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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Oil has always been an enigma to me.

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Oil traders, in my mind, exude this sort
of air of glamorous mystery,

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but that comes also with just a hint of
potential skullduggery or sleight of hand

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in the background.

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Today, though, oil is a vital part of the
world's power portfolio.

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And despite tales of this black gold being
a dead man walking, Here it is, still

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influencing countries'

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fortunes and that of the world's economy.

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With me is Paul Gooden, Portfolio Manager,
Global Natural Resources at 91 in

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London. I sort of painted it as a sort of
a James Bond type commodity pool.

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Is that unfair or is there a hint of truth
in that?

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No, look, I think there is a hint of truth
in that.

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And, you know, when it comes to oil, I
think it's worth remembering the adage

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that there are sort of...

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two types of experts on oil.

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Those who don't know and those who don't
know they don't know.

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And, you know, sort of beneath that,

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the reality is it's quite difficult to
forecast oil in the near term.

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And the reasons for that, there's kind of
three reasons.

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The first one is you've got supply and
demand of oil are buffeted around

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by exogenous factors which are difficult
to predict.

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So for example, supply might be impacted
by OPEC action, by sanctions on oil

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producing nations,

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and demand can be impacted by the level of
economic activity.

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And then the second reason, and this is a
bit more fundamental, is the cost

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structure of oil projects.

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So with an oil project, you've got a lot
of startup capex,

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but thereafter a relatively low ongoing
operating cost.

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And what that means is that In times of
oversupply,

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the oil price has got to fall a long way
to shut in flowing oil barrels.

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And meanwhile, in times of undersupply, it
can take a long time to bring on new oil

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projects.

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And that means that you need the oil price
to rise to sort of destroy demand.

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So that creates this kind of volatility
because of the cost base.

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And I guess the third factor is really
speculators.

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There's a lot of speculative money,
traders kind of moving in and moving out.

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um the underlying commodity and that just
means yeah it's a very volatile space it

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is and the whole idea of bringing on a new
project

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brings me to trump and we will mention
that fellow's name a couple of times i'm

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sure and his policies but his famous

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praise of drill baby drill it's not silly
i mean it's great he wants to boost the

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economy

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of the united states for america and make
american oil production great again and

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all that sort of thing but you can't

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want that and also want lower oil prices
because at certain points drill baby drill

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isn't economical in the united states yeah

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it's uh you know if it's drill baby drill
or pump for trump um you know he certainly

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wants um you

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know u.s energy dominance and and

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that's broader energy it's not just oil
it's it's natural gas as well um but but

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you're absolutely right there is a

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sort of contradiction at the centre of
that because US shale needs...

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kind of like

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60, 65 dollars to be sort of profitable
and to have kind of good

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break evens on oil wells.

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And, you know, I kind of think that early
on in his presidency,

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because of the inflation coming through in
the US because of just general tariffs,

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I think Trump wants lower oil prices as a
way to kind of cushion that inflationary

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impact.

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and yes, I mean, I...

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I am concerned that you're going to see a
slowdown in activity in the U.S.

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oil patch in the second half of the year
because operators are going to respond to

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the low oil price they see on the screens.

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You talked about $65 a barrel.

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Now, look at my screen at the moment as we
pre-record this podcast.

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It's just below $65 per barrel.

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It was 82 in mid-January, just before Mr.

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Trump started his latest tenure at the
White House.

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What has happened since then?

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I'll give you my two reasons, and that's
the Trump tariff story,

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which promises or threatens global growth,
so therefore threatens demand.

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And the other thing is that during that
time, with a feat of poor timing, I think

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OPEC boosted production.

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Is that correct?

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Yeah, Lindsay, you kind of nailed it
there.

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On the demand side,

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general macroeconomic weakness because of
tariff concerns is beginning to weigh on

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up.

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expectations for oil demand.

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So I'd say consensus at the start of the
year was forecasting maybe a million

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barrels a day of oil demand growth.

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And to put that in perspective, the global
oil market's about 100 million barrels a

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day.

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And sort of leading edge forecasts are
falling to sort of maybe 700,000 barrels a

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day or even lower.

