Carlyle Investment Jeff Currie: The current supply shock is almost equivalent to that during the COVID-19 pandemic.

Question: How does supply shock mirror COVID-19 but in the opposite direction?

Former head of Goldman Sachs Global Commodities Research and Chief Strategist for Energy at Carlyle Group—Jeff Currie—warns that, due to geopolitical tensions in the Middle East, the global energy market is facing an extreme supply shock comparable in scale to the demand shock during COVID-19, with spot and futures markets already severely disconnected.

In a Bloomberg media video interview on March 18, Jeff Currie, known as the “Godfather of Commodities,” discussed in depth the recent attacks on Iranian energy assets and the Strait of Hormuz conflict’s impact on global markets with host Brad Clawson and others.

Currie issued a strong warning, stating that the current energy crisis is purely a physical supply chain issue, and financial tools are powerless against it. Facing the highly volatile markets, his direct advice to investors is: “Go long (oil), buckle up, sit tight, and prepare for the journey.”

Spot crude oil surges to $173, futures markets are severely distorted

The core risk now is the underestimation of the crisis’s severity. Currie points out that the futures market has completely diverged from the spot market. He shared startling frontline spot data:

“Oman benchmark crude… surged yesterday to $173 per barrel. The cost of crude arriving in Asia is about $130 per barrel. Refined product prices have soared above $200 per barrel.”

However, current paper market prices are only around $100. Currie states that this huge price gap is evolving into intercontinental “molecular-level transmission.” For example:

“Last week we discussed shortages in Singapore; this week, jet fuel prices have soared to $230 per barrel. Yes, in Rotterdam it’s $220 per barrel… The price difference between Singapore and Rotterdam has disappeared—no idle capacity, no policy solutions. At this point, it’s purely a physical problem.”

Extreme shock comparable to COVID-19: “You can’t print molecules”

When assessing the destructive power of this crisis, Currie compares it to the 2020 COVID-19 pandemic. He straightforwardly states: “This supply shock is nearly equal in scale to the demand shock during COVID-19.”

He recalls that during the demand collapse in 2020, global inventories were overflowing, “requiring a negative $37 per barrel price to rebalance supply and demand.” Now, the market faces the opposite environment: once inventories are depleted, prices must rise sharply to force demand down.

“Imagine what it takes to reduce demand to match supply. If in 2020, a negative $37 price was needed to rebalance… we haven’t even seen evidence of demand destruction that could rebalance the market, so we’re not even truly in the rebalancing process yet.”

Currie sharply dismisses ideas of solving the current crisis through monetary easing or financial means: “These are physical supply chain issues, and financialization and printing money are completely irrelevant here… You can’t print molecules.”

The crisis will cascade, with short sellers like “picking up coins in front of a steamroller”

Given such fundamental shifts, Currie believes current market pricing is seriously flawed. He warns those shorting energy:

“I observe the market, it’s short energy stocks while long everything else that’s short energy. I think you’re now picking up coins in front of a steamroller.”

Regarding chain reactions from shortages, Currie points out that removing oil from the global economy will produce massive cascading effects:

“From natural gas to urea, to fertilizers, to the dinner table.” Against this macro backdrop, he highlights an untapped valuation area: “I believe the best sector to seek value now is agriculture, because it’s not yet priced in.”

Additionally, Currie warns the US capital markets not to be overly optimistic. He states that once real shortages occur, Europe will be hit first, and US equities—especially tech giants—are highly dependent on global markets.

When the crisis devastates Europe and others, it will inevitably hit US earnings, “Americans will first feel the wealth impact, then the cash flow and income effects.”

Transcript of the interview:

Brad Clawson

Jeff Currie, from the costs of rebuilding and recovering from the Strait of Hormuz impact, it’s clear that the shift toward physical assets is accelerating. Jeff, welcome to the show. Glad to have you. This environment is unpredictable. Let me review the headlines from the past 5 to 10 minutes. There’s a headline from Iran saying their energy assets were attacked. I have limited information beyond that. But from your perspective, Jeff, has the situation worsened or improved since we last spoke last week?

Jeff Currie

It’s worsened—I call it “molecular-level transmission.” You know, last week we discussed shortages in Singapore; this week, jet fuel prices have surged to $230 per barrel. Yes, in Rotterdam it’s $220. Thailand, the Philippines, New Zealand, Australia—all are experiencing similar issues. So, it’s evolving into intercontinental transmission. Look at the Singapore-Rotterdam spread—there’s no spread anymore, no idle capacity, no policy solutions. At this point, it’s purely a physical problem. I want to emphasize that these are real physical supply chain issues, and financialization and money printing are completely irrelevant here. I think the headline of that article says it all: you can’t print molecules.

Brad Clawson

Jeff, considering this, where and how do you think the markets are still underestimating this risk?

