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The Asset Class with Paul Gooden · Strictly Business

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  The value of investments can fall as well as rise and losses may be made.
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  This is not a buy, sell or hold recommendation for any particular
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  security.
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  The oil prices jump from the commodity pages to the business pages to the front
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  pages.
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  It's been an astonishing March the 9th so far.
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  And I don't know, will it get less astonishing?
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  With me now is Paul Gooden, Head of Natural Resources at 91 in London.
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  Paul, I know you're really, really busy, so thanks for speaking to me.
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  but For some reason I was up at half past four London time this morning.
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  I looked at my screen and the oil price was up 25% at around about $117 a barrel.
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  I looked at the high of the morning, it was $119.46.
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  That was for Brent crude oil.
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  And I'm looking at it now and I'm saying to myself, oh goodness me, it's only up
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  13% now.
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  But as I said, it has been astonishing, hasn't it?
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  Yeah.
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  It has been astonishing.
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  And look, I guess at times like this,
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  it's good to be calm and rational and just to kind of walk you through the moving
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  parts here.
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  So nine days ago, the US and Israel started bombing Iran.
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  Iran responded by saying it would close the streets of Hormuz and it also launched
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  some missiles and drones at the energy infrastructure
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  of neighbors in the area like Qatar and Saudi.
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  Now, while Iran hasn't physically blocked the streets,
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  they are effectively closed because the insurance industry won't insure any
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  vessels passing through the straits.
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  And that's a big problem for energy markets, because normally
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  20 million barrels a day of oil flows through the Straits of Hormuz.
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  And to put that into perspective, the global market is about 100 million barrels
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  a day.
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  So that's a 20 percent outage.
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  Now, there's been a little bit of rejigging of supply chains.
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  So, you know, Saudi is getting a bit incremental.
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  oil out of the Red Sea.
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  But still, I think you've got about 17 million barrel a day outed, which is big.
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  And that means we're running down oil inventories.
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  And when that happens, the oil price goes up.
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  Okay, that's a good summary.
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  I'm looking at my screen now.
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  And we've mentioned oil, it's still up 13%.
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  And obviously, that 119 that I spoke about and 25 to 30% gains was all a bit spiky.
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  And it's sort of smacked of panic.
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  But nonetheless, these prices is
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  are impactful but it's not just oil i mean i look at heating oil for example uh 11.4
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  percent up and i've got
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  natural gas up six percent but i don't know if that's a different type of natural
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  gas to european natural gas which is heavily impacted
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  by the gas equivalent of the straits of hormuz and that is the qatar pipeline um
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  yes so look you're right there are a couple of nuances so we've talked about
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  the oil price.
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  But of course, we as consumers, we don't consume oil, we consume the products that
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  are made from oil.
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  And when you look at some of those products, be it, you know, jet fuel or
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  diesel or gasoline, or you mentioned heating oil,
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  some of them are being impacted a little bit more.
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  So probably, you know, the standout is the European jet fuel price,
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  which is basically more than doubled year to date.
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  So yes, some of the refined products are getting a little bit squeezy.
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  And then natural gas, you're right, I mean, that is also being impacted.
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  So, I mean, what's interesting about natural gas is that it's really the LNG
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  market that's impacted.
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  So that's the liquefied natural gas.
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  So that's sort of gas that is sort of super chilled and kind of sent around the
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  world.
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  About 20% of that flows through the Straits of Hormuz.
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  That's about 20% of the global LNG market.
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  And that's effectively been shut in as well.
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  Now in Europe, we don't really consume any of that gas.
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  I mean, that is mainly Qatari gas that is sent to Asia.
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  However, we are indirectly impacted because those Asian buyers that can't get
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  their LNG are
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  kind of bidding up the spot price of natural gas.
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  And so you're absolutely right.
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  If you look at the European spot gas price, it's basically doubled year to
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  date.
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  So yes, this is a broad problem for energy markets, both oil and gas.
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  And from here, the range of outcomes is wide in that although the rhetoric is
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  getting ramped up
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  on both sides, if there was to be de-escalation in the next few weeks, you
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  would expect the oil price to come down.
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  I don't think we'll go back to the 60 to 70 we were at earlier this year.
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  I think some geopolitical premium would remain.
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  But equally, it's about duration now.
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  And so if the streets of Hormuz stay closed for a long time, then you...
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  we're going to see the oil price move higher.
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  And ultimately, you know,
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  the worst case is the oil price moves to a level at which you get demand destruction.
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  And that basically means that consumers change their behavior a little bit so that
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  they consume less oil.
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  You mentioned heating oil, for example.
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  You might decide to burn wood instead of using heating oil.
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  You might decide to catch the bus or the train rather than driving.
