The Trigger For ‘Full On War’, Energy Price Explosion | Robert Ryan

The Trigger For ‘Full On War’, Energy Price Explosion | Robert Ryan

two weeks ago there was a lot of concern
about the war between uh Israel and Iran
escalating what’s your read on the
situation how if would potentially
affect oil you know you could you could
get to scenarios where you see $200 oil
prices um and you would almost surely
get U direct us involvement in there to
shut that down and make sure the Straits
are reopened and they more than likely
would have the support of China at that
point also could have a direct attack on
sa facilities that you know lasted for
you know months and took months to
repair that could uh take prices up over
$160 a barrel we’ll be focusing on
Commodities today and in particular oil
and gold two assets that have already
rallied tremendously since the beginning
of the year is there more room to climb
or is this it in the rallies for now
we’ll find out with our next guest Bob
Bryant who is an expert on Commodities
research he is the chief strategist of
BCA research’s commodity and energy
strategy prior to BCA Bob spent nearly
two decades working at the Commodities
markets at Clarendon Bankers Trust
Goldman Sachs and deuts Bank he is also
a veteran of the United States Navy
welcome to the show Bob pleasure hosting
you honor to have you on the show thank
you for joining us thank you David great
to to see you again truly yeah excellent
uh we used to uh while not work together
but we were at the same firm at BCA many
years ago so I I was a great admirer of
your work then I still am so great to
host you now um B let’s talk about uh
Eco data that came out today oil slid a
little bit uh on the GDP release which
came in lower than expected as you know
GDB came in um at 1.6% the consensus
expectation was 2.4% do you think oil
was pricing in a slower growth rate in
the economy um I think um you know once
you um you know look at uh uh net
exports and um you know the the the
stuff that counterbalances U the know
with the downdraft in the uh the report
today um you’re probably back to being
close to where the Atlanta fed expects
GDP to be which is about 2.8% growth for
the first quarter so you know we’ll see
how it plays out and it’s also good to
remember it’s preliminary um so it
definitely is going to be revised
inflation however the pce um inflation
data came in a little bit harder than
expected that is the uh fed’s preferred
core PC is a fed’s preferred measure of
inflation this certainly doesn’t bode
well for uh expectations for a cut
anytime soon do you think the markets
stock markets in particular are going to
react to this news negatively over the
next coming days or weeks yeah I I I
didn’t check the equities David um uh
but you know the Commodities um in
response to that um you know the GDP and
PC inflation um you know they’re they
they sold off a little bit and then they
they um you know traded back to where
they were beforehand um you know again
again um you know we’ll get more data um
on pce U but um you know it the it does
look stronger than than people had
expected um and it may you know if if
it’s confirmed U you know it could push
back a rate cut or maybe two rate Cuts
back to you know September that that
time frame uh away from June July which
is we’re expecting but um you know we’ll
see we’ll see how it plays out um you
know a lot of this stuff is you know
still working its way through the system
like higher auto insurance higher
medical costs that stuff is not going to
um you know it it’s not going to keep
inflation elevated well how much how
much of this higher inflation print was
a result of the higher oil price that
we’ve seen over the last two months or
so um I don’t think a lot um you know I
haven’t looked at it um you know in
terms of the contribution um you know
from Mostly from gasoline which is what
people um you know look at and and it’s
the reason everybody has a view on oil
because everybody’s spilling their car
but um I don’t think it’s had that much
of an effect uh you know we’ve averaged
something like 82 bucks in the first
quarter and our forecast for the second
quarter is about you know a little over
90 bucks so maybe 92 bucks for the
second quarter is until we get it is not
until we get into third quarter uh that
we expect to go over a 100 bucks on oil
um and that might give a little bit to
you know headline inflation uh for pce
uh but even there it’s not going to be
that huge you know in real terms if you
look at historically 100 bucks is not
what 100 bucks today is not what 100
bucks was five or 10 years ago so so
you’re saying that well we’ll get to
your oil price out looking just a bit
but uh uh this recent correction then is
it is it shortlived then it’s not it’s
not on its way down towards a bare
market for
energy um yeah I I don’t think so uh you
know we to to to get to uh demand
destruction in in energy you know like
where where prices take off and you know
they they really start contributing to
um you know these inflation gauges um
you know particularly for um you know
what consumers are most concerned about
so gasoline diesel fuel and that gas
prices which you know are are extremely
well behaved um you know you need to
get you know gasoline prices up above
$4.50 a gallon to um you know really
move the needle at all on these
inflation gauges as well as to get
people to change their
behavior so we’re we’re we’re a ways
away from that we’re trading we’re
averaging something like 370 370 is um
in the uh us for gasoline regular
gasoline now um we’ll be going into the
driving season in about a month and you
know you’ll see it probably move up to
$4 a gallon but even there uh you know
people will
be
somewhat you
know Frugal but they’re they’re not
going to change their vacation plans
they’re not going to change their their
lifestyle get get over 450 a gallon
or F closer to five bucks then you
