on the ICE exchange where Brent is traded. And the ICE exchange didn’t let WTI go negative. They let it go to zero. So I think the worst case we’ll see for Brent is a zero price simply because the exchange won’t let the price go below zero or they haven’t let it go below zero. So if ICE, if the Inter Intercontinental Exchange stands in the way of seeing negative Brent prices, then you just won’t see negative Brent prices and they’ll stop trading.


AN: So you think that there might be some kinds of intervention going on there? Dr. Ong-Webb, well, OPEC is due to start cutting supply by 9.7 million barrels per day, and that would be reducing about 10 percent of global supply from May 1st. That is a historic cut. But do you think that’s enough?


OW: I can clearly, the answer is no. Whether you are your own oil expert or whether you’re an observer of markets and how the global economic machinery is moving, or in this case has seized, it’s come to a grinding to a halt. Well, the answer is, as I mentioned, no. I mean, we know for the month of April we’re seeing a reduction in terms of demand by about a factor of three to the agreed all production cuts by the cartels by 9.7 million barrels. Also we’re looking at 30 million barrels less consumed in April. So clearly that’s an indication that first, we have a cuts, if you like, not enough. And there will have to be, whether we like it or not, all cuts along the way, simply because in allusion to his point about storage capacity, which is an important factor in the price equation of oil, is that there’s just no way to put oil anymore. I mean, tankers are filled to the brim. I mean, 60 percent of storage capacity globally is being filled up by the end of April, I think, by the beginning of May, there’ll be just simply nowhere else to put the oil. And so, there will have to be a slash in production. But this is just an easy thing to say because of the complexities of the way in which oil is produced, the infrastructure behind oil. We can’t simply just turn off the taps. And the oil production companies know this, that if fields are closed, they’re just simply difficult to reopen and we’re unlikely to resume them and achieve the prior optimalities in production. I mean, you can get back to those production capacities again. So a lot of push and pull factors at play here.


AN: So really the last major oil export. There is an incredible amount of pressure. And Dr. Ong-Webb, the oil crisis in the mid 1980s actually preceded the fall of the Soviet Union or made the pace rapid. If global oil prices remain around the $20 threshold, then which economies are going to be in hot water?


OW: Well, it all depends, right? So in the case of I mean, maybe Tony could speak to this more than I could about what’s happening in the US. On the reports I’m reading, I think thirty US dollars a barrel would help keep things afloat, literally. $30 a barrel or below, this will lead to more job cuts, especially to minor players in the oil industry are going to fall and lots of medium-sized and small producers in the US. Even in a place like in the Gulf states, where large margins are required because of the government’s subsidies and whatnot. I think quite a few golf econ might also. That it all depends. But clearly, despite the pursuit of more production efficiencies, especially the kind of efficiency we saw come out from all the previous oil slump in 2014, there is this complete collapse in demand and there’s no way of getting around that. And companies are going to fall. Jobs are going to be lost. And we just have to find a way to do to stave this off.


AN: And Mr. Nash, while hundreds of companies in the US, all companies are going to be very hardly hit by this decline in consumer demand, and also this is going to affect thousands and thousands of jobs. How do you think this is going to affect the pace of recovery of the US economy from this pandemic recession?


TN: Yeah, again, I think since this is a global government shutdown, really the pace is completely affected by the rate at which governments release these curves. I think if they don’t release the curves, if they don’t allow people to go to work, I think it becomes more and more difficult to have a quick recovery, even remotely quick recovery.


TN: I don’t want to unnecessarily paint a doomsday scenario, but the longer we stay at home, the longer we don’t allow planes to fly in the sky, ocean vessels to move, we don’t have demand in food markets, demand in other markets, it really damages every industry. It’s not just crude oil. I think that the key thing that we have to keep in mind here is that U.S. crude companies appear to be more damaged simply because they’re more transparent.


TN: Most of the oil and gas companies globally are state-owned, so they’re national oil companies. So there really isn’t the visibility to their performance and their expenses that you get with U.S. energy companies. So make no mistake, those companies are hurting just as bad. And when you look at companies like Saudi Arabia, Iran, so on and so forth, those guys have to be making $60 a barrel or more in order to pay off their bills every month to run their governments.


