David Lin (Uncut) 01-14-2025

we’re talking about energy one of the most important commodities for all sectors of the economy with our next guest Bob Ryan he is the founder of Ryan commodity insights and we’ll be going not just over not just recent news but also his outlook for 2025 overall welcome to the show welcome back Ryan happy New Year uh Bob and uh thank you for being here uh congrats on your new Venture people should check out uh Ryan commodity insights link down below uh Bob let’s start off with uh recent uh research that you’ve done you

showed me offline and let’s just set the stage for what we’re expecting in 2025 you’ve compiled uh for the audience here a chart showing the global policy uncertainty index um tell us what you found and why this is significant that it’s so high right now yeah um thanks again for having me um you know I really appreciate it um so yeah as we were discussing um you know the implied volatility the options markets is pretty tame uh it hasn’t you know been uh acting out at all uh toward the end of last year and the beginning of this year

um and in fact uh you know toward the end of the year um it it was actually below average uh and here you had all this uncertainty going around in the world you know elections all over the place including in the US um you know the uh NATO some some of the more important NATO democracies like Germany and France um and um you know some other allies of the West like Korea um had you know their governments were in in a state of complete disarray uh you know the German and the French governments collapsed uh and they’re in the process

now trying to rebuild uh you know a new government structure so um you would think that you know options markets would be uh a little bit better bit meaning the implied volatilities would be higher but they weren’t uh but what you do see is very uh high levels of um global economic policy uncertainty as you mentioned um and there there’s a reason for that you know people will say well you know if uncertainty is high why isn’t volatility High volatility is something you can measure you know it’s

the standard deviation of uh returns U uncertainty is something you cannot measure um you know it’s you have two types you have the known unknowns and the unknown unknowns uh that make up what we referred to as uncertainty and we don’t know what we don’t know and we don’t see far enough into the future to be able to Discount events um that could happen um but uh the market is still very much on edge and because of that there’s a an aversion to taking you know positioning risk u in a lot of these

markets and there’s a flight to Safe Haven so you’ve seen uh gold uh remaining very well bid um you’ve seen um you know you know some of these commodities um you know softening some uh you know crude oil being one of them um partly on the back of a HED uh dollar which uh is also a safe haven uh you know when the when when things start to get really uncertain people have a tendency to go for gold and for uh US dollars as safe haven assets both of those have been very well bid uh and it’s a very unusual thing to see gold

and uh uh the US dollar moving in the same direction but we’re in a regime shift and we’ve been in this shift since the post pandemic period where you do see uh this this code movement between those Commodities that’s what we’re seeing right now um the real uh the effective the real exchange we or the the real effective exchange rate of the US dollar it’s a mouthful uh it’s a series put out by the bank for international settlements um was was hitting record H uh toward the end of last year and that’s highly

unusual um you know to see that occurring and gold to be bid you know continue to be bid and and within 5% of its all-time high of close to 2,800 bucks an ounce so um you know we’re living in some remarkable times uh and there’s a lot of stuff that you know still has to be determined yet this policy uncertainty what is that a ref reflection of just unknowns about uh the um uh the conditions of of uh the world basically post inauguration I mean I thought that Trump’s plans were pretty much well mapped out already but um I’ll

let you comment on that yeah he’s um he said that he’s you know going to impose tariffs on China like 60% right away uh he’s going to impose tariffs on Mexico um might even get into your backyard imposing tariffs on Canada yeah um you know that’s uh that that that’s all in the news he’s he’s also threatened to um impose tariffs on are the markets just not believing this rhetoric right now because if he said these things and made it very clear what he wants to do why is there so it why is there still so much

uncertainty um it’s not clear there’s there’s been some um apparent you know um I don’t know something of a strategy playing out right now you know Trump is out there playing the bad cop and then some of these other guys that appear to you know be on the same page as him but they’re they’re out there performing the role of explaining what he intends to do with tariffs and the new uh treasury secretary uh besser or Bess what I can’t his name right now yeah um you know was saying well you know this could be a

tactic you know to threaten to use tariffs and you know expect the people that they’re going to be directed at to U you know fall in line like you know in the case of Mexico um you know stop the immigration flows stop the fentanyl flows um you know in the case of the um you know Chinese you know we stop uh you know exporting everything out that you can to uh the US um you know until the the trade balance you know gets more in line uh the problem there is that you know ever since Trump’s last presidency