really start seeing you know Behavior
change uh what does that translate to uh
WTI in terms of dollars per barrels
probably you know um maybe $15 $110 a
barrel thereabouts is when things start
to you know the needle starts uh jumping
around a little bit would would there be
a price point for crude oil at which the
economy starts to slow which is to say
that consumers really start to spend
less on driving travel Leisure and uh
and and perhaps businesses start cutting
back on spending because their base
energy costs are higher yeah um I think
that number you know where you really
start to have that effect on behavior is
probably $120 a barrel that’s what we
you know when we model this stuff out
that’s where we get to mostly um so you
know if if the OPEC plus folks um and
the uh producers outside of that mostly
in the US since they’re the margin and
they’re the swing producer as well um
you know somewhere around a 100 bucks is
an ideal setting for producers and
consumers once you start going through
110 and you’re on your way to 120 uh the
Saudis in the UAE are going to increase
their production and uh try to keep it
down they don’t want high prices uh
because of the demand destruction uh
that you know if you started making your
way toward 120 that would that would
certainly ensue um so you know it’s a a
fine line and a lot of the power around
how that that that whole thing evolves
is now in the the hands of the OPEC plus
uh producers most especially uh Saudi
and the UAE two weeks ago there was a
lot of concern about the war between uh
Israel and Iran escalating to a regional
War if not in the worst case a global
war it doesn’t seem that way for now
what’s your read on the situation how it
would potentially affect oil and exactly
the way you frame the question so we
just published some research um what is
today Thursday so we we published some
research today um looking exactly at
this um and you know this is not a time
to be complacent uh this is you know the
the situation is still very fraud you
could easily get to a um you know an
expansion of hos hostility um you know
more kinetic War environment um in the
Middle East um and you know it could
find its way into the Gulf and that’s
where it really starts to get people’s
attention um anything that threatens The
Straits of hormo anything that threatens
um you know Saudi production or UAE
production or Iraqi production um you
know because it has to it has to go out
of the gulf and through the straight of
forus to get to the market um the market
really uh stands up and takes note of
that um if it if the conflict stays in
um you know the Levant so in um in Gaza
in Lebanon or something like that the
market will be on edge and um you know
because there’s always a chance that
Iran becomes directly involved and Iran
and Israel once again um confront each
other um so I mean there’s all
these um what’s the word you know trip
wires U That Could set things off so you
know what we did in in this week’s
report is say okay what what happens if
we see um you know this happening and
and my colleague uh Matt G
girkin uh who runs our geopolitical
service I’m sure you’ve talked to him um
you know laid out the framework for this
and then we um you know ran it through
our models if these things things happen
and you know in some instances like if
you shut down the straights for um a
month the straight of Horus uh you know
you could you could get to scenarios
where you see $200 oil prices um and you
would almost surely get U direct us
involvement in there to shut that down
and make sure the Straits are reopened
and they more than likely would have the
support of China at that point because
China gets you know somewhere north of
40% of its own well out of that uh part
of the world um you know you also could
have a direct attack on Saudi facilities
that you know lasted for you know months
and took months to repair that could uh
take prices up over $160 a barrel um or
you know you could have the US you know
really deciding to lean into enforcing
sanctions uh you know uh against Iran
exporting its crude oil right now Iran
is
exporting like a little over one million
barrels a day um and that’s you know
there there are Trump era um sanctions
in place that are not being enforced by
the Biden Administration if for whatever
reason they decide to lean into that
it’s probably the lowest the least
damaging of those three things that I
just mentioned like the the closing of
the straight the attacks on Saudi
production uh but it would still you
know push prices above 100 probably into
the 120s at that point and then you’d
start to see Saudi and um the UA
releasing their spare capacity they hold
most of the spare capacity I I’ve heard
the opinion that uh the US uh is trying
not to get involved because they don’t
want to push the oil price up to much
higher levels during an election year um
could you evaluate that sure I I I think
that’s true I think the U the Biden
Administration is doing everything it
can to keep the market from pricing in
um an oil supply shock of any sort that
would send crude oil prices higher which
would drag uh gasoline prices um higher
with it um if we were to see that then
um without a doubt you know you would
see voter dissatisfaction with um Biden
and his
administration really increase and uh
you know it could cost uh cost Biden the
election um and and you know that you
know Russia is trying to get that done
um so there there’s a lot of things that
these that the administration is trying
to keep from you know entering into the
oil pricing environment um ahead of this
election C can you just explain in maybe
perhaps l in terms why a conflict in the
Middle East with today move the oil
price higher and cause in your words
potentially a supply shock given that
now the US is I guess on an independent
country basis one of the largest if not
