Martin Wiggen: Oil Markets Watching Risk of Escalation

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00:00Nadia, I actually wanted to talk to you about metals today, but we have this breaking news from the region.

00:05Your reaction, please, on how you think oil is reacting this morning.

00:09We're down half a percent. How much of that is actually some of the geopolitical premium being unwound?

00:15Thank you. It's great to be back. I mean, it probably is some of this geopolitical being run back.

00:20Some consultants have said that there's up to five dollars a barrel priced in currently in geopolitical risk.

00:26But as you just discussed, is this a real ceasefire and peace?

00:32We're in the first stage. And in some ways, for Spelan Capital, we actually see the risk increasing of escalation now,

00:40because perhaps Netanyahu facing an election within 12 months may need to turn his attention to Iran instead of being purely focused on Gaza.

00:49And, of course, Iran would have much higher implications to the oil market balance in terms of supply and demand,

00:56because that oil has continued flowing out of the region.

01:00So we actually see that the risk premium continues to be important.

01:06And we also have the potential of flare-ups in Venezuela, Guyana, and finally, Russia.

01:13It's very uncertain what will happen there.

01:15Yeah. Okay. Nadia, I want to turn and talk to you about the commodity everyone has been discussing the last couple of days,

01:23and that is gold breaking through $4,000.

01:26You and I were speaking not so long ago, almost 10 days ago, about the run-up in gold,

01:31and you had $4,000 as a target.

01:33We're here now. What do you think got us here so quickly?

01:36Was it institutional buyers coming in, or was it retail sensing an opportunity to get involved in the rally as well

01:42that have brought us up to these levels? Is it speculative buying?

01:46We see the number one driver in this market for the last two and a half, three years has been the central bank buying,

01:53and that has not let up.

01:54It really jumped. And last month, we see that Kazakhstan's central bank was the number one buyer.

02:00And as we discussed 10 days ago, you know, the central and eastern Europe has taken the helm

02:05of having the bulk of buying above the BRICS countries, which had been the driver going into this year in particular,

02:11although Poland was the number one buyer last year.

02:15In addition to that, we see that all of the ETF markets have turned to length in the last month.

02:23Previous month, we saw that in Asia, there was still some selling.

02:26Now we see buying across the board.

02:29But most importantly for us, we see that it's the central bank buying.

02:34Finally, when you discuss retail, it's also jewelry, and we're in that demand season for jewelry,

02:39especially in India and China.

02:41We've had golden week.

02:42We have the wedding season in India.

02:44So that should continue through this quarter until Chinese New Year at the start of next year.

02:49But so still bullish even at these levels then.

02:52And I'm going to, you know, tight to pin you down again.

02:55But where could be a next reasonable target for gold to get to?

03:00From our perspective, selling capital, $4,500, $5,000 by end of next year.

03:06That's the range we are looking at.

03:08Because as we discussed, China has so much more buying to do to shore up their reserves.

03:15And, you know, as we said, you know, the U.S., Germany, they have above 77% reserves.

03:23China is only at 6.5% reserves.

03:26India is at around 13.5% in their reserves.

03:29And every month, every quarter, there are treasuries coming due for China,

03:35and they can redeploy that into buying gold.

03:38So gold has got all the attention, but other metals have also done extremely well this year.

03:45Yesterday, we had a chart-up of an ETF tracking metals massively outperforming the S&P this year.

03:51You're seeing it in copper.

03:52You're seeing it in aluminum.

03:54How much of that is just sort of rallying in sympathy with gold?

03:58And how much of it is, you know, in the case of copper and aluminum,

04:01to do with also the euphoria around AI and the build-out of these data centers

04:06and the requirements for some of these materials in the build-out of that infrastructure?

04:11So in our view, we separate the base and precious metals markets.

04:15Silver is the one that overlaps between the two because of its use in solar panels as a base metal

04:20and in precious metals.

04:22When we look at copper and aluminum, this is really pointing to the tightness we have in supply

04:29and the lackadaisical attitude of the market that was really encouraged by the Trump election victory,

04:38that everyone or the market reacted that we would have tariff wars,

04:42and that is bad for demand and infrastructure spending.

04:46At Spelling Capital, we were much more skeptical about the effect of broad tariffs

04:50and if they would be implemented.

04:52And what we see that any type of supply shock, as we've seen in copper with Grasberg,

04:58which, you know, on the 8th of September, we had the second largest mine in the world,

05:02have to be shut down.

05:04The market didn't hear about it for two weeks.

05:06And the market right now is assuming it's going to be up in Q4.

05:10And we are very skeptical.

05:12It's extremely muddy.

05:13This is a very complicated mine to run in general.

05:17And frankly, it may never be up.

05:20That's 3% to 4% of the world's copper supply in a market that we already saw as being short

05:27in terms of the S&D this year and skyrocketing in shortness over the next decade.

05:32We need 1.5 times more copper than what is being currently produced within the next 10 years.

05:40And it takes 18 years to get it up and running full lifecycle.

05:43When you ask about data centers, yes, it's important for copper,

05:46but that's only 6% of the demand growth that we see coming in the next decade.

05:52Number one is EVs.

05:53Number two is renewable generation.

05:55Number three is grid infrastructure.

05:57Number four is charging infrastructure.

06:00Now, we also have general economic growth.

06:03And then we suddenly hit the data center proportion.

06:08But of course, data centers is a part of this.

06:10Aluminium, that's a substitute for copper, an imperfect substitute.

06:14But of course, it is a substitute.

06:16And it's been a very shorted market this year off of this Trump election,

06:22off of concerns on the geopolitical side.

06:27And so that's also being pulled up.

06:29China is not increasing its production of aluminium right now,

06:33yet we see demand going higher.

06:35And so this is where the market is really moving.

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