Adam Rozencwajg - Global Macro Series - September 28th, 2022

[00:00:00] Adam

We have an energy crisis. We don’t have enough energy today. Yet people are saying that the answer is that we have to get away from oil and gas and invest more in renewables. It will only make this problem worse. This is not a carbon issue. This isn’t a global warming issue. For the time being we need efficient sources of energy to get us over this hump, and then we can debate the rest later. 

[00:00:29] Introduction

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Before you make investment decisions. Here’s your host veteran hedge fund manager. Niels Kaastrup-Larsen. 

[00:01:25] Niels

Adam, welcome back, and thank you for spending some time with Cem and I today for a look at the world of energy, and other natural resources after what can only be described as an interesting time to be involved in the financial and commodity markets. 

How are you doing? It’s been about five months since we last spoke, a busy time for you, no doubt. 

[00:01:42] Adam

Yes. It feels like it was only last week, so it’s been very busy. The time’s just been flying by, but happy to be back, and thank you for having me again. There’s certainly lots to talk about today. 

[00:01:51] Niels

Yeah, there’s quite a lot to talk about. So, it’ll be a fun conversation, no doubt. 

Now, since we last spoke, quite a few things have happened. So, before we dive into where we are today, maybe you can talk about some of the things, some of the policies, some of the decisions that have been decided upon over the summer. What are the things that stood out to you, and where does that kind of leave us as we head into the winter months, do you think? 

[00:02:20] Adam

I think it very much depends on where your listeners are listening from today. There’s a huge split in the world right now. If you’re based in Europe, I think you feel very much the threat of energy shortages as we move into the winter. I know Germany is largely consumed with headlines on that subject, and Switzerland as well.

I was in Germany and Switzerland in July, and it very much permeated the feelings there. I was in France on holiday and vacation in August, and France seemed to be okay. August in France was still a fairly relaxed place to be. But I think as we move here into the fall, and winter begins to approach, that’s certainly on everybody’s mind. 

In the United States, I think people largely feel insulated still. Gasoline prices are high, and the headlines here certainly are dominated around that topic. But to a large extent, that’s been manageable. Families can do what they need to do on the margins. I don’t mean to downplay that, but I do want to really highlight, for the American listeners, that the feeling of an energy crisis in Europe is very, very real and very, very foreboding.

Here (in the U.S.), it’s definitely hardships. It’s definitely inflation that’s running high, and that’s been very difficult, but it doesn’t feel quite as somber as it does in Europe. When we talk about specific policies that have been set and things of that nature, what I’m still shocked by is the fact that people don’t really seem to appreciate how we got here, and they don’t really seem to appreciate the decisions that will help us get out of some of these energy crisis issues.

What I mean by that is of course, we have the situation in the Ukraine with Russia, and of course that’s leading to huge dislocations and shocks as we move into the fourth quarter. But we ultimately have to blame also a huge reduction in capital spending in the oil and gas industry over the last decade to get us to where we are today.

We’re not seeing anything that suggests to me that’s changing. We’re not seeing big increases by the energy companies. In fact, when you look at the language from several of the administrations around the world, and the governments, they remain antagonistic, and as negatively predisposed towards the energy sectors, I think more than they ever have before.

To me, that’s very worrisome. That’s very worrisome because we have the fourth quarter here. We have the winter, which we’ll talk all about. I do think there’s the potential for a real choke point in the winter months ahead. But ultimately the problem here is the fact that we’ve diverted $2 trillion away from the upstream energy business. Until we put that back in the ground, we’re not going to fix the problem. On that front, we’ve made no progress since we spoke. 

[00:05:04] Niels

Yeah, no, that’s interesting. And by the way, it’s funny how you mentioned this thing about Europe. I would say even in Europe I get the sense that there’s a little bit of a difference between how people are feeling it right now.

You’re absolutely right. Many countries, we are feeling it. That’s probably the most talked about topic. But I did hear, I think actually in France, they still have this price cap on for a little while longer. So, people haven’t seen the bills yet. Maybe there are some other countries where that’s the case. 

Now, before we get into more of where we are today, I still want to stick with around the time we last spoke, sort of March, April time. Back then a lot of people (probably if I’m fair, including myself) were looking at all the headlines, were talking about the potential of commodity Supercycle, and we saw prices really go up significantly into early March. Do you have a sense of why that may not have played out? I used the word “yet” because it could still play out. I’m just saying it didn’t quite play out as many people were talking about at the time. Also, I’m interested in whether you think it could be in the cards still. 

[00:06:20] Adam

Absolutely, and I suppose it’s funny as a natural resource investor, who’s been doing this for, I’ve been doing it for 15 years. My partner Lee’s been doing it for 31. So, we’ve seen a few cycles. The idea that oil is where it is today, in the high $80s, $90s, and yes, down from $120, is bearish and is a sign that there’s something wrong with the oil markets because prices are too low, it’s not a Supercycle, you have to shrug your shoulders.

You do recall, it wasn’t only two and a half years ago that energy prices, oil prices, turned negative. Really, even on a month-end basis, across the board, we had the lowest energy costs in real terms, in human history, in the second quarter of 2020. Here we are, and in the last four or five months we’ve had the highest energy prices in human history.

From having gone to the lowest energy prices in human history, to the highest inside of two years, I’m going to say that’s still a fairly strong cycle that we’re in. Things have pulled back a little bit. We’ve seen a huge amount of speculative positions that have really started to bet against oil and natural gas to a certain extent, which I think is a very foolish move on the part of the paper traders.

We can’t forget that the size of the paper oil market dwarfs the size of the physical market. So, if you start to have all the speculative traders act in a certain way, you can have actions that begin to overwhelm the true underlying fundamentals, but that doesn’t really last over the long term.

Over the long term, the supply and demand dynamics really come to the fore. I think that’s happening here again. So, look, where are we in this cycle? First of all, I do take one issue with the term Supercycle, and what I mean by that is that a Supercycle in its definition suggests it’s different from a regular cycle. It’s a Supercycle. So, there’s something different about it. I think what people mean is that it’ll go on forever, and it’ll just keep prices higher and higher and higher. It won’t. We’re in a cycle just like any other commodity cycle. 

Now I don’t think that’s a bad thing, and in fact it means that we can look back on some of the other cycles and determine what makes them move and where are we? Are we closer to the end or the beginning? When I do that, I think that we’re very much at the beginning. Why do I say that? Commodity cycles don’t tend to end with energy at 4% of the S&P. The long-term average is 10% to 12%, and the big cycles tend to reach their crescendo highs between 20% and 30%.