TN: So while we talk about, say, fracking cost it 20, 30, 40 dollars a barrel, when you look at the fiscal position of many of these Gulf states and even Russia, Russia’s very expensive to operate, until they’re making $60 a barrel or more, they’re actually losing money. So these guys can not afford to play this game very long. And I think they played their card at the wrong time because there’s a global demand problem at the same time that they’re trying to fight this war. So really, they’re hurting the U.S., but they’re really hurting themselves just as bad or worse.


AN: Exactly. And that’s very clear that the historically low oil prices will affect all global players. But it seems that Saudi Arabia and Russia, they all vying for this all supremacy, and Dr. Ong-Webb, just before you go, if that’s the case, do you think it’s worth? And over the coming months, who do you think has the biggest chance of emerging victorious?


OW: Well, it’s really hard to say. I think I agree with Tony that I think there are no winners in this game. And that’s that’s a problem we are facing today. We’re in the new normal. A lot of the previous assumptions or principles that govern competition, economic and political competition, are actually hurting us instead, because a lot of things that we have to do today are counterintuitive. And we are in an unchartered territory. Countries like Saudi Arabia and Russia are simply just following their political strategic instincts, if you like, which have served them well in the past, perhaps, but not anymore today.


OW: And so I think they’re not only going to hurt themselves. They’re going to have a further contribute to the further negative impact on the global economy. Clearly, there will be some winners out of this. If you’re in a storage business, I suppose especially oil tankers, I think its glory days for you right now, maybe momentarily. And of course, you’re energy hungry, oil importer perhaps, some have savings there. But then again, because of the collapse in demand, I mean, not much had either. Until the national economies and the global economy starts to move again and people are moving around naturally and buying things, buying services, I think all of us are going to continue to be hurt.


AN: So really, oil prices are really dependent on demand and we’re not seeing much of that and it looks like it won’t be coming back in in the near future.

News Articles

Oil prices could plunge below $20 a barrel this quarter as demand craters: CNBC survey

The oil prices article below is originally published by CNBC, where our CEO and founder Tony Nash was quoted. 


The oil price bust may not be over.


A historic demand shock sparked by the coronavirus pandemic is set to worsen in the current quarter, undermining any coordinated effort by heavyweight producers Saudi ArabiaRussia and the United States to cut supply aggressively and rebalance the market, according to a CNBC survey of 30 strategists, analysts and traders.


Episodic spikes of $20 a barrel or more in benchmark crude oil futures of the type seen last week cannot be ruled out as rivals Saudi Arabia and Russia attempt to reverse a damaging battle for market share and engineer a global supply deal which could cut up to 15 million barrels a day, the equivalent of about 10% of global supply.


But such price rallies are unlikely to last, according to the findings of the CNBC survey conducted over the past two weeks.


Brent crude futures, the barometer for 70% of globally trade oil, are likely to average $20 a barrel in the current quarter, according to the median forecast of 30 strategists, analysts and traders who responded to a CNBC survey, or 12 out of 30 respondents.


However, nearly a third, or nine of those surveyed, said prices may drop below $20 a barrel this quarter.


Amongst the more pessimistic projections, ANZ’s Daniel Hynes saw the risk of prices in the ‘mid-teens’ while JBC Energy’s Johannes Benigni warned that both Brent and US crude futures could ‘temporarily’ fall to around $10 a barrel.



New normal


The Organization of Petroleum Exporting Countries (OPEC), the supplier of a third of the world’s oil, and its rivals outside the group are “of pretty limited relevance in this context, as they are neither likely to be willing nor able to stem the current demand shock,” Benigni said.


Bearish forecasters said two forces would keep oil prices depressed in the second quarter — skepticism that Saudi Arabia and Russia would relent in their price war and commit to the deepest cuts in the producer group’s history (with or without participation from U.S. shale producers) and a glut in the current quarter caused by a monumental collapse in global demand as the full economic severity of the global coronavirus pandemic unfolds.


