00:00 julie
You mentioned the commodities super cycle, and I know that includes some bullish sentiment on oil, which is a little outside of consensus, right? Well, Jay, you know, I’ve seen some estimates that oil will stay in this range because of the abundant supply here. Although the situation in Venezuela is somewhat similar. What do you see that these people may not?
00:24 Jay
Yeah, no, that’s a good point, Julie, you know, you have to have something that’s beyond consensus, right? I mean, I think non-American is becoming more of a consensus at this point. You can judge what you highlight by how it appears in EM. So the commodity cycle history is very clear to us. Well, starting with precious metals. We experienced that this year. Gold mining stocks rose 150%. It turned to industrial metals. We have that. Copper miners have gained about 70% so far this year. Then turn to energy. As you point out, this hasn’t happened yet.
01:14 Jay
So when we look at it, it’s a very attractive risk-reward environment. Mainly because everyone and their brother knows there is a massive overstock. Wall Street expects Brent crude prices to be between $52 and $55 next year. The current price is $61. So all the bad news is the price. When these situations happen, we like uh. Over the last month or two, we’ve witnessed, you know, continued talk about OPEC increasing capacity, bringing production back into the market, and what does XLE do?
01:48 Jay
It does nothing. It sits there. So the bad news is prices, if we get the global growth that we expect, uh, if we get a situation where demand is better than expected, there’s going to be a lot of room for prices to go up. Look, we believe there is only limited low-cost capacity in the oil and gas industry that is untapped.
02:08 Jay
So, uh at these prices, what you’re basically doing is you’re putting uh production on hold, you’re putting exploration on hold. So we think we’re preparing for the opposite of excess inventory – an inventory shortage over the next 12 to 18 months.