We’re at 4%. In fact, we’re two standard deviations below the average. We haven’t spent any money in the energy sector. That tends to be what undoes the cycle when you finally have committed so much money, because everyone is so convinced that we’ll need more oil and gas. If you recall back in the last cycle, there’s all this talk that we were running out, peak oil. We were all going to go back to living in caves and what have you. So, the industry just spent and spent and spent. What they found was the shale, which was incredibly productive. So, they spent a lot, and were able to, with that spending, develop a very prolific asset. We haven’t seen anything like that today.

In fact, if you look at the rig counts and all the shale plays, they’re up a little bit, but I think that the fairly widely held view now is that the shale has not responded the way the industry would’ve expected, even six or eight months ago. We said that it’s largely a function of the companies having drilled out the best parts of the shale.

I think we’re starting to see that play out in the data. You’re just not getting that response. So, it’s a cycle, it’ll be over one day. It’ll be over when the $2 trillion plus whatever has to be accrued in the interim gets spent. It tends to last about 10 years; it’ll happen in a period of huge market frenzy.

You’ll see IPOs, secondary offerings, bond offerings, everything like that in the oil patch. We haven’t seen anything like that to date. Yeah, I think, this is a pullback. You get pullbacks in cycles all the time. For those that want to trade this market, I really would have to say, I’m not the right person to talk to, but for people that really want to play out over a cycle and try to make a long-term investment decision, I think the fundamentals are very, very much intact here.

[00:10:42] Niels

Yeah. Now, before I bring in Cem, because he’s got a lot of interesting questions lined up, I know. I do want to ask you one more thing. I’m sure you are also familiar with the little green chicken on social called Doomberg. They do some great work, and they have written a lot of good stuff also about energy, but there is one thing that I’ve heard Doomberg talk about. That is this idea that the best thing we can do to “punish Putin” is to flood the market with oil so that prices just collapse, and that may or may not be true. I don’t even know if it can be done, et cetera, et cetera. What I’m thinking here, and you are obviously much closer to the energy companies, to me, that sounds like yet another policy, whether it would be the energy companies that would pay for this.

So, I’m not so sure that it’s something they would embrace, but what’s your sense of where you sit in terms, when you hear proposals like this that may sound logical? There are some consequences here that may not be very pleasant for the people. It’s almost like the energy sector (and maybe that is the reason why we haven’t seen any CapEx) that they always have this in front of them where people are going to do things to their industry that are not very productive for producing profits.

[00:12:05] Adam

Look, I think it’s all very, very tricky, and lots of interesting questions, and lots of interesting hypotheticals here. To me it would come back to something a lot more simple, and just who, exactly, would be flooding the market with all this productive capacity? It’s not clear to me. 

If you look at the shale companies, they’re not in a position to do it, it’s not clear that the North Sea is going to do it, or I think it’s quite clear that the North Sea won’t do it. Offshore Angola there’s been some success, but they’re not in a position to start to flood the world’s oil market to punish Mr. Putin. That leaves, I suppose, the Saudis, and we’ve heard comments from them over the last six months that in fact they’re running out of their spare capacity. That’s something that we talked about two years ago and wrote about again more recently. A huge state secret for the last 50 years really, is how much can the Saudis ultimately produce.

They said in a press conference, that in fact, they’re basically now approaching their productive limits. The fact that nobody really picked up on that to me was astounding. Certain energy circles did, but most people didn’t. Let’s not forget that, for the time being (and I do fully admit that they make for strange bedfellows), but for the time being, Russia and Saudi Arabia do seem to be aligned in this OPEC+ group. I would not count on that lasting forever, by the way. For right now, they certainly are. 

So, I don’t know. I don’t really see where this oil would come from. The only place that it could come from would be the strategic petroleum reserves. Of course, we’re already doing that. I think that is frankly leaving us very, very vulnerable.

The fact that we’ve depleted and diminished our strategic petroleum reserves. I think the hope was to put a cap on oil prices. I think the hope was to try to flood commercial inventories. So, you have all these governments that retain these big government strategic stockpiles. Let’s release all that oil. It’ll find its way into the refiner’s inventories, into the commercial system, and that should have a limiting aspect or limiting effect on price. It really didn’t, maybe you could argue this pull back here of $10 or $15 was the result of that. But it certainly did not push oil back into a level where no one’s talking about it anymore, and that’s done already. There’s talk now that should be rolling off in October, and perhaps it’ll be extended. But the truth of the matter is, unfortunately we don’t have much left in the way of these strategic reserves. I think that probably it would hurt Putin to cap oil prices on a global basis. I just don’t really know how you do that. 

[00:14:44] Niels

Yeah. I know Cem, I want to dig into that side, so I will pass it on to you. 

[00:14:50] Cem

Yeah. I’m just going to continue to pull on that thread. Obviously look, the market is essentially a function of supply and demand.

So, let’s start with the supply side and then get over to the demand side afterwards. On the supply side you wrote in great detail, and I love when you put pen to paper, because you guys really dig into the numbers. So, I’d love for you to, if you can, to the extent you have those numbers available, speak a little bit to the numbers. 

Again, there was that hot mic issue that you referred to with Macron and Biden speaking that didn’t make the news nearly as much as it should have, about the Saudis likely not having the capacity to release anymore. Can you speak to any numbers, or just broadly where you think those reserves are? Why do we think they can’t release anymore, other than that hot mic issue? You write eloquently about that in some of your pieces. I’d love to hear about that. 

Then on the other supply side, the SPR, where we stand in drawing down the SPR. How much more room do we have to release et cetera? Just for our listeners to really understand the supply side current dynamics. 

[00:15:59] Adam

Yeah, absolutely. Here I’m going to go back a couple years, just so it really kind of puts things a bit of context, and I do have some numbers. I don’t have all my materials here. So, bear with me, and sometimes we’ll talk generally, and sometimes we’ll talk specifically. So, the oil markets call it, round numbers, a 100 million barrels a day. It’s a bit higher than that. It’s 101, but for most people, I think a hundred million barrels a day is basically an easy way to think about it. Supply and demand have both been growing in the order of magnitude of about a million barrels a day per year. Some years it’s higher, some years it’s lower. When you have an imbalance in the crude market, you’re talking about something where supply is running potentially 500,000 barrels a day above demand, or vice versa.