“A demand drop of 10% is the New Normal with oil,” said John Driscoll, director of JTD Energy Services in Singapore and a former oil trader whose career spans nearly 40 years.


Global commodities trader Trafigura’s chief economist Saad Rahim offered a starker prediction. Oil demand could fall by more than 30 million barrels a day in April, or around a third of the world’s daily oil consumption, Reuters reported on March 31, citing his forecasts.


And even if Saudi Arabia, its OPEC allies and major producers outside the group such as Russia and the U.S. did agree on aggressive supply restraint, it’s unlikely to materially drain global inventories that are closing in on what the oil industry calls ‘tank tops’, or storage capacity limits.



Too little, too late


“The long and short of it is that the current rally will likely be short lived,” Citigroup’s oil strategists led by Ed Morse said in an April 2 report.


“The big three oil producers may have found a way to work together to balance markets, but it looks like it is too little too late. That means prices would have to fall to the single digits to facilitate inventory fill and shut in production.”


Fatih Birol, executive director of the International Energy Agency said oil inventories would still rise by 15 million barrels a day in the second quarter even with output cuts of 10 million barrels a day, Reuters reported on April 3.


Citi expects Brent to average $17 a barrel in the current quarter and warned Moscow, Riyadh and Washington “cannot in the end stop prices from possibly falling below $10 before the end of April.”


Plus, travel restrictions, border closures, lockdowns and economic disruption caused by ‘social distancing’ and other measures taken by governments globally to slow the spread of the virus will exact a heavy toll on oil demand and could even linger when the virus clears, clouding the prospects of a recovery.


“As for the second quarter or even the third, I don’t see a V-shaped recovery for prices,” said Anthony Grisanti, founder and president of GRZ Energy, who has over 30 years of experience in the futures industry.


“The longer people are shut in the more likely behaviour will change…I have a hard time seeing oil above $30-35 a barrel over the next 6 months.”



Negative pricing


Standard Chartered oil analysts Paul Horsnell and Emily Ashford said they expect “an element of persistent demand loss that will continue after the virus has passed, driven by permanent changes in air travel behavior and the demand implications of businesses unable to recover from the initial shock.”


With demand at near-paralysis, oil and fuel tanks from Singapore to the Caribbean are close to brimming – stark evidence of the global glut.


Global oil storage is “rapidly filling – exceeding 70% and approaching operating max,” said Steve Puckett, executive chairman of TRI-ZEN International, an energy consultancy.


Citi’s oil analysis team and JBC Energy’s Johannes Benigni even warned of the risk of oil prices turning negative if benchmarks drop below zero, effectively meaning producers pay buyers to take the oil off their hands because they’ve run out of storage space.


“Theoretically, the unprecedented stock-build might mean negative oil prices in places, should the world or some regions run out of storage and if higher-cost production is stickier than thought,” Citi analysts said.


Despite the bearish consensus, nine survey respondents held a more constructive view. Within that group, six forecasters expected Brent crude prices to stabilize around the mid-to-late twenties in the second quarter while one called for $30 a barrel.


Tony Nash, founder and chief economist at analytics firm Complete Intelligence, and independent energy economist Anas Alhajji topped the range at $42- and $44 a barrel, respectively.


U.S. shale producers, who need $50 to $55 a barrel crude oil to just break-even, are struggling to maintain operations in a depressed price environment. That’s led to cutbacks in production and capital spending, job losses and bankruptcies across the U.S. shale industry and globally.


The oil market is underestimating such a shake out and its future impact on rebalancing the global oversupply, Alhajji said.


“Shut-ins are already taking place. Companies made major spending cuts and many will cut again.”


Markets are also downplaying the extent of the post-virus rebound on oil demand, Alhajji and Nash claimed, though determining the endpoint to the pandemic is near-impossible.


“We expect initial excitement over demand in May as the West comes back online, then it falls slightly as expectations are moderated going into June,” Complete Intelligence’s Nash said.


This article originally appeared in CNBC at