Jeff Currie Says AI Boom Sets Up Commodities for Decade-Long Run

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(Bloomberg) — Veteran strategist Jeff Currie said the world is in the early stages of a commodity supercycle that may last another decade or more as the artificial intelligence buildout collides with chronic underinvestment in energy and materials capacity. 

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The energy sector presents “the biggest asymmetric trade in modern finance” because oil companies are returning a 15.5% free cash flow yield while hyperscalers have none, Currie said Tuesday on Bloomberg Television’s Surveillance. Even with the supply shock now rippling across the globe, the supercycle could run 10 to 12 more years, he said.

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Currie’s perspective carries sway on Wall Street after more than 20 years at Goldman Sachs Group Inc. and then as chief strategy officer of energy pathways at Carlyle Group, where he is still a senior adviser. Now executive co-chairman of Abaxx Markets, Currie drew lessons from recent history, saying technology led from the 1990s into the early 2000s, followed by energy until about 2014 and then tech again — now with a vast appetite for power and raw materials.

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The current deficit between oil demand and supply is drawing down inventories during the weakest demand period of the year, meaning no stress is yet visible on the system despite the run-up in crude, Currie said. Once inventories are exhausted, prices will be forced higher to push demand down to available supply, replicating the dynamic of 2020-2021 when inflation was dismissed as transitor01 before surging to the highest since 1981, he said.

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Brent crude surged 84% this year through Monday to about $112 a barrel, before retreating Tuesday. But Currie said more pain is coming, because the spread between spot prices and the back end of the curve indicates that the long-term cost structure is fundamentally mispriced.

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Critical shortages will hit specific products within weeks as inventories are exhausted, sending prices “nonlinear,” Currie said. Jet fuel is already at critical levels globally, while Europe faces serious diesel and fuel problems by the end of the month, and US gasoline will hit constraints by July, he said. US motor oil inventory is particularly critical, while sulfuric acid shortages have already driven copper to all-time highs since the chemical is essential for copper production.

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“Every policymaker, macro forecaster, central banker, tech promoter is telling you right now there is no problem,” Currie said. “Every commodity CEO, anybody who gets their hands dirty, is telling you you have a problem.”

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Buying the so-called Munificent Seven — Currie’s riff on tech’s Magnificent Seven — is one way to participate in the demand for energy, he said. The group consists of ExxonMobil Corp., Chevron Corp., ConocoPhillips, Shell Plc, TotalEnergies SE, BP Plc and Equinor ASA.

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“The trade here, just looking at pure economics, is just to own these oil companies,” he said. 

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(This story was produced with the assistance of Bloomberg Automation.)

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