That would be a fairly big deficit or surplus. We’ve seen numbers much bigger than that. So, coming into COVID, obviously that was a huge demand disruption. So, we saw the market get really out of whack. Then coming out of COVID, we saw it equally out of whack on the other side, but I think the key point there is we talk about a big market, 100, 101 million barrels a day. Growing at 1% (give or take) per year. But the price gets set on 0.1% of that entire market; on a couple hundred thousand barrels a day. So, when we talk, just to give everyone a sense of the scale of these numbers, the shales in their peak, we’re growing between a million and a half, and 2 million barrels a day.

So they were, for the last 10, 15 years effectively, all of the supply growth in the world was coming from the shales. The rest of the non-OPEC world was declining. Then the OPEC block was forced to respond at different periods of time. There were times when they did that fairly well, and they kept the market in balance, and there were other times where they didn’t.

So, the two most notable times would be back in 2014 when oil prices, pre that oil was a hundred bucks, even though the shales were really humming. Then after what they called the Thanksgiving Day Massacre, where OPEC came, and the Saudi said, we’re not going to support price anymore. We’re going to increase production. We’re not going to keep cutting to allow the shales to grow. Our personal view is that they are actually probably more geopolitical in relation to Iran than anything, but nevertheless, whatever the case may be, that hurt the oil price. 

Two years later, they finally cried uncle. They decided to, in fact, cut production again, starting in 2016. Then of course in 2020, with COVID, OPEC came out, they announced that they would in fact cut production in order to help balance oil markets. With this unprecedented demand drop, because of COVID, anywhere between five to 10 million barrels depending. No one really honestly knows.

It depends if you take a moment in time or quarter end numbers, because things evolved so quickly. Russia didn’t want to go along with those cuts. So Saudi Arabia, in an attempt to push Russia in line, as we’re talking about here, decided that they would actually not cut production, but they would ramp up production in April of COVID.

Obviously, lots of people were focused on lots of things back then, and everyone suffers a little PTSD. But we can’t forget that in April of 2020, that’s what helped push prices negative, because everyone had this collective gasp, and they said, surely you have a swing producer. This is the most unprecedented demand event in a hundred plus years, and in the whole history of oil really. These guys are increasing production. Who knows what could happen to prices now. 

Since then, everyone’s been looking to the shales to see what the shales would do now that things have normalized after COVID. The shales have been growing, but they haven’t been growing all that much.

The real driver of why they’ve been growing has been this huge inventory of what we call, or the industry calls drilled, but uncompleted wells. These were wells that were drilled during COVID, and then they said we’re not going to pay the extra… 50% of the total cost comes in completing the well. They said, we’ve already had the guy drill it, but we’re going to hold off on completing it. This saves some money, and we can sell when we have less of a dire oil market. 

So, they did that. In 2021, they brought all those wells back online. Those are done now. So, you’re back to a normal level of these drills, but uncompleted wells. So, you look at the rig count today, the rig count is up 45% from the low, still below 2019 levels by about 25%, 30%.

So, it’s still quite low, but up 50% from the lows, but the amount of wells coming online hasn’t budged. It’s because we now have to complete one… We used to have to complete two wells for every well that we drilled. Now we complete one well for every well that we drill. So, we’re not seeing a huge response there.

We’re starting to see a lot of indications that the shale industry is saying to itself, look, I have 5, 6, 7 years left of really high-quality drilling inventory that can make strong economic returns. If I double my CapEx, that becomes three years. So, if it’s talking three years of inventory, I have to go and find a new play now, to be able to backfill my plans three years from now. Why don’t I just keep it at six, seven years of drilling inventory at the current rates, and I can have a leisurely think about this, and figure out what the next step for our company is. 

I think that you’re seeing that more and more often. Frankly, Wall Street continues to reward that mentality. Pioneer, which is probably the best run oil company in the shales today, and they’re in the Permian basin. They announce that perhaps at the end of 2023, they might think about adding another rig. They were inundated with questions from shareholders saying, how do I think about capital allocation? How do I model the dividends going forward? All this type of stuff. So, it’s sort of like what’s the point? The administration is still antagonistic, your shareholder base still prefers you to return money, and you don’t have all that much in reserve, except for a couple companies here and there.

So, I think that that’s been a real disappointment. The rest of the non-OPEC world, forget it. The rest of the non-OPEC world hasn’t done anything in the last 15 years, and they’re not going to do anything going forward. Maybe you get a little bit out of Canada. You get a little bit out of Brazil, but you see declines in other places. That whole thing has just basically been net zero. 

So that then leaves OPEC and how much spare capacity does OPEC really have? If you look through the different countries in OPEC, I think there’s at this point, a fairly broad consensus that really the only countries that have any spare capacity to speak of are Saudi Arabia, the UAE, and Iran.

Together, how much spare capacity that amounts to is widely, widely, widely debated. Bear with me here, I’ll go back and give a little bit of a history of Saudi, because I think that’s the kind of interesting one. So, Saudi Arabia stopped producing reserve reports like back in the 1970s when they nationalized the oil industry. Since then, it’s been anyone’s guess. We know obviously what they produced, because that number is a reported number, and that ties with inventory levels. You can’t really lie about that for too long without somebody noticing. But how much they have in reserve, or in their reserves, which is a geological concept.

It means how much oil is still in the ground, in the deposits in the ground, able to be produced at an economic rate. What that reserve figure is, is anyone’s guess. The Saudis have kept that flat for basically four decades, despite the fact that they’ve produced billions of barrels over that time.

I think what they would say is that, yeah, we’ve been replacing barrel for barrel as we go. Other oil commentators say that’s awfully convenient. Most companies and countries can’t do that. But I suppose if anyone could, it’s probably Saudi Arabia, because they do have this unbelievable geological endowment.

So that’s been the debate and it’s been a debate for a long period of time. A gentleman named Matt Simmons, who used to run an energy focused investment bank in the U.S., wrote a big book about it in 2005 called Twilight in the Desert, trying to determine what the potential Saudi field reserves might be.

He concluded that he felt that Saudi was probably nearing its maximum production levels at the time. That perhaps it would begin to fall in the years to come. That would obviously have a huge impact on the oil markets. Since then, the data has been sort of confusing a little bit, because Saudi Arabia’s production has basically bounced around.

So obviously, the most dire predictions of running out of conventional oil and gas from OPEC haven’t really come true. OPEC is still a big force, but it’s also not like Saudi Arabia’s really increased production all that much. In fact, they’ve gotten above 10, 10 and a half million barrels a day only once or twice.