the largest producer of gas because of
shale whereas 20 25 years ago during the
Gulf War that wasn’t the case so why is
it that tension to the Middle East when
move oil when the US has the ability to
Just Produce its own oil sure um so um
you know oil is a global market um you
know and um literally you know ships
literally move to where the price signal
tells them to go and um you know the US
has been a big exporter of oil now that
it’s been and and natural gas because
you say um and you know that once that
oil or natural gas gets on the water you
know unless they have a direct contract
that they’re uh meeting um you know the
owners of that cargo whether it’s a a a
producer of the commodity or if it’s a
Trader of the commodity whatever
um is going to look for U you know the
highest value point on the planet to to
to send that so this is a global market
um and the other thing that’s really
important is even though the US is you
know nominally
independent um the oil that’s produced
in the US is very light and very sweet
so that means it’s it’s you know it’s
very easy to refine and very low sulfur
and the refineries in the US are all
conf figured to run the heavier sour
stuff so much harder to refine and much
more sulfur in it and that most of that
comes from the Middle East the stuff
that the US is using or from Canada and
um once you threaten that Supply you’re
threatening the supply of the feed stock
of the refineries in the US Gulf which
is where most of the US uh refining
capacity is located and uh that’s when
the market starts to really twitch
because can’t run all of the
domestically produced crude oil in the
domestic refineries of the us we gota we
have to import that uh from the rest of
the world largely the Middle East and
Canada like I was saying just just
curiosity how how long were how much
investment would be required to to build
refineries or or amend refineries to
refine locally produced or domestically
produced gas that would take a lot I
mean there been um a lot of capex going
to that uh but it’s it’s been slow I I
you know I don’t think we’ve had a a new
Refinery uh put up in the uh Us
in yeah it’s like 40 years now I think a
lot of it has just been you know
refurbing it refurbishing them and
adding a capability to take on more of
this lighter sweeter Crew That’s
produced uh domestically at what point
do you think the US military would have
to get involved in the Middle East
between um Iran or Israel or any other
proxies they already were involved in
taking down those Iranian drones and
missiles that were lobbed over toward
Israel um so you know they’re already in
one way or another engaged uh to really
get fullon kinetic um you know in the
Middle
East any attempt to shut down the
streets of for would um you
know would immediately cause a uh the US
Navy to get involved so you know that
and that would be fullon War just to to
clear it out and to you know stop that
disruption so that you know that’s 20%
of the world’s oil that goes through the
straight of four moves you know the the
the world can’t live without that so the
the you know the Navy would get in there
you know they’d probably send some you
know uh ground troops in as well but and
and it would be sorted in short order
and that’s one of the things that that
we think um you know our our
geopolitical service as well as us me in
the commodity service um we think that’s
one of the things that’s restraining
Iran Iran does not want anything to do
with full-on war you know with the US
getting involved that way it wouldn’t
benefit them in some way to have higher
oil prices definitely if they could if
they could continue to export think
that’s the binding constraint if the if
if a blockade is put on and they can’t
bring anything in or out game over yeah
U so it’s not going to help them okay um
given that your shortterm to medium-term
Outlook for oil is up for now uh what do
you think the fed’s going to do about it
are they looking at oil to to make
monetary policy decisions yeah they’re I
they they look at it I think that you
know it’s it’s it’s really interesting
that there there was some work done at
the um ECB and um I think this was like
two or three years ago you know talking
about oil um not only as oil prices not
only as the you know the value of of a
commodity that’s been exchanged but it
impacts a it impounds a lot of economic
information in that price formation
process so uh central banks look at it
they look at um what’s happening in the
oil options Market Ben banki wrote a
paper along long time ago now like back
in the you know
2010 either side of that you know
talking about how options markets have a
lot of information so they they’re very
aware of that and you know when you look
at inflation expectations and how
they’re formed um you know more than a
few Studies have shown that um oil and
and gasoline particular are highly
correlated with um uh inflation
expectations and they also feed directly
into the uh actual inflation that we all
experience so you know we’re all trained
to to to talk about core inflation right
that’s what the central banks want
everybody to focus on but households
drive cars they buy food so excluding
food and energy from your inflation
gauge is meaningless to households
because that’s what they focus on so
these central banks are all you know
very dialed into that um and
yes so they do pay attention to it let’s
move on to they don’t they don’t always
get their assessments right no that that
is that is what I’ve heard yes their
track records rather inconsistent to put
M me and you okay well uh let’s talk
about gold which is a commodity that
does respond to inflation expectations
it’s been um taken the price has taken a
bit of a reprieve from its top from 2400
now down to
2300 uh 2340 as we speak today uh Bob
what’s what what’s next my
question um we’re you know we’re we’re
pretty bulled up gold David um you know