uh China and the US have uh significantly reduced their uh bilateral trade so there’s not a lot that you know Trump can do against China right now uh that’s really truly going to be meaningful but you know on top of all that none of what he said is has got a real plan attached to it yet I mean he’s you know he’s he’s threatening these things you know he’s pounding the taable he’s pointing at people but um there’s no there’s no detail around the economic policies he’s thinking about particularly these tariffs um and you

know the pressure he’s going to be putting on the fed to you know maintain a more accommodative policy I mean all these things are being hinted at or being discussed without any detail well let’s take a look at what the um energy markets are pressing and what I want to come back to the Trump and China Dynamics in just a bit because you brought up some key points about why uh China uh may not be as affected as much by these tariffs let’s take a look at what the oil price has done uh just shut up in a straight line ever since

Christmas um I mean the move is not that substantial but if you if you take a look at the last uh couple of months now this is the first uh significant uh rise in price basically since October what’s happening right now um the uh OPEC plus uh producers uh led by Saudi um have um agreed to postpone uh the return of barrels to the market uh until April of this year uh before it was going to be March but then they also ended the period over which they would return the barrels that have been held off the market which amount to

about close to 6 million I think it’s like 5.85 million barrels a day of production is being withheld from the market um and instead of trying to return U that over the course of one year they’re going they’ve agreed to return it over the course of two years uh ending at the end of 26 um so the net effect of that is going to be uh that you’ll still have some uh you know production increases outside of that OPEC plus group but um you know the fact that you’re keeping close to Six Million barrels a day off the market

means that uh refiners um particularly if they see surges in demand like we’re seeing now for heating oil in the northeast of the uh us and gas oil in Europe um as they you know draw those um crude oil barrels down to refine those into heating fuels and and just you know transport fuels and those sorts of things um inventories are going to go down um and because the supply is being withheld from the market the rate at which the inventories fall is more than likely going to increase and what that’s

going to do is give you a more uh backward AED market so the front of the curve is going to continue to trade uh above the the back of the curve uh indicating that the market is tightening and you know we’ve seen that and you know we expect to continue to see that uh going into uh this year particularly if uh the US uh you know continues to uh grow and um China and the EU uh respond to some very weak economic performances uh with more um you know rate Cuts uh you know trying to stimulate their economies was a report

today that China is looking at uh adding some stimulus to um you know packages that had announced uh toward the end of last year um so we’ll see China’s uh pmis were weak uh their uh you know consumer spending is very weak um the EU is in terrible shape um you know the UK uh is weak I mean the UK has been uh flat to slightly negative growth for the past two quarters which technically puts them in a recession so these guys are not all going to you know stand around and wait for their economies to you know

continue to you know crumble they’re going to to start you know uh intervening in the market and more than likely you know we’ll start seeing a more aggressive ECB and a more aggressive pboc in addition to more fiscal coming out in China that’ll all be good for commodity demand uh going into next year if they’re able to pull it off it’s not clear that you know they have the expertise to actually do uh fiscal policy that matters in China I I just uh wanted to get your take on why the move happened uh right before the

inauguration um I’ve talked to several energy experts uh the consensus amongst people I’ve discussed with the topic with so far Bob is that Trump’s policies are bearish for oil and I’ll ask you if you agree with that part of it comes from the fact that scota said wants to add an additional 3 million barrels of oil per day um and of course we know that fracking um has a lower cost of production than some other countries so we can the US in theory could withand lower prices do you agree that policies

are indeed bearish and we’ll see more bearishness in the market if he was able to do anything to make those policies effective you know to actually be implemented that would be bearish but the fact of the matter is the US government uh is not an oil producer the the oil companies uh in the US that Trump is talking to are all privately held their first priority is taking care of their shareholders uh they’ve done a remarkably good job of managing their production so as not to collapse the market and they’re you know doing pretty

much the same thing OPEC plus is doing so that’s a great point I mean if you if you were the government if you were you know in Trump’s office uh working for the treasury for example or you know in Scott bent’s office how would you incentivize these private companies to comply or cooperate I think would be a better word uh with your with your policies I mean you’re right they have to take care of their sh shareholders a lower oil price doesn’t really benefit them in the short run yeah um I don’t

know what he can do without blowing up the budget even more um than it would be if he’s you know successful in reducing taxes are keeping tax rates low um you know and it it would be a puic victory if you know he were to um you know change the tax structure change the write-off schedules you know for these oil and gas companies um you know in order to achieve higher output you know in in a market where outside the US um you know demand um is having a hard time Reviving in the other two largest economies in the world the EU

