U.S. oil production continues to surprise to the upside despite lower prices, says Daan Struyven

Joe Kernen (Anchor) 00:00.230

we will start though with energy prices but and commodities complex it's all over the place joining us now don striven goldman sachs co head of global commodities research oil it's great tax break is one way to look at for american consumers it gas is cheap based on where oil is

Joe Kernen (Anchor) 00:21.510

right now how are the producers doing

Daan Struyven (Co-Head of Commodities Research) 00:24.790

yeah so US production despite the lower prices continues to surprise to the upside if you look at the latest US monthly petroleum statistics us liquid supply is up one point three million barrels per day with about half of that coming from crude the other half coming from

Daan Struyven (Co-Head of Commodities Research) 00:42.070

natural gas liquids redupe and salinity in our forecast that lower oil prices will lead to a slowdown in US shale production but so far that's more a forecast in effect

Joe Kernen (Anchor) 00:52.240

whatever 's happening even in the middle east or south the mayor of venezuela it hasn't affected there's been no firm bid above the the high fifties

Daan Struyven (Co-Head of Commodities Research) 01:02.230

yes i think the story of this year is that we have been in a very strong supply growth environment not only because of the us but also brazil guyana core opec countries like saudi arabia bringing barrels back and as a result you have been in an oversupply market and the trend

Daan Struyven (Co-Head of Commodities Research) 01:16.190

has been downwards but whenever we sort of hit the lower end of that range very often geopolitical shocks push up oil prices higher temporarily until market refocuses on the fundamental would

Joe Kernen (Anchor) 01:27.470

you call fifty eight a sweet spot can can everyone win there the american consumer and the producers or as you say there will be some some shut in eventually yeah

Daan Struyven (Co-Head of Commodities Research) 01:37.430

it's definitely a very attractive price for the US consumer we think the current oil price level is a pretty attractive oil price level for the US economy as a whole that's set for higher cost US share producers prices are getting a little bit too low we we estimate the sort of

Daan Struyven (Co-Head of Commodities Research) 01:52.350

average oil price in double TI terms that you need to get to make a fifteen percent return as a US shale producer in the low fifties so we're getting on the low side that set costs continue to come down technologies continue to improve how

Joe Kernen (Anchor) 02:06.430

about the metals metals have performed incredibly well taking a step back

Joe Kernen (Anchor) 02:12.680

supply demand no fed cuts so

Daan Struyven (Co-Head of Commodities Research) 02:14.680

i would point to two factors fed cuts tend to support metals prices significantly more than energy prices

Joe Kernen (Anchor) 02:21.800

is that just a debasement trade what is that it's a momentum or psychology why yeah

Daan Struyven (Co-Head of Commodities Research) 02:29.430

so i think energy is more of a spot asset you really prize the short term supply demand fundamentals metals are more forward looking it has a longer duration and so you know if rates come down the net present value of a long duration assets tends to rise more because you support

Daan Struyven (Co-Head of Commodities Research) 02:44.550

support demand and the other key point is supply of gold in particular but also other precious metals and copper for that matter is significantly more constrained it takes years to build a new mine whether it's in gold or copper and i think gold is the extreme dream example

Daan Struyven (Co-Head of Commodities Research) 03:00.910

where the vast majority of supply has already been mined annual gold production from mines is only one percent of the total stock out there so if you combine upper pressure on demand in this case from central banks buying gold plus fat cuts and more constrained supply you get

Daan Struyven (Co-Head of Commodities Research) 03:18.070

this divergent where the metals do very well and where energy is more dominated by micro fundamentals and for that matter pretty strong supply it's

Joe Kernen (Anchor) 03:24.830

just hard gold and copper i guess they're both mine but other than that the the comparison seemed to stop stop there yet coppers participating along with silver silver i mean silver and gold you think of the same but

Daan Struyven (Co-Head of Commodities Research) 03:38.350

yeah i think silver and copper have one common bullish driver which is the possibility of potential US tariffs which is leading to metal being shipped outside of the london market where prices are set into the US ahead of a potential price increase as a result images are low in

Daan Struyven (Co-Head of Commodities Research) 03:56.990

the global market where prices are set that has put upward pressure on both silver and copper prices do you

Joe Kernen (Anchor) 04:03.310

think we should be refilling the SPR have we refilled the SPR at

Daan Struyven (Co-Head of Commodities Research) 04:08.600

a very slow pace the the level

Joe Kernen (Anchor) 04:10.870

what's the problem we don't want we don't want to boost prices

Daan Struyven (Co-Head of Commodities Research) 04:14.670

you could also argue ask the question in an environment where the US is such a dominant oil producer where we have become a net exporter rather net importer we don't

Joe Kernen (Anchor) 04:22.510

we don't need it maybe

Daan Struyven (Co-Head of Commodities Research) 04:24.150

the optimal level is lower than where it was when we used to be a net net importer

Joe Kernen (Anchor) 04:28.710

but would you refill it at these prices a hundred percent do

Daan Struyven (Co-Head of Commodities Research) 04:32.870

we need we do just you know we do think that prices in twenty five and twenty six will be below their long term fair value so from that perspective it's a good long term buy