Thread by @StitchCapital

Summary of Pierre Andurand's recent interview with Raul Paul. Long interview but these are the comments about oil.
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#OOTT

Andurand: I studied math/finance. Started with Goldman Sachs, trading energy. Then BofA. Then Vitol. Started hedge fund in 2008 (large commodity fund). Then another fund in 2013. Mainly focused on energy trading. For last 5 years I've been based in Malta. #OOTT

Paul: Yield curve inverted, it looks like we might be heading into slower growth period, and that's going to make things a lot more difficult. How are you looking at it from macro perspective? #OOTT

Andurand: Interest rates are rising. Macro background less positive for world economy in general. But commodity picture will drive macro picture more than interest rates. Next 10+ years... a shortage of commodities in general. Energy, metals, and agriculture products. #OOTT

Andurand: That will put a cap on the kind of economic growth we'll be able to have and potential for large recessions along the way. #OOTT

Paul: Commodity prices increase but wage growth doesn't as much nor do corporate profits... it's a tightening of financial conditions. This makes it volatile to trade commodities, right?

Andurand: Commodities is simple because we need demand destruction. Sooner than later. #OOTT

Andurand: Not only price that will cause demand destruction. We'll get it from financial crisis as well. We had a recession in Europe from 2011 to 2014 (subprime) and crude averaged $111/bbl for 3.5 years, which is equivalent of $150/bbl today. #OOTT

Andurand: Economy was still going during that time. More than 1 million barrels a day of demand growth for oil. Still long way to go before demand destruction of oil now. #OOTT

Andurand: For 5+ years, oil supply will be disappointing, potentially turning negative. Less supply than previous years. But population growth is still positive. This will be the bottleneck and prices will go up. #OOTT

Andurand: Low supply and population growth will result in recession. But recession will be caused by not enough commodities. So we shouldn't be worried now for commodity prices if recession comes. It needs to come because demand can't be over supply for very long. #OOTT

Andurand: What stopped the commodity rally in 2008 was financial crisis, not a recession. 1-2% economic decline is not enough for commodity demand to decline with a backdrop of low supply growth. #OOTT

Andurand: Only reason why we haven't been at $150-$160/bbl since 2014 is US shale. But that's not the case anymore. #OOTT

Andurand: Even at $100/bbl we are not getting more supply from the US than the global demand growth. That's why we have prices today. Not only because of Ukraine. US production not growing as fast. Outside of the US production likely to decline. #OOTT

Andurand: No easy way out for Russia now. Sanctions will stay even after Ukraine situation is over. Nobody will trust Putin. Need regime change to take place first. #OOTT

Paul: Is global financial crisis a risk here?
Andurand: I think we'll have to. Hard to have a soft landing with so much geopolitical risk and supply risk in commodities. Market will be volatile for a long time and eventually impact equities.
#OOTT

Paul: this can't be a buy and hold market like the past 2 years. Last time we talked you were bullish oil, but it's not a buy-and-hold market now because of volatility. But even with recession/financial crisis... recovery will come with lack of supply.

Andurand: Yeah.
#OOTT

Andurand: What stopped us from making new high in 2010+ was US shale. Otherwise oil would have gone to $200+/bbl already in 2010 or '11, but US shale came to the rescue. Quit unlikely we see any surprise in supply side this time. #OOTT

Andurand: Nobody will invest in long term 7-year projects now. Need a 20-year stable outlook to have a good internal rate of return. They don't know what demand situation will be in 15 years due to energy transition. Biggest challenge the human race will ever face. #OOTT

Paul: Year on year rate of change matters most. This drives business cycle. Do you think we've hit peak rate of change? So we can go to $200/bbl or whatever, but it happens at a lower rate than the last two years.
#OOTT

Andurand: Yes, but we're coming from lower prices. When oil goes from $20 to $40, that's 100% increase. And now from $100 to $200, that's the same increase. So eventually you can't just for very long. Eventually rate of change diminishes. #OOTT

Paul: That brings outlook down over rate of inflation, right?

Andurand: Yes, rate of inflation goes down, but standard of living carries on going down. More pressure on society. Huge riots and civil wars. Not only inflation issue, it's standard of living of population. #OOTT