and China um you know em generally uh you know the rate of growth outside of China in EM is actually stronger than it is in China right now and that’s led by India so uh but that’s also under threat because the dollar is so strong you know there will come a point where the the the oil is denominated in dollars except for the stuff that Russia sells into um India uh you know they they do I think they have currency uh Ruble and rupe uh transactions and that that that was a a trade deal that went back all the way to

the 1950s but um yeah I don’t I don’t see how he can implement it David really tell you the truth um you know he can pound on the table but Chevron announced that they’re cutting back their capb backs you know because they they couldn’t make it work you know to to increase production and still keep shareholders uh receiving the returns they’ve come to expect so what then is your outlook for oil for 2025 um so right now um you know we see the market trading pretty much between 70 and 80 bucks a barrel for

2025 um you know probably somewhere around 75 77 bucks per barrel on average uh thereabouts for this year and and that’s for Brent um you know but the again this uncertainty is is really high David um you know if China is able to pull off you know a a recovery if they’re able to deploy fiscal inter really meaningful way and address their liquidity trap that could you know that that could be a GameChanger and that could boost uh demand um you know they’re they’re big consumers of pet cams you know

petrochemicals so uh to the extent that consumers buy more consumer products that use more petrochemicals like Plastics and that sort of thing um you know that could be meaningful addition to demand um but otherwise so so basically you’re kind of flat for the rest of the year is is what your your outlook is um are are you you you know any shocks to the system that we should at least be looking out for for either you know bearishness which I guess we talked about in some way but also bullishness yeah

um so you know we’re going in or we were going into this year U with a slight downward bias just from uh you know the way the market was trading um the what I mentioned earlier you know with OPEC plus withholding that almost six million barrels a day off the market um that leaves you very uh uh exposed U if you do get a demand shock or a supply shock um you know uh you lose a significant amount of production somewhere in oil oil markets and inventories has been falling you’re in this back rated Market because

inventories are going lower and then you get a shock and you know you’re drawing inventories even harder prices will Spike right um to the upside um I think there’s a limit on the downside uh you know I saw some commentary there was a lot of downside protection being purchased toward the end of last year in the in the options markets in oil and um you know that was you can’t you don’t know who who was putting it on like if it was producers or if it was uh investors but um you know people are still you know lining up and and taking

exposure to to be paid out if the market goes below 65 in Brent the front of the curve so I don’t think I think there’s a very low likelihood of that uh I think once it becomes apparent that inventories are being drawn down and that that that production wedge uh is going to take at least two to three months to you know that ex the Surplus capacity that OPEC plus has uh is going to take maybe three months to get into the market you have a period where you can get some you know some pretty um pretty high prices price

spikes as were I wonder whether or not the oil Market is pricing in or reacting to Middle East News at all right now take a look at my screen here I’ll share with you an article uh from CPS dated two days ago uh us strikes hoti targets Yemen after American warships were attacked so the United States military said on Tuesday that its forces had conducted multiple Precision strikes that hit houti Targets in Yemen’s Capital this came a week after uh the Israelis struck um Yemen as well the targets have been used by the

iran-backed rebels used to attack American warships and Commercial vessels uh the attacks began on Monday and continued on Tuesday v a video shared by the command shows planes taking off and Rockets being launched from a ship escalations in the region potentially could have disastrous impacts on the energy markets could they not I mean I I like asking you about um uh these issues because not only are you an energy analyst but you’re also a veteran of the US Navy so um you’re well positioned to you know analyze what actually is

happening right now um any impact whatsoever on the energy markets or is this just um noise um it’s not noise but I think it’s it’s marginal at best for right now um you know unless we see some of that Chinese gear or as they say over here in England uh that kit uh being put to use the the targeting and the the launching uh kit that was uh supplied by China to the hooes um you know that you know it’s not going to change a lot um you know it’s going to elicit that kind of response that you have here where you’re

you’re going to send your jets in to take out where they believe the missiles were fired from um and the um you know the drones uh but you know most of the shipping uh with the exception of China shipping is is avoiding the um you know the Red Sea so where a lot of that activity is occurring um down at the bottom of the Red Sea in the Bob elmb straight um most of that is being avoided to begin with so you know you’re rerouting around uh Africa or you know if you can um you know avoid entirely um you know sending

it uh you know up into the Met if you can from uh elsewhere so um yeah I don’t think it I don’t think it’s that big a deal uh the really big deal is if you start seeing you know um missiles being fired on ships transiting the straight of forus uh in the Arab Gulf then it becomes really why why haven’t the houthis done that yet I mean they don’t need to blockade the St of horo which is a major choke point for oil exports by the way for the audience watching uh they don’t have to blockade it with ships but they

