Martin Wiggen: BRICS Coming Closer Helping Gold

Bloomberg

Watch Martin Wiggen: BRICS Coming Closer Helping Gold - Bloomberg on Dailymotion

Transcript

00:00You know, I look at Brent trading basically now around $70, and I wonder why we are here,

00:06despite the fact that OPEC Plus has been putting all this extra supply back to the market. Is it

00:10because we've seen surprise upside on the demand side, or is it because there's still a geopolitical

00:17risk premium embedded into oil at $70? We would say it's selling capital, it's both. I mean,

00:23on the demand side, definitely versus IEA expectations, demand has been higher.

00:28We haven't seen inventory builds in the OECD. We didn't build in the first quarter. We only built

00:34350,000 barrels per day in the second quarter, and yet to be seen what happens in the third quarter.

00:39I mean, we've probably built around 20 million barrels in September, but that's very, very low

00:45versus expectations. And when all the analysts have been forecasting one, two, up to four million

00:51barrel per day builds in the fourth quarter, the market's much more skeptical because it's gone

00:56into strategic stockpiling in China. The geopolitical risk, you know, we have OPEC agreeing to increase

01:03production, but really so far we've only seen Saudi Arabia at around 400,000 barrels per day

01:09of oil in the last two months. And then Emirates have been raising production, you know, 100,000 barrels

01:18per day month on month since June. Now, the rest of the group hasn't been increasing and Russia

01:25has 600,000 barrels per day almost of refinery outages right now. And we've only seen about

01:33250,000, 300,000 barrels per day of additional oil in the market right now. That's before production

01:40increases. And so that's where the market is a little bit concerned. Can Russia actually sell

01:46as much oil as they should? And can the rest of the OPEC group increase production or is it only

01:51about the UAE and Saudi Arabia? That's really interesting. What about news over the weekend

01:56that the Kurdistan pipeline is going to be reopened again? I'm seeing that it could add around 200,000

02:02barrels a day of production. Does that move the needle a little? Well, it does help, absolutely. And

02:08the big point is that Iraq has been overproducing throughout this cycle. And when you raise

02:14the level that they can produce that, then they're suddenly more compliant. So if and when we get

02:20an oversupply that really starts to hit the market, maybe Q1 of next year, then they're compliant and

02:27then they should really cut. And that's where we view this. This isn't Saudi Arabia going for market

02:33share and trying to break shale. This is about getting everyone in line and having them understand

02:40that, look, we Saudi Arabia, we the UAE, we can add production and break this market if you want us

02:48to, if you threaten us, or we will be cutting and you will be cutting as well. I mean, essentially for

02:53me, it just seems to come back to what happens with stockpiles, because that is where market analysts

02:59have been grossly overestimating the size of the inventory buildup. And to go back to what you

03:05were saying at the beginning, sorry, why has OECD stockpiles, why have they not gone up as much as

03:12we thought they would? Well, number one, we're having less U.S. production growth, right? We think

03:17we've peaked for now in July, August. We'll come down at least 100,000, 200,000 barrels per day from

03:23that into December. We, we, we have had OPEC saying they're increasing production, but they

03:29haven't increased that much. But number one is demand. And this is where demand has been viewed

03:34as low as maybe 800,000 barrels per day this year, year on year growth, you know, the tariffs from

03:40Trump, you know, but when we look at the physical market, the shipping market doesn't lie. VLCC rates

03:46are flying. So this is where we see there is that demand. And do you think the China stockpiles

03:53is going to continue for the foreseeable future? Well, that comes down to price. And they've

03:58been very happy in this range to build stockpiles because they're worried. What if we, what if

04:04OPEC loses control of the upside on the pricing because the spare capacity isn't 5 million barrels

04:09per day? Like the IA says, we think it's more like 2.5 million barrels per day spare capacity,

04:153 million barrels per day. If we get down to one and a half million barrels per day, 1 million

04:19barrels per day, that's when you lose control of the upside. And we can start looking at through

04:23triple digit oil again. Okay. Reading across everything you're saying, would you say $80

04:27is more likely than 60? I'm pinning you down. I'm pinning you down. We're still in the 60s.

04:33It's anti-consensus. But it's like, I think a lot of forecasting is in the 50s. And when you look

04:38at algorithmic trading and positioning, that's why we've popped up 70, is that everyone had a sell

04:43recommendation. And then on Wednesday, we got a buy recommendation in the Brent market. We're not

04:48there yet in WTI. And that's where we have that short covering coming. Yeah. I just feel like

04:53there's a lot of complacency, especially our prior guest was talking about the possibility even of,

04:58you know, Iran, Israel flaring up again. And then you look about, look at the fundamentals that you

05:02were just highlighting. And it does tell you that the market is positioned a certain way. But I want to

05:07move on to something else, Nadia. I know we've been talking about oil, but you also have been

05:10looking at the gold complex to close to $3,800, you know, another all-time record high. I feel the

05:18whole year this year, we've been talking about gold making all-time record highs. When does this

05:22stop? And how does it stop? Well, we hit selling capital, don't really see it stopping unless we

05:28have a complete change in the world order. And right now, we're changing in a different direction.

05:33We've had BRICS coming closer together. And I would say, you know, we've had 25 all-time highs

05:39probably in the last two and a half years. And the big driver has been the BRICS countries.

05:44And China in particular has been buying so much gold. But what we've seen in the last year,

05:50last couple quarters, Central and Eastern Europe are really building up their reserves by the

05:55central banks. And that's led by Poland, Czech Republic, Azerbaijan. Now, before Russia invaded Ukraine

06:022.0, they spent two years building up their gold reserves. That's why the ruble has been as stable as

06:06it has been. So we now see Central and Eastern Europe are very nervous. They're building up those

06:12reserves. But then we have China that only has 6.5% of their reserves in gold. And we constantly have

06:21treasuries coming due. And then they can buy gold. And they announced last week that they want to be

06:27a reserve area, right? And if you look at London, there's $600 billion sitting there in physical

06:35gold. China only has $200 billion right now. And they need to build that up. And when we think

06:39about an export economy like Germany, they have more than 77% of their reserves sitting in physical

06:46gold. And so if you diversify away from the U.S. dollars, you want to be an export economy,

06:53it makes sense that China will continue buying and the central banks. And then we're in retail

06:57buying season now. It's golden week. It's going to be Chinese New Year. You know, in India,

07:02they're buying. So we just see this continuing. All that glitters is gold.

Category

Transcript

Be the first to comment

Recommended