We have now is a a serious situation where we have a large deficit emerging on the horizon. We've talked about this through our Super Cycle thesis in the year. I would say the fundamental um case for oil is as strong as it's ever been. and yeah, I think there's a lot more to go I Actually think we're entering an energy super cycle Brian Um, you know the reality is that we've got a structural deficit in the world and that even predated the Russia Ukraine war.

Um, we're just beginning. You know we like to argue this is that the first Innings of a commodity super cyclist, not just oil and gas. it's Metals money. it's agriculture.

Since 2021, the world has seen unprecedented fiscal stimulus measures, decreased supply from Russia following the Ukraine invasion in a further boost in demand expected as a Chinese economy reopens. This, along with almost a decade of underinvestment in many natural resource Industries has led many Market observers to call for a super cycle not only in oil, but in all command including copper, Lithium, Cobalt and even uranium. However, over the past six to nine months, the Super cycle narrative has been dampened by the Federal Reserve and other Central bank's rate hikes, which are widely expected to cause at least a mild recession in both the U.S and Europe This year, this has led to a moderation in the prices of oil and other basic Commodities With prices struggling in recent months, many Market commentators are now saying that the 2022 increase in Commodities was an ephemeral anomaly, not the beginning of a multi-year super cycle. in this video, we'll take a deep dive into the fundamentals of the Commodities markets and try to see whether or not we were at the beginnings of a super cycle, because if we are, the effects will be dire.

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Just check the description below and now back to the video to decide whether or not we are in a Commodities Super Cycle. Today, we first have to establish what a Super cycle is. A Super cycle is a multi-year period of high demand in the construction and transportation Industries which sustainably pushes up the prices of input. Commodities This generally happens when the global economy is expanding rapidly.

The last Super Cycle happened between 2003 and 2008, which saw the prices of iron ore, coal, oil in almost all basic commodity prices surge. The primary driver behind the demand was rapid urbanization in China, which required huge amounts of raw materials to build thousands of high-rise buildings. At the same time as China became richer, more and more people could afford Motor Cars causing a massive increase in demand for oil. At the same time, the United States was experiencing a real estate boom of its own, fueled by a subprime mortgage bubble from 2002 to the peak in 2007, the price of steel more than doubled, Copper and oil almost quadrupled all these prices.

Came Crashing Down After the bubble burst in 2008, but the Super Cycle was more than enough time for both commodity producers and speculators alike to make huge amounts of money. For example, Rio Tinto the largest iron ore Miner in the world saw its share price increased more than 500 percent. Today's situation is very different than it was in 2003. Instead of a global economic boom, the World Bank is forecasting a sharp decreasing growth due to increasing interest rates.

So how can it possibly be the case that commentators are still predicting a super cycle? If we were to have a super cycle in the 2020s, it will have to come from the supply side of the equation. Instead, the idea is that after the global Financial crisis, there is a glutton commodity Supply leading to low prices and a lack of profitable investment opportunities. At the same time, we had the rise of technology companies which could grow very quickly and create huge amounts of value without needing commodity inputs. There is a massive rotation in the stock market away from commodity producers in favor of the new age internet companies.

The rotation away from commodity producers was also driven by ESG concerns. This meant that commodity producing companies had neither the capital nor the business case to build new wells and mines, leading to a situation of under Supply. As the global economy rebounded post covid, the chickens finally came home to roost with almost all commodity prices skyrocketing. The question is was the post-pandemic reopening just a moment in time or was the beginning of a new super cycle? To answer this question, we'll take a deep dive into the most important Commodities fueling our economy today: oil, base metals, and uranium foreign.

First off, we'll look at oil. In 2014, the price of oil was trading at above 100 per barrel. Advances in hydraulic fracturing caused a massive increase in Supply from the U.S which sent the price crashing down to as low as 35 dollars in 2016.. low prices cause many oil companies to go bankrupt and those that remain dramatically decreased their investment.

Global Investment in the oil and gas industry peaked in 2014 at 1.1 trillion dollars. By 2016, this has decreased 30 percent to 750 billion dollars. The pandemic represented a further shock, causing oil and gas investment to fall all the way down to 500 billion dollars in 2020.. things started to pick up in 2021 and the oil price increased to 85 dollars, well above pre-covered levels in 2022.

Russia invade Ukraine leading to severe economic sanctions against the country. Russia is the world's second largest exporter of oil, representing about 10 percent of Global Supply. As part of the sanctions, the European Union banned Imports of Russian crude. Also, Western Oil Field services companies including Halliburton and Schlumberger said that they would suspend operations in the country.