could shoot ships entering and exiting with missiles right why why hasn’t that route been taken yet uh because that um that passage the straight of four moves is uh critical to the Iranians uh to get their oil out of the gulf and over to China I see I see uh they they could just Target tet non Iranian or I guess um unfriendly ships um uh they could they could and in fact a Chinese ship was mistakenly attacked by the houis and you there’s no fail safe out there so um I I don’t think and and you know the Iran is is

arming U the htis so um you know they’re not going to want their arms turned against them or or or their you know their Transit point there what tools does Trump and ultimately the US military have at their disposal to um either broker more peace in the Middle East come inauguration day uh or perhaps um by way of force encourage both parties to participate in more ceasefires I think he’s he’s firstly focused on he he said he wants to bring the war in Ukraine to an end uh you know we’ll see how that goes um in the Middle

East um you know he his administration um you know favored um including the Arabs and the Israelis and these Abraham courts um so um you know I would imagine they would still want to see something like that um you know that uh you know you have this this combined um you know Force um you know dedicated to um dismantling Iran’s capacity to um you know wage war on them you know they’ve made a pretty significant dent in that to date um and now the fear you know amongst some of the um the analysts that I read is that

Iran might feel uh really desperate and you know go all in on ramping up their capacity to launch a nuclear weapon um so I think people are very um very um concerned about that right now you know given that Iran has been delivered a lot of you know serious body blows to their ability to wage war going back to the bearish bullish Outlook of oil do you agree with the theory that should Trump be successful in broking more peace either through um diplomatic means or through Force um in Ukraine and in the Middle East that is bearish for

oil no I don’t think it is I think if you can get a resumption of trade and uh you know Commerce and business is going uh both in Eastern Europe and um you know in the Gulf regions um you know that would be all good you know people would you know stop avoiding you know Passage through the Red Sea either up toward the met or down into the um Indian Ocean so um I think that would actually be U somewhat bullish uh for oil uh you know things could get back to normal people could you know ship goods

you know drive cars so you you don’t think that oil at $74 is currently pricing in a geopolitical risk premium of war and that premium could be um you know could could could go away if if there’s less war that’s not what’s happening right now in the markets no I I don’t think so we saw some some of that premium leave the market but I mean after I think after um you know uh the Israelis attacked uh you know Iran’s proxies and Iran itself yeah uh and pretty much dismantled their ability to wage war um you know a lot of that fear

came out of the market okay well what about on the China us front uh you brought this up earlier you mentioned how um tariffs may have a limiting impact on China first of all why why is that you you you also outlined several in economic indicators like a slowing PMI for example that may indicate a slow down the Chinese economy why why would they not be affected more by the tariffs than the US side um because they don’t I mean they ship you know a lot of important stuff to uh the us but in overall in in the aggregate um it’s it’s

trivial for all intents and purposes you know the US and China do not do you know the Lion Share of of World Trade with with each other um so they did more when Trump was president the first time and that’s just you know people have been moving their supply chains you know Finding other sources of Supply uh and that’s going to continue um [Music] so I think China’s you know big problem right now is that their their domestic demand um is just absolutely you know um morbin um you know consumers don’t want to

spend they continue to save and um you know the only outlet that China has is exports for its excess capacity they’re not consuming it at home yeah and uh all the places where they’ normally look to to put that excess capacity into like Latin America and um Europe um they’re telling them no you know you you you don’t have unlimited access to our Market you’re not going to force us to de-industrialized to allow you to unload all of that capacity in Europe or in Brazil or whatever the case may be I

mean those states are all taking action to limit the amount of uh trade that’s being done with China One of the concerns I remember um from the last Trump Administration was that tariffs on China or a trade War overall with China would lead to a hot war that didn’t happen um could this time be different are the stakes higher this time around that’s a that’s a good question because I think you could make an argument that they are higher um you know the uh limiting the access to you know the high-tech stuff like the

machines that build the chips and the the access to the really really highspeed state-of-the-art chips uh you know every year that you miss out on that you miss another cycle in that chip industry and you know the the ability to do more on Less on a smaller you know wafer um at some point the longer that goes on uh the more behind the curve you’re going to be you know given Mo’s law and all that sort of thing uh you get a doubling of of capacity and out put on those chips every two years or so um so um yeah you know if they come to

