The truth about black gold, plus notes on the US tech bubble.
The Truth About Black Gold
June 22 (King World News) – Peter Boockvar: I’ve argued many times that even when the conflict officially ends, the Strait reopens, and oil prices pull back in response, we are not going back to $65 on any sustainable basis, if at all. A key factor on the demand side to this belief is the global desire to build excess stockpiles, in addition to refilling the reserves already released. Reuters ran an opinion piece today from Ron Bousso titled “Iran war triggers global race to build oil reserves.” The piece said, “Vulnerable countries that paid a high economic price during the Iran war are seeking to build domestic oil and gas storage buffers against future shocks, a drive that could bring roughly half a billion barrels of additional demand down the pike.”
Further, “India is in clear need of larger strategic reserves. It is the world’s most populous nation, the 3rd largest oil importer and the 2nd largest importer of liquefied petroleum gas used for cooking, and is set to become the single biggest source of global oil demand growth through 2030, according to the IEA…Its reserve covers just eight days of imports; meeting the IEA’s 90 day standard would require more than 400 million additional barrels, costing roughly $28 billion at $70 per barrel.”
“Pakistan is in a similar position…Building reserves equivalent to 90 days of imports would require around 35 million additional barrels. Australia, the only full IEA member that consistently failed to meet the agency’s SPR requirement, has announced plans to spend $7 billion to hold at least 50 days of fuel. Other countries, including Asia’s top oil refining hub Singapore, are also considering building or expanding strategic oil and gas storage. Europe already has an extensive gas storage system to manage seasonal demand, particularly in winter. But…the region may opt to build additional government controlled storage.”
“Even energy producers are moving in this direction. Gulf national oil companies are seeking more storage outside the region to preserve export flexibility in a crisis.”
Bottom Line
Bottom line, “Taken together, these new storage plans could require around 500 million barrels of crude and refined products,” based on their calculations. “Depleted inventories will also need refilling. Roughly 400 million barrels have already been drawn from global stocks since the start of the war, according to the IEA, with draws likely to continue through the summer even after Hormuz reopens. Combined, that amounts to roughly 1 billion barrels of additional demand. Even if spread over several years, it would provide significant price support.”
A check on the US oil rig count, after rising for 8 straight weeks and by 26 rigs during this time frame to 433, there was no change w/o/w as of 6/19.
Another check on container shipping prices and we’ll see in coming weeks to see if we get any collateral relief with hopefully the Strait fully reopening. As of 6/18, the price of a 40 foot container from Shanghai to NY jumped again to $6,769, up by 17% w/o/w to the highest in a year.
Shanghai to Rotterdam saw prices rise to the most since January 2025 at $4,342, up 15% w/o/w.
Notes On The US Tech Bubble
When analyzing under the hood of the US economy, in the context of the two lane highway I keep mentioning, the case is the same when it comes to CapEx. There is CapEx on building on the GenAI infrastructure and CapEx on everything else. The former is growing tremendously as we know, but there is little growth with the latter. This was from Accenture on Friday, a stock that fell by 18%:
With regards to corporate IT budgets, “Even with AI, they’re spending it differently, but they haven’t been increasing.”
Also of note from their call, “we were impacted by the conflict in the Middle East. We saw a revenue impact of approximately $100 million compared to our expectations, which was all consulting type of work, split evenly between the direct impact on our Middle East business and indirect effects outside of the region. In the last few weeks of the quarter, we saw this indirect impact globally in products and to a lesser degree in resources, mostly in discretionary spend.” As an example of the ‘indirect impact’, “some of the industries are dealing with kind of longer-term issues, so think about automotive, where we have a large presence. They were already challenged. And now with the higher gas prices, that’s added to it.”
Overall, they are optimistic about the AI opportunity “We believe that AI will be a tailwind for us and our industry as it scales because it is a catalyst for reinvention and is creating new opportunities for growth and efficiency for our clients and for us.”
US Consumer Under Pressure
Shifting to the US consumer, this was from Kroger and whose stock fell 8% Friday:
“The customer is under pressure. Higher gas prices and reduced SNAP benefits are squeezing budgets. Customers are managing spend carefully and shopping with real intent. That pressure is showing up in the market. Food-at-home growth decelerated 100 bps compared to the last quarter. Encouraging news is that our work on affordability is starting to resonate and you can see it in the data.”
“Traffic is up. Customers are coming through our doors more often, which tells me our value messaging is starting to land.”
“Food inflation came in at the low end of our expectations, down sequentially from the fourth quarter. Egg deflation was a meaningful headwind to identical sales without fuel, representing 64 bps of pressure.”
“Looking ahead, we expect inflationary pressure to increase as the year progresses, reflecting the broader macro environment.”
With respect to the not surprising resignation of Keir Starmer as the PM of the UK, there isn’t much of a market impact with the pound little changed, the FTSE 100 slightly higher and gilt yields lower, along with its European peers. Wes Streeting is the business friendly Labor party candidate but the betting markets have a 90%+ chance that Andy Burnham, left of Starmer, will be the next PM. I continue to believe the UK stock market is a treasure trove of cheap stuff.
Costa On Friday’s Takedown In Gold & Silver
To listen to the brilliant Tavi Costa discuss what to expect in the coming days, weeks and months in the gold, silver, mining and oil markets CLICK HERE OR ON THE IMAGE BELOW.
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To listen to Alasdair Macleod discuss the takedown in the gold and silver markets and what to expect next CLICK HERE OR ON THE IMAGE BELOW.
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