so on gold um you know we’re our next
Target we went through our first Target
2200 uh an ounce earlier in the year we
raised the target to 2300 literally
within a week or two it uh took that out
so now we’re at 2500 as our next level
um the the big drivers in the short term
obviously are the FED is the Fed going
to cut rates um and you know anybody’s
guess right now um given you know you
started your show with the um you know
observation on uh the GDP report plus
the inflation report you know the econom
is really strong right now the economy
the the variables the FED looks at and
the FED is the all-important central
bank for gold right it’s gold is
denominated in USD um and it is
incredibly sensitive to all the things
the FED cares about real rates dollar
you know the dollar exchange um uh
inflation inflation expectations all
those variables um you know are things
that the FED watches and they get
embedded in in gold prices so what
happens next you know the Market’s going
to wait to see if growth is too strong
for them to cut that’s the big question
right now uh if we don’t get you know a
25 basis point cut in June or July do
they move it back to September do we go
the whole year without a cut I mean
these are the the questions the Market’s
trying to resolve right now um you know
a lot of things are working in favor of
the FED right now that are really
important you know like the US
productivity is going up um you know the
we’ve got a you know a lot of IM
immigration in the US that is expanding
the labor force bringing more skills in
creating more demand that’s a really
positive Tailwind so you know you with
the productivity boom and higher
inflation you get or higher immigration
you get you know more output and you get
it you get more of it for the same
number of inputs so all that stuff is
good um and that argues for you know
well- behaved inflation or maybe even
lower
inflation uh but uh you know at the same
time uh you know you’re starting to see
and then over the medium to long term
you’re going to see more concern about
this you know the deficits in most
developed economies the the the the debt
to GDP ratios and the annual deficits of
these governments is doing nothing but
going up and that is inflationary
because the risk is that the central
bank is forced to accommodate that debt
and monetize it so increase the money to
supply to keep the the cost of the debt
the nominal cost of the that down keep
industry slower by increasing uh the
amount of money in circulation i’ just
like to people worried i’ just like to
share a chart uh with you and the
audience Bob so this here is gold in the
um uh gold is the bar line in this
particular case and the dxy is the
Orange Line traditionally or
historically they’ve moved in opposite
directions with a pretty steady inverse
correlation over the last month or so uh
they’ve moved pretty much in lock step
every step of the way that I can observe
U this is not normal why what what’s
going on here Bob so it is very rare and
that’s a great chart um it’s it’s very
rare to see the dollar strengthening as
well as gold strengthening we saw this
once
before um and usually what you’re
getting is uh a flight to safety uh when
you see that so now the the the safe
haven demand is coming on the back of
not only this you know really strong
fiscal expansion that’s occurring in all
the DMS but particularly in the US so
debt and deficits are increasing but you
know we’re looking at trade Wars um you
know um secretary Yellen was in China uh
secretary blinkin is in China right now
uh you know the a lot of the tension uh
in that relationship
boiled out into public view when Yellen
was there U so you know people are
seeking a safe
haven in that regard so the the
geopolitical risk um the the inflation
risk longer term that comes from this
you know we we call it fiscal dominance
uh but you know just central banks
monetizing the debt that that’s building
up on the back of all this um you know
stimulus that’s coming through fiscal
policy so these are long-term um you
know effects and then you got one thing
that’s really really interesting and
right now it’s like kind of you know
like
um people know it’s there they can see
it and but they can’t identify who the
players are so there’s like there’s a a
really strong bid for gold in the market
right now globally um and you know um
you know a lot of that demand is coming
out of China a lot of it is coming out
of central banks so um you know the um
you know Russia is getting very upset
that you know the the banks in the west
that are holding its foreign reserves
are going to seize those foreign
reserves and use it to fund Ukraine’s
war effort every other Central Bank and
every other country in the world is
looking at that and saying that could be
us you know the the the banks that are
Allied that have Allied with Ukraine
could literally freeze our assets and
take them use them to you know fund
whoever is is is you know fighting um a
cause that the West supports so now um
you know you’ve got a really strong bid
uh coming out of central banks for that
very reason and another very strong bid
in particular coming out of Chinese
households and U Traders and um that
is you know a really powerful force
working in way through the market so you
got all of these you know just a laundry
list of things that are supporting gold
and making it ignore the very strong
dollar I mean you know that that’s you
know the bid is in the market so you
know the the next thing to watch for is
that you know do the central banks
persist in buying even as the price goes
higher uh if they think it’s going to go
even higher they do uh if they don’t if
they back away and say no this has just
gotten crazy uh we’ll know and you’ll
see the bid Le the market but right now
it hasn’t um you know before we got on
together I saw it was you know gold was
trading at about um
2330 is thereabouts so it’s only down
