Maleeha Bengali, Founder, MB Commodities Capital breaks down what’s driving the latest moves in oil and gold, and what it means for the economy.
Transcript:
Caroline Woods: Joining me now, Maleeha Bengali founder, MB Commodities Capital. Maleeha, Thank you so much for joining me at the desk.
Maleeha Bengali: Thank you for having me here. It’s a pleasure.
Caroline Woods: So we’re talking commodities. I think a good place to start would be oil, because we are seeing an uptick in oil prices trading above $61 right now. It seems like the US sanctions on Russian oil could be contributing to that. How significant are those sanctions and where can oil go from here?
Maleeha Bengali: That’s a great question. So we think the oil, the market. We’ve been for the last few years, because there really hasn’t been a shortage in oil. We just think the players have changed. Right the main contributors to OPEC has been Saudi Arabia, UAE. And I think what Trump is trying to do right now is to coerce Russia. But it just means the barrels will be replaced by Saudi and UAE actually contributing rather than losing barrels. The market gets a bit nervous. Oil is actually holding on $55 a barrel. It’s very cheap right now. So there’s a bit of nervousness because people are very short. Sentiment is very weak. We’re going into the winter northern hemisphere, but there’s no shortage. As we’ve seen OPEC has been releasing about 3 and 1/2 barrels. They still have about 2 and 1/2 barrels to come to the market. So this is just changing the player and getting market share. But markets a bit nervous. And that’s why oil is rallying.
Caroline Woods: But if there’s no supply issue there where do you think oil goes from here?
Maleeha Bengali: We think oil stays between 55 and 65. Once it gets to 65 whether we’re going to see a lot more supply come to the market. Because the demand side of the equation has changed Chinese demand. There’s a lot more storage on water. Chinese inventories are quite full right now. So we’re in that range below 55 gets a bit tricky because that’s when US shale loses money. So there’s a supply crunch below that. And there’s a demand crunch above 65. So it’s really rangebound. But like I said, I think for the last three or five years Saudi Arabia completely got their oil demand numbers wrong. Demand is very weak. And they need demand to pick up for oil to go to 100, but it won’t get there. There is no shortage of oil.
Caroline Woods: OK, so rangebound, but if it breaks out of the range, more likely to go below $55 or above $65?
Maleeha Bengali: That depends on the economic cycle. So if we are in a recession, which we think into next year, things will get a bit tough. It could actually break below 55 because the US economy right now is slowing down. We have the Fed cutting rates to stimulate so the labor market. But we’re not in a very sort of rosy economic scenario. We’re talking about stagflation. We can get into gold and silver later on. So if you have that scenario scare the low end of the range. Now if you get to a point where we get the roaring 2020s, then of course, oil can go above, but we’re not really forecasting that because looking at Europe, China and all the demand indicators, we’re right now on a softening economy as opposed to a reaccelerating economy.
Caroline Woods: And what points to that, aside from the data in terms of the commodities market, because commodities often lead right in terms of the economy?
Maleeha Bengali: So if you just look at where oil is, where, and we will talk gold or silver where commodities are. So I’m actually glad you asked that question because, you know, look at equities, bonds, and dollar. And that’s great. But commodity markets are physically led. That means today if either you have the barrels or you don’t, if you do the price can go to negative. If you don’t, it goes to infinity. So they’re very economically sensitive and very demand sensitive. So they sort of lead the market. Now oil like I said, there’s a bit of a glut. So prices are staying subdued. Copper has actually been staying quite flat to robust because there’s a bit of a tight end the market. It’s a bit of a deficit now gold and silver is a massive physical shortage. So we’re seeing prices rally. But I’m looking at a broad based quantitative factor model. We’re not seeing an acceleration on the physical side from a host of because we track every oil barrel and every gas flow. And our demand indicators are showing pockets of strength, but there’s no intermediate reaccelerating strength.
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