Let's get into this story. I'm not going to ask you about the political gyrations and
what's going to happen with the vote and who should be and who shouldn't be the president? I
just want to understand your understanding of the situation and what it might mean for crude
supply in the months to come. Well, so, so there's two elements to the Venezuela story.
First, will the protests uh end up leading to potential disruptions which clearly the market
seems, doesn't seem to worry about uh as, as Lisa just pointed out uh commodities are going
down because it's a, it's a demand story or a lack there off rather um in, in the case of
Venezuela, I mean, I think, I think uh potentially it could be a bullish factor if we
get some uh some disruptions on the supply side, but also a long term experience if, if
there is a change of government in Venezuela, remember uh the opposition has uh has uh run a
campaign on three pillars. Uh First, they wanna reunite families. There is almost 8
million Venezuelans that have, have have moved , moved abroad. Um There's also an element of um
of eliminating all of the price distortions that they've introduced in the economy. But
very importantly, they wanna privatize the oil and gas sector. So I think if, if we go down
that route, uh because there is a change of government that we are, we are getting a little
too ahead of ourselves here. But if there was that change of government, you could have the
unlocking of what's effectively the world's largest energy reserves. Let's not forget
Venezuela has non conventional but, but the world's largest. And um and again, we have so
much more technology today that if that were to be the case, I mean, you could have an
enormous growth in the country. Should that get to a point? But again, I'm not saying it's
going to happen. I get all of that. It is a highly speculative conversation and this is
certainly not revealing any of your base cases or any of your calls. But I do think the
scenario analysis is worth it. What is online right now from Venezuela in terms of crude and
what could be online if you do start to privatize and the world reopens. So Venezuela
produced more than 3 million barrels a day of oil back in the day. So I'm going back pre
Chavez, right. So it's uh it's been on a, on a slippery slope ever since the uh the big strike
that we had in Venezuela in Pede Vesa in uh 2002. In fact, the bull run in commodity
markets that we saw in the two thousands kind of really kicked off with the peda strike in
2002, which was basically the uh workers of the national oil company uh facing off against
back then Hugo Chavez. And um and since then, uh Venezuelan production of oil has been
rolling down and particularly the last 10 years or so, it has really, really collapsed uh
to levels uh to, to a low of 500,000 barrels a day. And since then, we've recovered to give or
take uh 7 6800 barrels a day. So, so it's a fraction of what it was and back then it wasn't
what it could be. So, so again, is the world's largest load reserves. Think, think Saudi
Arabia think, think Canada think Russia if you were to get that opening, right. So given that
this is speculative, this isn't what's driving prices lower. We were talking earlier that this
is essentially a story of demand. This is a story of China and all lack of demand there.
How much is it broader than just a lack of demand from China? It is broader. You guys were
talking a little bit about it before. With Germany. If you look at the industrial economy
globally, it's doing pretty badly. We've been waiting for lower interest rates and China
stimulus to get the commodity complex back on track and none of this seem to be coming
together. You mentioned it yourself. Uh The, the Communist Party leaders spent a week uh
locked up trying to figure out what to do about the economy and they came up with a 10
basis point cut to mortgages, which seems like , ok, maybe you need a little more than that at
this point. Uh But I, but here's my take, I think they're all waiting for the US election
to play out because um I think, you know, we're just three months away and, and, and
things could really change for China. So why use your dry power powder? Sorry, uh why use
dry powder? Um three months ahead relative to when you may really need it? Right? So I think
um I think one of the one of the most challenging things for China is that not only
they have an issue about how to recycle their savings, which is very visible in some other
commodities like gold, right? Um But also China has an issue of, of, of uh creating
uh just, just creating domestic demand. And um um and of course, it has the issue of tariffs,
right? Uh potential tariffs from the US, potentially from the Europeans. Uh Although
that, that, that's uh as you pointed out, it's a bit of a different story there, but that's
not really helping China. China has been historically a large exporting nation and now
it's getting hurt on the back of that. But take a step back. Is this entirely a China
story or is this something bigger? Especially at a time when we are all talking about
infrastructure building in the entire developed world. And at the same time, copper
prices have fallen down significantly. We have seen oil prices fall pretty consistently even
with the potential supply disruptions in the Middle East. If things do become more, more
kinetic, there is a real question here about whether we are overestimating or
underestimating the slowdown in demand to build to keep traveling, look 100%.
There's an issue here is that rates are still very, very high. We don't realize, I guess
because we've kind of gotten used to like rates between 5 25 5 50 but rates are very high.
I mean, they're really, really high and, and um you know, they are high because of because
the US demand story remains very strong, but the higher the U the US rates remain, the worse
it is gonna be for the rest of the world. And I think I think China also faces higher US
rates and the rest of the world faces high US rates. And as I mentioned, you have this
combination of high us rates which are driven mostly by the services sector, right? They are
not really driven by the manufacturing sector. Manufacturers would love to have lower rates,
right? Um in this country and, and and and the rest of the world is kind of, uh, struggling on
that too. So, to me, it reminds me a little bit of, uh, what, what was going on back in the
nineties where you just had high us rates and a very strong dollar and, and, and that wasn't
helpful for emerging markets and, and, and I think that's the policy makes that frankly, uh,
will continue post November in one way or another. But unless we start to get lower rates,
I think emerging markets are really going to start struggling. Here. We have mentioned a
bunch of commodities that aren't doing so well . You mentioned one that is you said gold, gold,
air old time highs, what's behind this move and how many clients are asking you about it at
the moment? So believe it or not, gold is not as widely owned as you would expect, right? So
there is a couple of different elements to the gold story. There is obviously central banks
which are all buying gold in droves because they don't trust each other. The freezing of
central bank assets of Russia really triggered an enormous expansion in central bank gold
holdings. I mean, if you look back the last 30 years to inflection points, 2008 global
financial crisis, we went from seeing central banks selling gold to net buying and then more
recently, 2022 freezing of central bank assets . Russia suddenly a big jump in central bank
holdings because of that action which you know , a lot of people question the legality of it.
So that's one big story. Second, big story is really what's going at the retail level.
Europeans are selling gold us has been selling gold and if you look at ETF holdings, but the
Chinese have been buying gold and we go back to the problem of China, they cannot recycle
their savings into anything productive because they went into housing and the housing market
would bust, they went into tech and the stock market went bust, they went into factories and
then we started throwing tariffs at at, at China. So I guess people are like, well, will I
put my money in? Well, I guess the Chinese central bank is putting money in gold. Maybe I
should too. And and and so the central bank started to slow down their, their gold
purchases, right? Which is interesting. So I think gold like it is really a story around
China retail buying and central bank buying and, and it just goes to show how how frail the
global economy is and, and how much fracturing we have in the global political system today.
When you say don't trust each other, do you mean don't trust the United States? Is that an
important distinction? I don't think because I am thinking of that diversification away from
the US dollar. Is that the important piece of this? Well, we always hear that but the reality
of the matter is the most, the most pounding when you look at global currency reserves in
the last few years has been the Euro because remember the biggest buyer of Euro of Euros was
actually Russia because Russia sold its energy to Europe in Euros for the most part. So
so so the dollar has been kind of just fine. It has been, it has been the Euro. But I think,
I think generally you could say G 10 say Western, western world has been, has been
facing those challenges as, as the world, as the world is kind of fractured geopolitically.
And I think, I think pretty much every country that is not 100% aligned with the US. And
Europe has been veering off towards buying more gold and, and that basically means every
country, right? Even, even we've seen allies like Turkey buying gold, we've seen allies
of the US and the UK Singapore buying gold. So if you look at the data, there's really broad
spread. Uh gold buying.