about uh 3% from from its all-time high
you know from a week or so ago so and
that’s with the dollar still rallying
and that’s you know that’s with the FED
still saying or or the markets you know
pricing in a higher probability that
we’re not going to see any rate cut at
all this year the economy is that strong
that we don’t have we’re not going to
see another rate cut so I it’s
fascinating man it’s it’s really a
fascinating time so you mentioned
central banks buying gold you’re right
there the trend of buying gold from
central banks has continued into 2023
and 2024 uh we also saw repatriation of
gold right after um right after uh the
US froze Russian assets
is this part of a broader theme or trend
of dollarization I know that’s a very
broad concept but are you observing
other evidence should we say of
dollarization happening around the world
yeah I I I think you you you will I mean
you know at the margins you’re seeing
more uh transactions being done in Yuan
um not not to the point where it’s like
a a big Mega Trend but you know that
still continues um
you know and and the gold as well I mean
you know there you don’t have to worry
about currency conversion risk gold is
gold and um you know it’s been a medium
of exchange and a store of value for
like 5,000 years or more got a good
track record finally I want to ask you
what or which commodity you think would
perform the best over the next 12 months
or so um from an investment
standpoint in other words what are you
most bullish
on um
I would say copper and then gold and
then oil in that order copper is already
run up I think I was checking the charts
the other day 177% year to date yeah
yeah uh so you think there’s going to be
more room to climb why yeah yeah we you
know um we were um H um I think we were
talking about it uh today oh we we um
you know we had a a client call and U
you know one of the questions was um you
know from from the way it looks it looks
like you know the world is going to need
as much copper in the next 10 years or
so or the yeah 10 years now um as it you
know needed you know when China was
doing its you know huge infrastructure
buildup and and and all of its
manufacturing buildup and that’s about
right uh you know right now we consume
about 26 million metric tons of copper
um a year
globally um you know 45% of that’s done
in China and that that ratio is going to
start increasing in all these countries
particularly in the DM as they move into
the future so uh we estimated a while
ago we’d have to double uh refin copper
output double it by uh
2030 um S&P came out with something you
know after that and they said it’s more
like 20 35 but the ratio was still there
you know a doubling was needed so um you
know that’s going to be really important
and I think that you know today’s news
you know the news that vhp was going to
uh is bidding to take over uh
anglo-american uh largely because of its
copper assets um you know it draws a lot
of attention to it um and I think this
is probably you know that’s the opening
shot in a race to control more copper uh
at the mining level and at the refining
level does it concern you a final
question I’ll let you go Bob does it
concern you that a lot of the copper is
produced in I would say high-risk um
politically sensitive jurisdictions DRC
South America which has had a history of
nationalizing Assets in China even
um is is the US looking at this from a
strategic standpoint and saying we have
to start ramping up our own domestic
production somehow
yeah without a doubt the the US
Department of Defense had at the
beginning of this year like at the end
of January beginning of fed uh they
rolled out the first ever industrial
policy for the Department of Defense and
one of the things that received an
enormous amount of attention was getting
control of the critical minerals Supply
chains from getting it out of the ground
to shipping it to getting it refined and
getting it into the uh firms that are
using it to to to build out this
military capability that is front and
center uh for the uh us it’s front and
center for the EU and it’s front and
center for China so you’ve got the three
largest economies in the world and you
know two of them have been already
engaged in in a defense buildout but you
know that’s China and the US uh and now
the EU is funding higher defense
spending as well all these guys need
critical minerals none more so than
copper and if they want to continue to
do the you know renewable energy
buildout they’re going to need more
copper uh so I mean this is a long-term
story this is you we’ll be talking about
this 10 years from now to for sure okay
excellent insights Bob lots to follow up
on in the coming months I’m sure so
we’ll have you back to update this on
commodity news where can we follow your
work in the
meantime um at BCA uh research um you
know we’re uh we publish
weekly um you know sometimes we publish
these big reports like we did today so
um yeah you know just BCA research.com U
you know can find us can you just maybe
give us a teaser as to what you’re
working on next or some ideas you have
in the pipeline for your next uh big
report yeah um you know we’re working on
natural gas
um and the the linkages with the uh
electricity market so the demand for
electricity in the world that we’re
living in right now with um Ai and um
you know all of
the you know the the demand for
electricity that’s going to come from
you know running uh you know processing
centers you know warehouses like of the
sort that DHL and Amazon op operate and
the huge amount of um investment that
they’re making in these AI Technologies
these things are huge energy consumers
huge and uh that that is really going to
be the next big wave that we’re all
talking about pretty soon perfect thank
you very much Bob we’ll speak again soon
it’s my pleasure thank you for watching
don’t forget to like And subscribe