It’s never been clear if they’re not selling some oil out of inventory, when they’re doing that as well. They claim to have 12 million barrels a day of total spare capacity. Which means even if they have all of that, you’re talking about a million and a half barrels a day. So basically, one year of what the shales had been growing in their heyday left.

We would argue it’s probably not even that either. When Aramco announced their public listing and their bond offering a few years ago, they released a whole bunch of audited reserve reports. Again, raised more questions than they answered in some regards. But you do notice a few things. Some of their biggest fields like Ghawar, notably, which is their super major field, has been in decline now for about 15 years, just like Matt Simmons had said. Secondly, the total reserve figure, which is what it all really comes down to, they didn’t really end up in an agreement with their reserve auditors.

This was a very kind of strange thing, but the reserve auditors gave one number. I think it was, what is it? 160 billion barrels, versus 260 in the bond offering document. I’ve never really seen that. They attached the auditor’s report, but it would be like if you went and had a company that audited, and they said yeah, no, we had our bank accounts audited, absolutely. Yeah. The numbers didn’t agree with what we’re showing in the balance sheet, but they were audited. 

That’s really what it came down to. That difference tells you everything, because the difference between the lower and the higher figures, really, if you get into the petroleum engineering, and the petroleum dynamics of it, really would be the difference between whether or not they could go to 12, 13 million barrels a day, whether or not they’re capped at ten and a half. 

So, this is the big backdrop, and I apologize for the huge tangent, but that’s the backdrop. So, you were referencing this hot mic issue, and back in (I can’t remember when it was), probably June, at the G7 or G20 again, forgive me.

[00:27:01] Cem

Yeah, June 27th on the G7. That’s right. 

[00:27:03] Adam

There you go. Macron went and spoke to the American contingent and was picked up on a hot mic saying, well I just got off the phone with, I think he got off the phone with MBZ in the UAE. Yeah, he confirms that Saudi’s tapped out. They can’t go any higher than that. 

Oh my God. Again, for real people deep in the trenches here, in the oil markets, this has been the biggest conspiracy theory ever. It came out like a spy movie, the way it was released on this hot mic. Then that was followed up again a couple weeks later, when Biden went to the kingdom of Saudi Arabia, and he met with crown prince Mohammed bin Salam.

In a press conference following their meeting MBS said, we’re investing heavily, and that’s going to take our spare capacity from 12 to 13. But after that, we have nothing after that. We don’t even claim to be able to take our capacity above that. So that was an interesting moment because it was really carefully worded, I think.

If you look, the facts of that statement actually increases Saudi Arabia’s fair capacity. They used to be at 12, notionally, now they’re at 13, but the language was really, really, really different. We’ve never heard anything like that from the Kingdom before, this idea that we’re tapped out.

I think that would be an anathema. I would think you would never message it that way. Now, all of a sudden, we’re tapped out at 13. So, does that increase their spare capacity, or does that lessen it? I suppose it’s still a debate, but I think the reason that you haven’t seen a bigger response is because of that. 

The rest of the OPEC world, just to throw this in because I think it’s important too, OPEC has a quota system, so they set how much this block of countries can produce. That quota gets allocated amongst the different countries. So obviously each country wants the overall quota to be low, to keep prices high, but they want their share of that quota to be really high.

That’s why cartels are hard to keep together. OPEC is held together now for 50 years. Every country in OPEC is producing below its quota. There’s no reason that should be the case other than depletion, that everyone wants to cheat. They want to produce above their quota while keeping the whole group in check.

That’s the tension, they’re all producing below their quota. So, it begs the question, why not lower the quota, or is it a geological issue? 

[00:29:31] Cem

Before again, thank you for diving in. That was fascinating. Before we go on to the SPR, in terms of OPEC, and I don’t want to go on too much of a tangent here, but there’s the question of Venezuela. It has the largest reserves in the world. Most people don’t realize that. Obviously there are political issues there, a lot of it driven by the U.S. restricting their ability to invest. I thought it was interesting as soon as Russia invaded Ukraine, one of the first visits that Biden took was to Venezuela.

Not many people are talking about that. Obviously, there are lots of lead times to ramp up that investment, but what are your thoughts there? What are the odds of, if we get in a really hot spot here, and we don’t have the Saudis (let’s say) are really cooperating with the Russians, a logical thing for the U.S. to do and the West to do is to reach out and do a rapprochement with Venezuela. What are your thoughts there? 

[00:30:28] Adam

Look, I think that Venezuela is really interesting. Obviously, if you go back to the Chavez regime which nationalized PDVSA, and that resulted in just an unbelievable gutting of that industry. I remember that this was really a story two or three years ago. The Venezuelan production numbers were falling so fast that I think it really shocked a lot of people. It’s heavy oil. In fact, most of the U.S. refining capacity in the country, that takes oil and turns it into refined products like gasoline, diesel, and jet fuel, was actually built to accommodate heavier crudes from both Canada and Venezuela.

When we found the shale, which is light crude, we didn’t have an optimized refining base. So that was actually a bottleneck a couple years ago. Because we were losing all the heavy crudes from Venezuela, and we were making all this light crude. Besides the point, it’s not going to be turned back on overnight. It requires a lot of capital. 

That industry has been totally cannibalized at this point. The machinery has been stripped and scrapped. There’s been a lot of damage to the Venezuela energy industry which is a real shame because that is, as you mentioned, a huge reserve and a huge asset base. But that’s not something that you turn on overnight, far, far from it.

In the past (just to play devil’s advocate), you’ve had issues with PDVSA, and production has fallen, and then it has ramped back up. So, we know it’s possible. In fact, I think it did surprise people that it ramped back up more quickly, but the industry’s been down for longer this time. The reports of these cannibalizations have been worse. Frankly, the macro-backdrop in Venezuela has been worse. So, I think that it’s going to take a lot to bring it back. There’s Venezuela, there is Iran, and there is Iraq, and each of them present their problems, but they do have the ability to increase production if their circumstances, and situations improve.

We do forget, also, that we talk about supply not being able to keep up with demand. Look, ultimately supply and demand balance, it’s a mathematical certainty. You can have inventory drawdowns to provide more supply, or you can have prices that ration demand. But ultimately, we’re going to need some of these volumes or we’re going to have massive demand destruction.

People say isn’t that bearish for the oil markets? If you have demand destruction, because you don’t have enough supply, price becomes a rationing mechanism. It doesn’t sound bearish. That sounds like really high oil prices, and eventually we’ll need all the sources that we can find.