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  You might, you know, take a short-haul flight rather than a long-haul flight.
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  And that kind of behavior change probably happens, you know, somewhere like $120.
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  So, you know, is it possible you could temporarily see a spike through that $120
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  to $150?
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  It's possible.
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  I don't think we could stay there.
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  But yes, a wide range of outcomes.
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  What about what's been made of stockpiles?
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  Some people are saying that, for example, China was about 10 days ago.
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  They said China's got 100 days worth of oil, less other countries, other regions
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  have less than that.
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  How important a factor is that, Paul, to the price?
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  And I'm just looking at the price now.
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  And West Texas has dipped below $100 a barrel.
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  So it's all over the place.
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  But is the stockpile factor also significant?
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  Yes.
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  So look, inventories are very important.
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  And generally speaking, there's quite a good correlation between the oil price and
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  inventory levels.
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  So, you know, globally, we've got about
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  8 billion barrels of oil and refined products globally.
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  And that is split between kind of oil in transit,
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  commercial storage and also government strategic reserves.
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  So that 8 billion barrels is about 80 days of supply.
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  So, you know...
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  a reasonable amount.
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  However, it's not spread equally.
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  You mentioned China.
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  China's a big oil importer.
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  They've been building in which was aggressively over the last year or so.
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  There's news this morning that the G7 might be considering a coordinated release
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  from strategic reserves.
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  But yes, look, more broadly, your point is exactly right.
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  Inventories are crucial to how this will play out.
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  How do you see it playing out?
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  You're not a geopolitical analyst, you just get fed what we're all fed, I think,
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  except probably a little bit more sophisticated than my news flow, for
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  example.
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  But I think what you see on the news of black smoke billowing from oil depots in
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  Tehran, it sort of fuels the punting side of the oil market.
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  But the real side of the oil market, or supply and demand, ultimately levels out,
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  doesn't it?
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  But as you quite rightly said earlier on with a little bit of a geopolitical
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  premium built in.
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  But is it your contention we're not going to come back to the 60-70 that we've been
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  used to for much of
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  2025?
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  Yeah, look, I mean, in terms of the short term, you know, over the weekend, the
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  rhetoric elevated.
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  You had Trump saying that a spike in the short-term oil price is a price worth
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  paying.
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  You mentioned you've had Israel bomb some oil storage depots in Iran.
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  So the rhetoric is...
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  is difficult.
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  How quickly this resolves itself, I don't know.
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  You know, you're probably talking weeks.
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  I think if it goes into months, then yes, certainly the oil price is going to be
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  heading higher.
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  I mean, one thing to bear in mind is that in November, you've got the US midterm
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  elections.
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  And just as turkeys don't vote for Christmas,
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  so US presidents don't like going into big elections with a high domestic gasoline
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  price because the US consumer is...
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  You know, very sensitive to gasoline prices.
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  They're more volatile in the US because there's less indirect taxation in the
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  gasoline price and they drive
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  a lot more than we do in Europe.
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  So, look, I think this will be certainly much calmer in the second half of the year
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  running
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  into those elections.
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  For the next month or so, it's very difficult to know.
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  But what I do think is that post this.
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  I think a geopolitical premium will remain in the oil price.
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  We were kind of 60 to 70 to the end of last year, first few months of this year.
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  I think big oil importers will be nervous and they'll want to build up their
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  inventories,
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  which will help the oil price.
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  And taking a step back on a more fundamental view,
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  I kind of think that on a sort of a two to three year view.
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  The big overhangs for the oil price are being removed and those big overhangs are
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  firstly US shale which is running into
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  tougher geology it isn't growing so quickly.
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  It's secondly OPEC spare capacity which has been quite high the last few years but
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  you know by the middle of this year it's back to
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  a normal level.
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  And then thirdly and perhaps the biggest one is long-term demand forecasts in that
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  I think people are thinking that oil demand can continue to grow kind of into
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  the
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  2030s. The IEA recently put out a report saying Thank you.
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  that under current government policies all demand will grow to the sort of about
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  2050.
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  So the question I'm asking myself is does what we're seeing in Iran kind of bridge
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  us through
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  what should have been an oversupplied market this year?
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  into a more kind of bullish market, sort of 27, 28, 29 onwards.
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  Just a quick one to end, if you would, Paul.
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  What does this all mean for positioning at 91 when it comes to natural resources and
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  particularly the energy sector?
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  Yeah, so look, within the Global Natural Resources Fund, on which I'm a co-PM,
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  energy was quite a big underweight for us last year.
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  And in the early part of this year, we started closing that underweight.
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  And as of the moment, we are kind of...
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  slightly overweight energy.
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  Paul, thanks so much for your time.
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  That's Paul Gooden, Head of Natural Resources at 91 in London.
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