In the early hours of Monday morning local time, Jeff Currie, head of global commodity research at Goldman Sachs, who shouted the "super commodity cycle" in January, gave another interview to Odd Lots, a well-known podcast, saying bluntly that the pain caused by the collective commodity boom had not yet reached its maximum.
Currie said on the program that the current rise in the commodity market has far exceeded what could have been expected. In the case of crude oil, for example, the measurable output gap reached 4.5 million barrels per day as of last month, close to 5 per cent of the global crude oil market. This level of gap is no longer a situation that OPEC and the United States can solve alone.
This is extremely common in commodity markets, he said, and copper stocks are falling at a rate of 8 per cent and 10 per cent, which is never expected, and the shutdown of zinc plants in Europe also shows us how the problem spreads across countries and categories.
What is happening now is that although the price increases are driven by the same factors, such as the convergence of consumer behavior, underinvestment in the "old economy" before the outbreak, and the hoarding of inventory in the supply chain, the risk of further upward prices of these commodities has even exceeded Goldman's expectations.
Asked about the popular hypothesis that carbon reduction leads to underinvestment in traditional energy, Currie said the problem did not happen only in the past two years. Due to the low return on investment, many large companies and investors have withdrawn their investments in the field (petrochemical, etc.) as early as many years ago. So not to cater to concepts such as ESG, but because they have already done so.
'for petrochemical companies, the next thing we need to focus on is how high the oil price has to go to drive capital into the industry,'he said.'it's not just the doubling of oil prices, it's also important for energy companies to double their share prices,'he said.'it's also an opportunity to see how ideas like ESG have an impact.
Currie once again stressed that what is happening continues to cater to the concept of a "super commodity cycle". For capacity that has been shut down in the past, restarting these facilities is far more expensive than people think, so more investment will continue to focus on sustainable clean energy. Therefore, the increase in production in some countries in the next 3-6 months can alleviate the problem, but it is far from being solved.
However, Currie also said that the source of widespread inflation is not a shortage of fuels such as coal, which has been driven by demand, which is the difference between a "commodity bull market" and a "commodity supercycle", which comes from a structural increase in demand. This is also the same as "inflation can only be created by a structural increase in demand from low-income people".
Finally, when talking about the forward outlook, Currie believes that all major categories of commodities will still be in the current (upside) cycle, and that these "temporary events" may be longer-lasting than expected in retrospect. If you ask him again after June, he may be in the most painful time in the market at that time, and there is a higher probability that the whole system is looking for a solution nine months later.
The next three to six months may be the most painful time for the crude oil market. Goldman Sachs is currently expecting $90, but he also stressed the huge upside risks.