The question is just going to be when, and none of those three countries that I mentioned have the potential to increase production inside of several years. 

[00:33:21] Cem

Alright. So lastly, before we go over to demand SPR. How much has it drawn down? Where do we stand? Obviously, we’re going into an election cycle.

I don’t think it’s a coincidence that we’ve been full out releasing the SPR. You’ve argued, and I agree that it’s a major reason for this pullback in oil, along with this speculative positioning that we’ve seen. That’s as intended by the U.S. government. How much more ability do they have to continue that post-election? Can you speak about the short-term supply issues related to the SPR?

[00:33:58] Adam

Yeah, sure. So, we’ve released from the strategic petroleum reserve at an unprecedented rate. The U.S. has been releasing about a million barrels a day for the last several months. The rest of the OECD countries have been releasing 500,000 barrels a day from their SPR.

China probably has a strategic reserve that no one really knows too much about there. There’s no other strategic petroleum out there. There are not even any other commercial inventories out there really. Most of the whole world, other than the U.S. and the OECD countries, operate hand to mouth and they don’t keep inventories of crude oil. China’s being the exception to that. 

How much farther can this go? So, we made that decision, following the invasion of Ukraine by Russia. I think the hope had been that it would just completely put out this fire of concern, and it did exactly the opposite, as far as I’m concerned. All that oil got absorbed. It was all gone. So, when you look at commercial inventories for the first six months of the year, they normally build by about 500,000 barrels a day. Then they draw by the same amount in the second six months of the year, that’s average, that’s the cyclicality and seasonality of it.

Instead, they built by 200,000 barrels a day in the first six months of the year. So already that would be a market that we would call in deficit: versus seasonal averages, you’re not injecting what you’re supposed to inject. So, you’re in deficit for that time of the year. But you had a million and a half barrels from the SPR. So, you should’ve been building by 500 plus a million. You should have been building by 2 million barrels, and instead you were building by like 250,000 barrels a day. So that is one tight market. 

Now we’re going into the period of the year where we should be drawing by 500,000 barrels a day. Then, we obviously are in deficit because of a lot of different issues, like supply responses and quite strong demand.

So, can the SPR make that up? The short answer is no, they can’t really make up enough to offset the deficit that has presented itself in the first six months of the year. Can they ramp it up from here? I suppose they can, for a period of time, I think we’re probably at this point (off the top of my head), I think we’re about probably 65% depleted on our SPR’s. It depends if you take the high, high, high-water mark. You do forget that both Obama and Trump released from the SPR. Similar to the debt and deficit, people don’t tend to like to re-add to the SPR after they’ve taken out of it. It’s a bit difficult to measure exactly where you’re coming from, but you’re about two thirds gone on the SPR. 

One issue that I would like to start raising to people, and I think it’s really important is, the S in the SPR. This petroleum reserve was very, very strategic. It was put in place after OPEC used oil as a weapon in the 1970s. It happened twice. Once was when the U.S. supported Israel in the early part of the 1970s. And the second was when the U.S. was perceived to have allowed the overthrow of the Shaw in the Iranian revolution.

In both cases, in order to punish the West, Saudi Arabia withheld oil from the market, and it created huge problems. Before my time, but I’m sure many of your listeners remember gas lines, even in odd numbers on your license plates, and it was a major, major, major energy crisis. It was largely brought about by those two uses of what they call the oil sword. 

What did the West do? They developed a fairly elegant solution. They did two things. One, one is fairly ironic. They started the international energy agency, and they said if we have a lot of transparency, and a lot of data, and we publish all these reports, then I think that it’ll make it harder to get caught off guard again.

The reason I say that there’s an irony there, is that no one has done more than the IEA to really screw up the world’s oil markets in the last five years, because they have constantly been calling for this surplus. They’ve been constantly saying how oil will be a sunset industry in five years’ time, and all this type of stuff.

It was only a couple years ago that they actually put out a Royal decree proclamation saying that we recommend that no energy company ever sanction a new upstream investment, because that would effectively impair whatever dollars would be put to work there. Talk about getting something wrong.

That’s the agency you set up to help ensure security of supply in the West. So that’s why I say there’s a bit of an irony there. Of course, the other thing we did is, we set up this strategic petroleum reserve. What does that do? What the strategic petroleum reserve does is that it says to any potential bad actor country, look, if you want to cut off oil supply to our country then we will be able to weather a storm for quite some time.

So, imagine, back in the medieval times, if you’re trying to lay siege to a remote little village, how much food that village has stockpiled will really determine whether you lay siege to it or not. Because by the time it’s all said and done, you’ll have suffered a lot engaging in this oil sword as well. 

What I mean by that, of course, if you cut off supply, you’re cutting off revenue to your country. You’ll be hobbled and the U.S. will be hobbled. Most people have said to hell with that, let’s just not use oil as a weapon anymore.

It’s worked for basically 40 years. The reason I bring all this up is not to be scare mongering, but I don’t think enough has been talked about the fact that we have depleted that strategic petroleum reserve, not in a time when the world really seems to be aligned and calm and peaceful.

That really worries me. So, I think we ought to stop doing that. I think we ought to say to ourselves, look, let’s send the right messages and the right signals to the capital markets. Let’s try to get money going back into energy companies. Obviously, we’re energy investors, so that would behoove us.

I won’t try to pretend it wouldn’t, but that’s how we ultimately solve this problem here. We’ve neglected this industry for too long, and what we’re seeing now is the implications of that. 

[00:40:13] Niels

Before you jump into the demand side Cem, I just wanted to ask you, we’ve talked a lot about oil, and we’ve also talked about the U.S. capabilities in terms of production and so on and so forth.

But what about the other liquid products? I’m not an expert here, but I guess we have things like natural gas, we have biofuels. Where do they fit into that before we talk about the demand side?

[00:40:38] Adam

Sure. It’s a great question, because natural gas and oil are different commodities. They have different dynamics, and in some regard, they do suffer a lot of the same impacts here. So, the natural gas industry has also been starved for capital terribly over the last decade. I think that’s even more reprehensible. The reason I say that is that the oil industry has been starved for capital because of ESG concerns and hopes for electric vehicles.

I think those hopes are misplaced, and we can talk about that probably on a whole other hour-long podcast. But for natural gas, I don’t even know where these ESG people get off, because for the most part, natural gas goes to displacing coal. So, I think the feeling on the natural gas side, which would be a huge, huge benefit to carbon emissions, is that every unit of electricity generated by natural gas is half the CO2 of coal. 