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So you're seeing demand forecasts come
down.

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And then on the supply side of things,
OPEC's got about 4 million barrels a day

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of excess capacity on the sidelines.

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And they're bringing back about half of
that, about 2 million barrels a day by the

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end of 26.

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And there had been a hope that they would
kind of delay adding those barrels back.

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But if anything, they seem to be
accelerating it.

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And one of the reasons they're doing that
is because within OPEC, there's a little

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bit of disarray.

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So particularly Kazakhstan is
overproducing relative to its OPEC quota.

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So I think Saudi is getting a little bit
frustrated with that.

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and so they're kind of firing a warning
shot across.

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the OPEC members that are overproducing.

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So yeah, those two things combined have
kind of driven the oil price lower.

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I don't want to speculate because it's not
our job to do that.

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But I'm going to sort of throw this in to
the discussion that we're having, Paul.

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And that is that if the OPEC members
perceive that there is going to be a

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global slowdown, I won't say recession,

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because that's a little bit far fetched at
the moment anyway.

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But if there is a global slowdown, It's
best to take advantage of $60,

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$65 a barrel now and pump as much as you
can and cheat a bit.

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And they do have a reputation for
cheating.

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Is that what is happening at the moment
behind the scenes, do you think?

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Look, clearly, one way to think about the
oil price is it's a tragedy of the

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commons.

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Everyone gets to sell at the global price.

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But if everyone follows their own
self-interest and maximizes production,

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then the market gets oversupplied and the
oil price crashes.

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and so Clearly, what's happening at the
moment is some countries within OPEC,

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particularly

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Kazakhstan and Iraq, are overproducing
relative to croaters.

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And I think Saudi is getting frustrated
with that.

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Saudi is having to carry water for the
rest of OPEC.

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And so, look, I mean, you could argue,
yes, on the one hand, it makes sense for

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Saudi to continue to manage the market.

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but on the other hand it's kind of like
well look

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occasionally the oil market needs a good
sweating and what i mean by that is saudi

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can basically say right

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okay we're now going to significantly
oversupply the market the oil price is

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going to go down and that is going to sort
of

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remind everyone within opec that we need
to basically hang together or we're going

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to hang apart um

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and it also kind of hurts u.s shale um and
you know increases the cost of capital for

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the US oil patch by, you know, The extra
volatility makes it harder for

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US oil producers to get access to capasol.

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So several times in OPEC's history, 2014
and 2020,

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they have made the decision to kind of
launch a market share war,

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irrespective of the fact it causes short
term pain.

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I mean, Saudis and the OPEC typically play
a long game.

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So, you know, part of me kind of thinks it
might make sense for them to do that, to

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kind of bring back that two million
barrels.

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quickly get it into the market and then we
can kind of rebuild from there.

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I saw a headline yesterday regarding China
from a very reputable publication and it

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said that they've been stockpiling

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because they're frightened of the tariff
situation, whether it be tariffs on oil,

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if that is going to happen,

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or whether it just means a slowdown.

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They just want to have oil apparently.

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I remember many years ago they were
stockpiling oil for some reason in storage

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facilities on the east coast of China.

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Seems to me that they're doing it again if
this article is to be believed.

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How important is China in the whole
equation here, Paul?

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Yeah, look, I mean, China is very
important across the whole commodity

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space, not just oil,

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but also on the metal side as well.

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And, you know, historically, kind of over
the last decade, China has been the

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biggest growth market for oil.

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And China itself doesn't produce a lot of
oil.

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Now, what has happened over the last
couple of years is that China has

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aggressively pushed a green energy agenda
and it's aggressively pushed

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a natural gas agenda as well.

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And so one of the issues you've got in
China, which is a problem for the oil

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markets,

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is that if you look at new sales of cars,

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close to half of them are EVs.

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And that has been sort of gradually
weighing on the demand trajectory within.

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within China for oil.

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Now some people might say isn't that
wonderful news, you know

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China's turning green and actually it
couldn't be farther from the truth because

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those EVs are basically powered by

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coal because you know around half of the
Chinese grid is powered by coal so

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actually it's a disaster for the

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environment but that doesn't you know
detract from the point that

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China structurally is sort of slowing.