the conclusion that you know they’re being cut off and if this goes on for another three or four years uh you know we’re you know the literal chip choke um becomes effective you know they might just you know start you know becoming more assertive and more aggressive uh to regain access to those chips so it’s not it’s it’s not really an issue of of of tariffs broad-based tariffs it’s really a chips issue is what you’re saying yeah okay um and a tech you know getting getting access to the tech that

that continues to evolve well I mean neither side has an incentive to escalate this what are what are some of the controls that are set in place to prevent this worst case scenario that I’ve just I’ve described the Instinct for self-preservation [Music] okay um I you know I I don’t know I mean we’re we’re we’re in a realm that’s you know Way Beyond my ability to to forecast outcomes and understand you know I well are you are you concerned about the the the naval uh strength of the Chinese right now

um they’ve been building a lot more ships that the the growth of their Navy has been unprecedented um do numbers really tell the whole story though Bob well there’s a couple of things there they’ve done a remarkable job I think you know by number count alone they have the largest Navy in the world or they’re approaching that point um a lot of it is not what they call Blue Water uh Navy uh you know they’re they’re getting to the point where they can send fleets out into the high seas around the world but uh

they’re not entirely there yet um the other thing is is that you know it I mean a lot of this has happened over the past 20 or 30 years this has just been a massive buildup of uh capacity to wage war um but you know there has been little institutional knowledge built in actually Waging War at Sea in China and um you know that’s where the the ultimate test is you know the US you know the US is just War weary right now and um you know uh they they’ve got too much experience Waging War in the US uh

so um you know we’ll see it’s one thing to have all that Hardware it’s another thing to be able to use it effectively finally I want to bring up a piece of news that affects the Trump Administration uh this came in from uh I’m quoting The Wall Street Journal here before Trump takes office Biden to ban Drilling in some Coastal Waters the move would be difficult to for the incoming Administration to undo so here’s the uh here’s the uh uh story here the decree which could come as soon as next week is

expected to invoke the 1953 alter continental shelf lands act which gives the president wide latitude to withdraw from consideration currently Unleashed lands in federal offshore Waters according to people familiar with the white house uh the law has been evoked a handful of times it doesn’t include a procedure for new president to unlock actions by a uh predecessor um basically uh you know what what President Biden here is expected to ban oil and gas drilling in certain federal waters um is this

possible in the next 17 days before inauguration and uh is this going to put a big dent on Trump’s energy plans um entirely possible I mean I he’s just got to sign the order um but um you know most of thees you know two weeks left I don’t know um you know the I think you know uh the Biden Administration has been um you know very faithful to its pledges to uh you know try to reduce uh oil and gas consumption uh this looks like it’s part of it uh but that those properties that that that those areas that are being you know

hived off and not allowed to be developed it’s not a lot of oil and it’s not where the the the greatest amount of um drilling is being done you know the huge surges in in output are coming in the shells and um you know that that’s going to continue to be the case and and you know some conventional um you’ve got uh deep water in the US Gulf you’ve got deep water off the coast of Latin America Guyana you’ve got you know off the coast of Africa um you know they’re still getting a lot of cacks in those

areas well I mean is it is it fair to say that the oil industry overall has been um I want I don’t know about the word supportive but happy about Biden’s policies given that his policies have managed to keep oil prices High because of some of these I I think it’s a bit of a stretch you know the the the fact is that Biden the Biden Administration was in office during the biggest surge in oil production in in the history of the us we went above 135 million barrels a day um and that was with the Biden

Administration not fully supporting that development and you know putting a throttle on LG development you know to to ship uh gas over which is going to become more important now that gas is not flowing uh across Ukraine Russian gas is no longer flowing across Ukraine into Eastern Europe so the demand for that LG is going to be high it’s one of the reasons you saw such a huge spike in KN gas which came off today I don’t know if you saw that but that was you know it was up 16% one day last week and then today it was down 8% you

that’s breathtaking man yeah okay yeah that that that’s a good point uh Bob uh let’s wrap it up here very good thank you very much for your insights uh where can we learn more from your work and uh uh read from your research now sure um we’re at Ryan commodity insights.com yes um and you know you can have a poke around the um the website and U you know request a a free trial of the uh the research see if you like it and uh you know be happy to abl if you do all right we’ll put the link down below so make sure to check

out Ryan commodity insights down below congratulations again on your Venture and a happy new year take care thank you David all the best to you thank you we’ll have you back again soon for energy updates thank you again for watching don’t forget to like And subscribe