I think there’s a feeling that that’s going down the wrong path. We don’t want any CO2. We want wind and solar that presents huge grid and stability issues, huge energy efficiency issues. But I think that’s why it’s gotten wrapped up in the ESG nonsense that we’ve seen in the last few years.

But yeah, so it’s been starved for capital as well. The demand for natural gas has actually been growing in excess of the demand for oil, because people do prefer it to coal. It’s less polluting. So not only is it better for CO2, but in terms of air quality… We forget, pollution used to be thought of as air quality, and smog, and particulate matter in the air. It’s only recently that people are talking about CO2 as the main source of pollution that we have to worry about. 

If you move from coal to natural gas, you all of a sudden begin to see the sky again in places like Beijing, and Shanghai, and Mumbai, and things like that. It’s a very, very good fuel, and demand has actually been growing very, very strong.

So, both oil and natural gas have been impacted on supply and have seen strong demand. Natural gas is harder to transport around the world, because it’s a gas. So, there’s some infrastructure bottlenecks that need to be worked out there. You need to cool the gas down to very, very low temperatures and then heat it back up. The industry’s working through that. It works with a bit of a lag.

[00:42:51] Cem

I actually wanted to ask one question regarding that before we move over to the demand side. You’ve mentioned that you think that there will be a convergence and not in the distant future, but between North American gas prices, and European prices. There’s obviously a massive gap at this point. Obviously, this is Top Traders Unplugged. How do you take advantage of that; and why do you think that’s going to happen in an actionably short time period?

[00:43:23] Adam

Yeah. Two great questions. It’s something that I think really, we got a lot of attention, and a lot of people calling in and asking us to walk through it and whatever. I think it’s funny because I would ask the question, why on earth are gas prices in the United States 90% less than they are everywhere else in the world today?

It’s unusual that you get massive dislocations like that. That’s not subsidized. It’s not like the U.S. government is subsidizing domestic gas prices. If you go to Saudi Arabia, I don’t know, I know their gasoline prices are very low there, but I think that’s because the kingdom subsidizes that. Normally, most commodity prices arbitrage out and are fairly consistent around the world.

I would ask your listeners, instead of saying well that’s so outlandish, can U.S. gas prices really go up tenfold? Start by saying wait a second, is it really sustainable that you have an order of magnitude difference, and a 90% less low price in the United States than in the rest of the world?

The answer, of course, is that if you’re a U.S. gas producer, you can’t achieve that world price. You can’t say, oh, fantastic. I’m producing in the Marcellus, and I can see that in Europe, they’re willing to pay me $70 an MCF, so that’s great. I’m going to sign a contract with a European utility and sell my gas for $70. You can’t get it there. It’s not there. It’s in the United States. So, of course it needs to pass through pipelines to a liquified natural gas facility, get liquified, and then eventually make its voyage across. 

To the extent that there’s a bottleneck there, again, if for the traders on your Top Traders Unplugged podcast, you have what develops is known as basis. So that means you divorce, the arbitrage opportunity is no longer possible. So, you actually have a dislocation between the two, and you have a basis risk. So, the basis right now between world gas prices and U.S. gas prices is huge. How big? 

We’ve had a big rally here in gas prices, but you’re still talking about gas that’s in the $8 to $9 range on the highest that we’ve seen. We’ve seen gas prices spike as high as $200 in parts of the world, and been sustainably at the $50, $60, $70 range in Europe and in Asia. Quite frankly, would be even higher but for the fact that you’re now talking about furloughing industrial activity across Europe, because you can’t afford it. 

So fine. why would they converge? I think our thinking there is more to come at it from the question of an asymmetric outcome potential. If you do converge prices, you could see gas prices in the U.S. go up 2, 3, 4-fold, 5-fold really, really, really quickly. If you look at the volumes, probably not enough to fix the world’s gas supply issue. So, you would see it rise substantially and then stay there. When I look at the risk return of any investment, that’s probably the highest upside potential. It’s not a foregone conclusion. So why would it? Why would we remove this bottleneck? Obviously, we could do it in a couple different ways.

We could first have lots more L&G export infrastructure. So, remove the bottleneck at the export terminal. There we have a fairly good line of sight. We know what’s coming online. Although I would say, quite frankly, people could be surprised as far as how fast you could sanction new projects, because people think about the lead time of three to five years to build some of these.

That has been in a world where capital has been fairly tight, and permitting has been difficult, and the Army Corps of engineers takes its time. But if, all of a sudden, we all get behind getting gas to Europe, I think we could be surprised at how fast stuff comes on, but it’s not going to come on in the next six months. Even if we all get behind, it has some lead time there. 

The second of course, could be if domestic demand increases. So that would be, we develop more industry in the United States to take advantage of this huge energy price gap in the rest of the world. Again, I think there’s some lead time there, but probably on the margin that could happen a little bit.

I think the biggest one that no one talks about is what happens if gas supply in the United States peters out? I don’t mean collapses. I just mean stops growing, because we basically are in a balanced market today. We are bringing on some new L&G infrastructure in the next year.

If we can’t fill that, then we could have spare capacity. You don’t have a bottleneck anymore, and prices could converge almost overnight. So, we started this big project, and we said okay, let’s look, talk to the wall street community, talk to the energy analysts, how much more does the Marcellus have?

Nobody had even studied the question. There’s just this view that the Marcellus could go on, and on, and on forever. Actually, when you look at some of the big fields, the Haynesville, the Marcellus, they are showing signs of being middle aged as well. Similar to the oil shales, and people forget these are big fields. 

What we discovered in the oil shale side, was basically like bringing on a new Saudi Arabia, super major field set in the 1950s. What we found in the gas side was the same. So, it’s like we had two Saudi Arabia’s found in the United States in 10 years. Massive, massive impact, but they’re not infinite.

We actually do have some examples of early shale fields, the Barnett and the Fayetteville, in particular (not as big as the Marcellus). They went through their full life cycle, and we see they ramped up. Then they started to have problems. They weren’t able to really grow that much anymore. They plateaued for a while, and then they rolled over just like a regular field was.

I can’t emphasize this enough, the last 10 years the feeling is that these shales can go on forever, because the size of them was so big that it almost was like they could, but they are just regular fields. Like anything else, they do succumb to depletion like anything else. I think we run the risk that perhaps we’re getting close to that point now.