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being less of a growth tailwind for the
industry um but look you're seeing other

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countries um

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you know continue to grow so india in
particular is probably going to be the the

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fastest growing oil demand market this
year yes certainly

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china you know it's it's one to keep an
eye on for sure okay i've got a few

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questions now that constitute the last
part of

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this podcast and they're the most
important ones i think firstly um we'll

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leave this to last actually but you have
it in the back of your mind

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where do you think The oil price is going
from here, as I said earlier, around $64,

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$65.

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Well, don't worry about that now.

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I want to know where 91 is positioned at
the moment, without giving away too many

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secrets,

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and also where you are seeing
opportunities, because with the pullback

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from the low 80s to the mid

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60s, there must have been opportunities
presenting themselves, Paul.

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Yeah, look, I would say within the Global
Natural Resources Fund, we're underweight

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energy.

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versus metals and mining and ag and
precious metals.

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And within energy, we are defensively
positioned vis-a-vis oil.

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And what that means is we've got quite a
lot of natural gas volume exposure, which

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we kind of get through the midstream
names.

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So defensively positioned, I'm happy with
that defensive positioning.

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And in terms of oil, look,

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I think we need to kind of break it down
sort of the short term versus the medium

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term.

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Now, on the medium term, I'm actually
fairly optimistic on the oil price.

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And the reason for that is that the energy
transition is happening slower than people

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thought.

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So that means that oil demand is further
out, probably 2035 and beyond.

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Whereas on the supply side, U.S.

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shale is plateauing.

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It's maturing.

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Peak shale oil supply is probably 2027.

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And that's a dynamic that kind of sets up
for a relatively tight market if you look

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out three, four, five years and beyond.

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So I'm kind of positive kind of medium
term.

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But on the short term, I am concerned
about an oversupplied market.

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And I do think there is a risk that the
oil goes lower.

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How low could we go?

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Well, look, I think if you kind of get
into the mid-50s, let's say, yeah,

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the mid-50s, that is a level at which U.S.

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shale producers significantly reduce
activity.

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So that would then...

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balance the market.

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The cure for low oil prices is low oil
prices.

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So my concern is that oil kind of heads
lower through the second half of the year.

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Now, we shouldn't get too bearish, right,
because global inventory levels in oil are

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relatively low,

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and there are tail risks.

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So for example, US sanctions on Iran and
Russia could be stepped up, depending on

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what happens geopolitically.

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But my base case is for relatively kind of

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um muted oil price in the second half of
this year and in terms of where we are

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seeing opportunities yeah it's largely
around

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natural gas and specifically in the u.s
you're going to see a lot of growth in u.s

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natural gas

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volumes to put it in perspective the u.s
is about 100 bcf a day market now in u.s

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natural gas i

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think it goes to probably 125 bcf a day by
um 2030 and what's driving that is firstly

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more domestic gas demand, and that's from
AI and data sensors,

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electrification of everything, and also
coal-to-gas switching.

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But also there's a lot of LNG projects
starting up over the next two or three

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years in the US,

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which means that cheap US natural gas is
going to be going to Asia and Europe.

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So that is one of the key things we're
playing at the moment within the Global

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Natural Resources Fund.

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So it's conceivable that in six months or
a year's time we'll be chatting not about

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oil, as our primary focus,

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we'll be talking about gas and its various
forms.

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Look, I mean, both are important.

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I guess what I'm sort of saying is now, at
the moment, I feel the best structural

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growth opportunities are on the natural
gas side of things.

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And on oil, look, I'm constructive on a
five-year view, but I do think that we've

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got a six to 12-month period where we have
to absorb

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extra OPEC supply and weak demand, and
that can create a sort of a soggy oil

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price environment.

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Paul, fascinating chat.

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Thank you very much for your time.

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Paul Gooden is Portfolio Manager,

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Global Natural Resources at

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91 in London.

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of the position of any other entity other
than the speaker or the author.

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And since we are critically thinking human
beings, these views are always subject to

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change,

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revision and rethinking at any time.

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Please do not hold us to them in
perpetuity.