There are several factors for why oil and gold will likely continue moving higher later this year, according to Robert Ryan, Chief Strategist of Commodity & Energy Strategy at BCA Research.

*This video was recorded on April 25, 2024

Listen on Spotify: https://open.spotify.com/show/510WZMFaqeh90Xk4jcE34s
Listen on Apple Podcasts: https://podcasters.spotify.com/pod/show/the-david-lin-report

FOLLOW BCA RESEARCH:
BCA Research: https://www.bcaresearch.com/
Twitter (@bcaresearch): https://twitter.com/bcaresearch

FOLLOW DAVID LIN:
Twitter (@davidlin_TV): https://twitter.com/davidlin_TV
TikTok (@davidlin_TV): https://www.tiktok.com/@davidlin_tv
Instagram (@davidlin_TV): https://www.instagram.com/davidlin_tv/

For business inquiries, reach me at david@thedavidlinreport.com

*This video is not financial advice. The channel is not responsible for the performance of sponsors and affiliates.

0:00 – Intro
1:30 – GDP and inflation data
5:10 – Oil and economic growth
8:30 – Oil and the Middle East
16:35 – What would cause “full on war” in U.S.
18:30 – Oil and the Fed
20:27 – Gold price outlook
23:46 – Gold vs. U.S. dollar
28:40 – Dedollariztion
29:30 – Most bullish commodity

#oil #economy #commodities