So that’s when we said, oh my goodness, this could actually be a situation that happens, according to some of these numbers that we look at, in the next six to nine months. Now with natural gas demand is really impacted by weather. It’s sometimes a frustrating element.

That’s why, again, on your Top Traders listening in today, your top natural gas traders will know very, very well. It’s not a market for the faint of heart when you trade natural gas, because you can get these swings in the weather that overwhelm everything. So, if we have a super mild winter, maybe we push that out.

It doesn’t change the long-term dynamic at play, but if we have a normal winter, or if we have a colder than normal winter, then you could potentially have that moment of convergence as near as the fourth quarter in December of this year. Not a certainty this year, but definitely a possibility. There are massive implications if it does happen.

Your last question, as far as how to play it, people ask all the time, do you want to own the L & G infrastructure? I think, look, if you ran anything like that (higher gas prices with a convergence scenario), through your models, what you want to own is the U.S. gas producers. Why do I say that?

Today gas is in the high eights, in the United States. If I look at what some of the high-quality Marcellus companies are pricing in their stock price, they’re pricing in $375. So even if prices just stay where they are today, the case for those gas producers is astronomical from a net present value perspective.

These companies are all 3, 4, 5 baggers. I say all, you have to be selective, because a lot of the companies are starting to run out of their best acreage, but I’m talking about the best ones, and go look on our website. We disclose our holdings. That’s how we like to look for gas companies. Whoever we think has the best remaining inventory.

But for those companies, if gas prices go to four bucks, that’s basically the stock price. If they stay where they’re at eight they are three, four baggers. If they were to go to $20, these stocks could go up 20-fold. So as far as how do you play it? I don’t see anything else in the natural gas ecosystem that could go up 20-fold if we’re right.

So, I think you want to own the molecule in the U.S. You’re not overpaying for it. In fact, gas prices could fall a lot, and I’m sure those gas stocks would go down if gas prices fell. But still they would be justified from a value perspective based on their net present value, even at four bucks. 

[00:51:50] Cem

That’s awesome. Should we switch over to the demand side Neils? 

[00:51:54] Niels

Yeah, let’s do that. I’ll let you dig into it as well, but in a sense, I just wanted to maybe ask an extreme question here, Adam, I could be wrong here, but it sounds to me that your big picture case is that we’ve come to the end of a world where energy is in abundance, for all of these different reasons. Now we’re going to dig into the demand side, but I also remember that you did this great video that everybody could go and check out, the history of energy.

If there isn’t abundant energy, then the world might be slightly different for the next… I don’t know how long this will take before it plays itself out, because we’ve had to have an abundance of energy to make all the progress we’ve achieved.

[00:52:49] Adam

Absolutely. I think that’s so true. It sounds very pessimistic, but I do think there are solutions. I think, to skip forward to the end, I think that nuclear power is a major, major solution, because it’s extremely energy efficient. It does address our carbon needs, as opposed to windmills and solar panels. We talk about why we don’t like those because they require so much energy to actually make the energy itself that we just can’t sustain our standard of living. I think that’s what we’re seeing in areas that go down that path, why they’re unable to keep things going.

That’s a real glossing over of lots of different problems in different countries. But we could talk about the specifics everywhere, but really the gist of it, Germany has doubled its electricity generating base. South Africa has two and a half times increased it, and they both have huge blackouts. So, I think at some point somebody has to say, wait a second maybe there’s something inherently wrong here, because you could say maybe it’s a malinvestment to double your energy grid, but you would expect to at least have lots of energy at the end of that. We have to start being realistic here about the energy efficiency of what we’re doing.

You’re absolutely right. The last 10 years have seen a peak to trough decline of approximately 90% in every major form of energy. Uranium prices went from $140 down to $19, coal prices fell 95% from peak to trough, oil obviously went negative, so that fell more than a hundred percent, and gas prices fell from $15 in MCF down to $1.50 – so a 90% decline. 

We all enjoyed that. We benefited from that hugely. I think actually one of the most important stories of the last 10 or 15 years, that has not been told, is just how much we did benefit from that. We’ll look back, that was a very benign period. We just didn’t have to worry about energy.

So that’s why I think, not to get too far afield, but that’s why I think if we look at what has proliferated in the last 10 years, it’s all been very energy intensive pursuits. Wind and solar obviously, electric vehicles, the batteries to the energy required to manufacture those batteries is staggering.

We’ve decided to go from Fiat currencies to cryptocurrencies which are unbelievably energy intensive. I joke that even the pastimes of the super wealthy have gone from racing sailboats around the world to shooting themselves into space. That’s become just unbelievably energy intensive as well.

But unfortunately we don’t have that anymore. That was a luxury we enjoyed. We had this surplus, not to sound too dramatic, but we squandered that surplus. We didn’t take that surplus and invest in the right things. We invested in things that depend on abundant energy. People still don’t get it.

I’ll just give you a quick example with some numbers here. We talk about the energy return on energy invested. So, you put energy into a system and energy comes out the other side, and the energy return on energy invested of oil and gas is about 30 to 1. So, what that means is you consume 3% of the energy in an oil and gas ecosystem making that energy.

So if a Permian shale well does a million barrels a day, you’re going to consume 30,000 barrels to produce that oil. And you’ll be left with 999,970,000, whatever it is. When you look at wind and solar that drops the best solar and wind (you’re talking about unbuffered), so, before you put the batteries to back it up, you’re at about 10 to 1. There’s something that people don’t fully appreciate. That oil well gives you 30 to 1, but it gives you most of that energy in the first five years. So basically, you put in your one unit of energy on day one, and you get six units of energy back per year for five years. Then the well goes to zero. That’s a huge simplification. But that’s basically what you’re getting.

You get it all front loaded. So, the year that you drill an oil well, you get a huge net increase in energy. You put one unit in, you get six units out. It’s really, really good. When you do that on the wind and the solar side, you’re talking, like I said, keeping the numbers nice and round, 10 to 1 over a 20-year life.

People will say 25 years, but I’ll do 20 years just to keep the numbers. Okay. It doesn’t change the impact here. So, now you’re talking about an energy return on energy invested of 10 to 1 over 20 years, fairly steady through those 20 years. Meaning, for your first unit you put in, you get half a unit back that year.

Okay. We have an energy crisis. We don’t have enough energy today. Yet people are saying that the answer is that we have to get away from oil and gas and invest more in renewables. It will only make this problem worse. This is not a carbon issue. This isn’t a global warming issue.  For the time being we need efficient sources of energy to get us over this hump. Then we can debate the rest later. 