Most people expected these two factors to cause a massive decrease in Russia's ability to produce, and Export oil speculators pushed the price of internationally traded crude up to a peak of 120 in the summer. As it turned out, Russia's oil industry was far more resilient than expected. Instead of decreasing Russian oil production actually increased to 10.7 million barrels a day in 2022.. two percent higher than in 2021.

Russia was able to divert European exports to India and China as neither country has participated in Western sanctions. Also, despite earlier reports that they would suspend operations Schlumberger One of the world's largest oil field services companies is still operating in. Russia Also, in 2022, China implemented strict lockdown measures related to Kovid, which severely decreased oil demand. China is the largest consumer of oil by far, and prior to Kovid, its demand was increasing at about 4 percent per year year in 2022 Chinese oil consumption decreased for the first time ever increased Supply from Russia as well as decreased demand from China caused the oil press to decrease by 30 from its peak to about 80 dollars per barrel today.

But there are reasons to be bullish going forward. The fact that oil has remained as high as it has despite the unprecedented decrease in Chinese demand is a testament to the lack of investment in oil wells over the past decade. Oil and gas industry executives are still scarred from the losses they incurred in 2016 and 2020. This makes them hesitant to take on debt to drill new wells because of this.

Global Oil investment in 2022 is projected to still be below 2019 levels despite high prices, and there are strong reasons to be bullish on the commodity going forward. In February of this year, Russia announced that they'll be decreasing their oil output by 500 000 barrels per day or about five percent of their 2022 production. Some commentators think that this is because the sanctions are finally having an effect. Others think that this is a voluntary action by the Kremlin to jack up prices at the expense of Europe.

Either way, it is bullish for the oil. Praise More importantly, China has now completely ended its lockdown policies which could cause demand to explode. If China's oil demand just goes back to the prior trend line, this will be a 700, 000 Barrel per day increase. It's important to note that in 2021, China's oil consumption went well above Trend thanks to pent-up demand from the 2020 lockdowns.

If a similar pattern repeats in 2023, the increase could exceed 1 million barrels per day. It's important to note that most oil Investments take a long time to bear fruit. It can take years for a large oil rate to be developed, after which we'll produce oil for more than a decade. In some cases, because of this, there's a significant lag between oil investment and oil production.

The low levels of oil and gas investment since 2016 are just now starting to manifest in lower prices. Just to maintain current levels of production, investment will help to increase substantially. Given the historic under investment, it looks like we very well could be at the beginnings of an oil super cycle. The next supercycle Canada is base Metals things like copper, zinc, and nickel.

While the oil super Cycle thesis is mostly based on under Supply, the thesis for base Metals is more based on increasing demand. Renewable energy sources such as wind and Solar require large amounts of these base metals to build. In our previous video about the potential Coal Super Cycle, we discussed why non-renewable energy sources like coal will continue to play an important role in the global Energy Mix Especially in developing countries like China and India Be that as in: May as economies grow, they demand ever increasing amounts of electricity. This means that there will be increasing demand from both renewable and non-renewable energy sources at a global level.

Over the past two decades, investment in renewable energy sources has increased dramatically, reaching a peak of over 330 billion dollars in 2017.. If developed nations want to reach the goals they agree to in the Paris climate Accords they will need to increase their level of investment multiple fold. According to the consulting firm, McKinsey, wind energy required is about four times more copper, nickel, and zinc per terawatt hour of energy produced as compared to coal and gas-fired power plants. Solar energy requires almost 10 times more of the three Metals mentioned.

Copper is perhaps the most interesting. This is because not only is it needed to build wind and solar power plants, it is also used extensively in batteries. An electric vehicle requires about 2.5 times more copper than an internal combustion engine vehicle. And finally, as countries switch to renewable energy, they will need to significantly upgrade their electricity transmission and distribution infrastructure, which requires copper wiring.

According to the analytics firm S. P, Global global copper demand is expected to double by 2035. Fueled primarily by the energy transition, this represents an annual growth rate of about 5.5 percent per year. Over the past decade, Global Copper supply has increased at an annual rate of about 2.5 percent per year.

Thus, the world needs to double its rate of copper Supply growth to meet Energy Transition targets to motivate producers to double their capacity. Prices will likely need to increase materially over the coming years. The final commodity we'll talk about today is uranium, which is the most Niche but perhaps the most interesting commodity in this video. Uranium is primarily used in the operation of nuclear power plants.