[00:57:57] Niels

Before you jump in here, Cem, I just need to say, as a Dane, that in Denmark, they have now agreed with the EU to build something like, in one place 2000 offshore windmills. In another one, they just announced over the summer they’re going to build another 1,700, 1,800 windmills offshore. 

Which of course will take a decade to do before they even start producing anything. I just wish next time you go to Europe, Adam, maybe you could swing by Copenhagen and just pay them a visit and explain some of these things. Because they clearly don’t seem to realize what they’re up to at the moment. 

I think we can all agree by the way, just so there’s no doubt here, I think we all want a green world. It’s just the way we get there that seems to be the key point of difference. 

[00:58:47] Adam

Yeah, absolutely. I think that we put too much CO2 into the atmosphere, and I think that’s resulted in temperatures that have increased.

I think that if we can avoid that, we should. I actually do think (maybe I’ll say something a little controversial), I think if we have no good way to reduce carbon and the question is, do we impact the standard of living for the billions of people in the developing world? I don’t know that, as Westerners living a very high quality of life, that’s an ethical decision that I feel prepared to make. But that’s a topic for a completely other day. I don’t know how you go to somebody who’s dealing with 20% child mortality rates in Sub-Saharan Africa, and say, look, we’ve really dug into this, and can’t go down this path anymore. So, we’re going to stop energy development. I think they’ll be like, what are you talking about? 

Luckily, that’s a false dichotomy because there are energy efficient things that we can be doing to improve energy return on energy invested and reduce carbon. There are things in the steel world. There are things in the power world with nuclear. We just, for whatever reason, don’t seem to want to really give them a fair look. I think that’s beginning to change now. So, I’m actually very optimistic, believe it or not. 

[00:58:57] Cem

Yeah, morally or otherwise. It will be forced upon us at some point, if we do not deal with the issue. But there are cheat codes, as you have mentioned? And nuclear comes to mind.

Obviously, the European Union ratified in its green taxonomy, making nuclear a major part of that, despite German opposition for a while. We’ve seen France, UK, Netherlands, even Japan now really embark on new nuclear buildouts if not extending what they already had.

So, public sentiment is clearly shifting towards nuclear. What do you think the odds of that ramping up is? Obviously, the problem with nuclear here is it takes a long time to build out some of that infrastructure. You’ve mentioned Gen 4 Reactors being a potential solution to some of that. Can you speak to that and talk to some of the best investment opportunities, if you do believe nuclear is the future and that we’re going to get to a place where nuclear really solves a lot of these problems for us. 

[01:01:05] Adam

Yeah, absolutely. And you’re absolutely right that nuclear has a long lead time, so that’s not going to fix a Russia incursion into the Ukraine energy caused issue in 2022, 2023.

If you take a step back and you do think through the next 10 years and beyond, and where you want to see things approach, net zero and what have you I think that nuclear… You either have to lower your standard of living dramatically (which I am completely opposed to; I think it’s unethical and ridiculous and anyway, society doesn’t move in that direction,), or you need to keep emitting CO2, or you need to embrace nuclear. Those are your three options. There’s nothing else coming. And I think that the quicker people realize that the better. 

There are three issues with nuclear power. Two of them I think, are perceived issues in the sense that I don’t think they really are issues. One is cost, and that’s a real issue. Nuclear power costs have gone up astronomically. Basically, only China and the Koreans can bring on a new third generation light water reactor, which is what we’ve been building now for the last 30 years.

The French, the Americans, everyone has gone broke trying to do it. People have largely dismantled their nuclear engineering businesses over the last 10 years. Part of that’s probably because of economies of scale; we haven’t built very many of them. Also, there’s been huge scrutiny (rightfully so). I’m okay with that.

We probably should triple check everything in a nuclear reactor. I should say that the nuclear industry is unbelievably safe. And so you go back over time, there’s been extremely… The number of deaths, in the nuclear power business, is nothing per megawatt hour. More people die in coal mining accidents every year by an order of magnitude. You’re not even talking apples to apples anymore. 

The second two things that I would talk about would be perceived safety issues. So, the idea that these reactors could melt down and release radioactive material into the environment. Again, the track record is really good, but the perception is that people are worried.

And then the third thing is waste. What do you do with the nuclear waste? Both from a proliferation perspective, could people steal it one day and make bombs? And then where do you store it? Now, France has addressed those issues. The United States has a workable solution to waste and safety speaks for itself, but these are the three big factors that are on people’s minds.

Some of these new 4th generation, small modular reactors address all of those issues. And I won’t go into too much of it today. Most of the companies that are advancing these technologies are private. We’ve met with several of them. I think that in particular, I feel comfortable to say, out of all of them the designs that are being pursued by a company called TerraPower, based in Washington State, and financed by Bill Gates, lots has been written about them.

Their reactors are really, really, really exciting. They address head-on the issue of cost. They are safe in the sense you cannot melt down this reactor. And as far as waste, conceivably over time, some of the stuff that they’re working on could really reduce the amount of waste by an order of magnitude or more.

And from a cost perspective, the costs are going to come in well below current generation nuclear. So, people have been working on it. It’s been quiet. It’s been dark days for them for the last 10 years, post Fukushima. I think there are actually some really exciting things happening in that industry. For right now, it’s all happening in private companies. There are no real public traded opportunities there. I think that there’s some really exciting stuff happening. 

[01:04:46] Cem

I think we’re running out of time. We may have to do a separate episode on just demand. We covered supply for about an hour, but we may have to have you back to cover demand. Obviously, that’s the other remaining question. 

[01:04:59] Adam

I’d love that. I would be happy to do that. 

That it’s Fed Day. That has something to say about demand.

[01:05:03] Niels

Exactly. Let’s agree to do that relatively soon, because not only do I want to talk about demand, but I also actually want to talk about the other crisis, which is the food crisis where I know you’ve done some great work on that

Adam, another tremendous conversation. Thank you so much for your time today. It’s always great to get an update on these very important issues. So, thanks for doing that. 

Of course, by the way, make sure you follow and subscribe to Adam’s work, and you can of course find some links in the show notes.

And as you can tell from today’s conversation, we are living in a truly global macro and energy driven world, and it is perhaps more important than ever before to stay well informed. From Cem and me, thanks so much for listening. We look forward to being back with you as the Global Macro series continues. In the meantime, take care of yourself and take care of each other. 

[01:05:54] Ending

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