During the 1980s, 90s, and early 2000s, Nuclear power production increased dramatically as it provided a cheap source of Base load electricity with almost zero carbon emissions. But this all changed after the Fukushima disaster in 2011. in 2011, an earthquake caused a massive tsunami in Japan which damaged the Fukushima nuclear power plant. This caused a nuclear meltdown with radiation infecting the surrounding area.

Almost immediately after the incident, the government announced that it would shut down all the country's nuclear power plants and it wasn't just Japan On the other side of the world, the German government caved to activist pressure and announced plans to phase out all of its nuclear power. This is despite the fact that Germany doesn't experience tsunamis, hurricanes, or any other types of natural disasters that could realistically cause a Fukushima-like disaster. This this was a complete and unmitigated disaster for the uranium mining industry. With the entirety of Japanese demand disappearing almost overnight, the price of uranium fell like a rock in January of 2011, one pound of uranium sold for about 70 dollars.

by the trough. In 2016, this had decreased by 75 percent to just 18. Many Iranian producers went bankrupt as the low market prices were not nearly enough to cover their production costs. According to Rafael Grossi the head of the International Atomic Energy Agency, not a single person died as a direct result of radiation poisoning.

In Fukushima, Two thousand people did die during the incident, but they died as a result of the evacuation, not the radiation itself. Most of the deaths happened to elderly and infirm people who lost access to medical facilities during the evacuation process. While the Fukushima incident was certainly a tragedy, the initial push to shut down all nuclear power plants was clearly an overreaction. In hindsight, if they are regulated properly and constructed in areas that are not prone to natural disasters, the chances of a nuclear power plant causing a disaster is almost zero.

As countries realized this, they gradually started building new nuclear power plants as they provide cheap and reliable sources of electricity with almost zero carbon emissions. Currently, there are 47 nuclear power plants under construction, with the plurality coming from China and India. This is very significant as there are only 439 nuclear power plants in operation today. After the Fukushima incident, uranium demand was cut almost in half from 2012 through 2017.

Supply Outstripped demand. Putting downward pressure on prices, nuclear power plant operators took advantage of the low prices to build up uranium reserves. As new power plants came online, demand gradually started to recover, and by 2018, demand has outstripped Supply. It's 2018 nuclear power plants have been using the Uranium's stockpiles that they built up previously.

We don't know exactly how much uranium reserves are left, but if demand continues to outpace supply, the reserves will run out eventually. Uranium prices have rebounded strongly over the past few years, but there is still significantly below pre-fukushima levels. Uranium supply has decreased significantly since 2011, so once the uranium reserves run out, there is the potential for a monster rally in the uranium price. Foreign: I Personally believe that we were at the beginnings of a super Cycle for some Commodities I am especially bullish on oil and uranium as both Commodities have suffered from years of under investment and the demand picture is starting to improve.

While nothing in this video is investing advice, I Thought it would be interesting to share a couple of my top picks to take advantage of the Commodities super Cycle starting with oil. I own chairs in a Canadian Energy company called Vermilion Energy I Like Vermilion because in addition to producing oil, they are also a major producer of natural gas. in Europe With the destruction of the Nordstream pipelines I Expect European natural gas prices to stay elevated for the foreseeable future based on current commodity. Futures Prices Vermilion Energy expects to generate almost its entire market cap as free cash flow by the end of 2024..

On the uranium side, my top pick is a company called Kazatomprom, a uranium mining company based in Kazakhstan Kaza Tom. Prom is the largest uranium producer in the world by far, accounting for 25 of the world's production for Technical and geological reasons. Kazakhstan is the cheapest place in the world to mine uranium by far, and the country accounts for around 40 percent of Global Supply Because of this, Kaza Tom Prom has extremely low production costs of about 13 dollars per pound. For comparison, the second largest publicly traded uranium company is a Canadian company called Camaco.

Camaco is production costs of about 39 per pound. Despite the superior fundamentals of Kazatomprom, it trades out a trailing price to earnings multiple of 11. while Kamiko has a price earnings ratio of 176.. One of the main reasons for Kazaton Prom's low valuation is that Kazakhstan is a post-soviet dictatorship with a history of corruption.

On the bright side, Kazakhstan has distanced itself from Russia following the invasion of Ukraine and refused to help them evade Western sanctions. This is a good sign, as it means there is a very low probability of Kazakhstan itself becoming a target of sanctions. All right guys, that wraps it up for this video. What do you think about the Commodity Super Cycle? Let us know in the comments section below.

As always, thank you so much for watching and we'll see you in the next one! Wall Street Millennial Signing out.