Jeff Currie

The strange thing is, look at the paper markets—they’ve completely detached from the physical markets. Oman benchmark crude, on the other side of the Strait (the free side), surged yesterday to $173 per barrel. The crude arriving in Asia is a Dubai-Oman blend, trading today roughly between $130 and $170. This morning, it’s around $120 to $150. So, the cost of crude arriving in Asia is about $130 per barrel. Refined product prices have soared above $200 per barrel. Therefore, the disconnect between the paper markets (around $100) and the physical markets (showing very different prices) is stark.

Speaker 3

Jeff, some speculate that this is due to manipulation in the futures markets, causing the widening spread. Do you think that’s plausible?

Jeff Currie

You know, last Monday, there was a mysterious seller of 11 million barrels. I don’t want to delve into that. It’s not enough to really change the market structure. I believe a bigger factor driving down WTI and Brent prices is the euro’s price. Russian oil, after sanctions eased, has rebounded to $65–$70 per barrel. So, WTI and Brent are high-cost, Russian oil is cheap. What happened? You closed that spread, and now, since the spread is gone, there’s no more idle capacity in the system, and other parts of the system may start to… rebound. Yes, I want to return to John’s initial point: we’re dealing with a massive supply shock. By the way, this shock is nearly equal in scale to the demand shock during COVID-19, which we all know had a huge impact on global supply chains. So, I think the previous $100 per barrel prices were mispriced. They’re inconsistent with the spot market situation.

Speaker 3

But it feels like this time is different from the 1970s, because the world’s dependence on oil has changed—especially China, which is diversifying into electric vehicles, nuclear, and other sectors. Do you think this will significantly slow down growth and make energy sources more diversified, surpassing even the efforts during the so-called “Green Revolution,” as people try to avoid such shocks?

Jeff Currie

Absolutely. I believe renewable energy and nuclear power, born from the 1973 energy crisis, will see huge investments this time around. The issue is what I call the “new gemstone order.” We haven’t yet reached that transition phase—full electrification, localizing energy, and reducing global oil consumption are still in progress. So, if you pull these barrels out of the system, the chain and cascade effects will be enormous. From natural gas to urea, to fertilizers, to the dinner table. Or from liquefied petroleum gas to synthetic fibers to cotton, shifting from soybeans and corn to cotton. By the way, I think the best sector to seek value now is agriculture, because it’s not yet priced in.

Speaker 4

Jeff, regarding oil’s exit from the market, an industry advisor mentioned that China might reduce commercial and operational inventories by up to 1 million barrels per day in the next four to six weeks. What does this mean for oil prices?

Jeff Currie

I think the key point is, once those inventories are gone, there’s nothing left. Think of it this way: demand is above, supply is below. Once inventories are depleted, “bang,” you must reduce demand to match supply. To do that, prices need to be much higher than current levels.

Jeff Currie

I like to compare this to the COVID-19 mirror. Let’s go back to that period. It was the opposite—demand was above, supply was below. What happened? Demand collapsed. Eventually, you filled all the inventory capacity worldwide, and you had to immediately bring supply and demand down. What does that require? A negative $37 per barrel price to rebalance supply and demand.

Jeff Currie

Now, we’re in a completely opposite environment. So, imagine what it takes to reduce demand to match supply. If in 2020, a negative $37 price was needed for that rebalancing.

Brad Clawson

So, what’s the price range you think could go up to? I don’t want a specific number, but just an estimate—when you say “go long,” how high do you think prices could rise?

Jeff Currie

Look at Oman—jet fuel is already trading at $173 per barrel. Rotterdam at $220. Singapore at $230. And we haven’t even begun the rebalancing process. What we see now are export restrictions in places like Thailand and China, which trigger chain reactions and shortages. Then, stockpiling begins. Gasoline in Los Angeles is now $8 per gallon. So, the upside potential is significant—I don’t want to guess exactly how high, but the physical market prices already reflect $173. That’s my point: there’s a huge disconnect between the physical and paper markets. The paper market includes the financial world.

Jeff Currie

I want to point out that during the COVID outbreak in January 2020, I thought, guys, we need to short this. You can’t cause such a huge shock to the global economy without expecting bad things to happen. Now, we’re facing a mirror image, similarly scaled shock, hitting the world, and the paper and financial markets aren’t signaling what they should.

Brad Clawson

So, Jeff, at some point, the market will realize the severity of reality. During COVID, when northern Italy started lockdowns, people felt the situation was serious. The pandemic was spreading outside China, impacting Europe, and possibly the US. What could make markets realize the gravity of the situation this time? What can bridge the gap between spot and paper markets?

Jeff Currie

I think it must be a real visual of shortages in the US and Europe. Now, the US will be affected, especially if they implement export controls. Europe is likely to feel the impact first. The implication is that the US, due to its energy dominance, believes it’s safe. That’s the view I shared last week from a stock market perspective—that the US stock market is a global market. All those “Big Seven” companies’ earnings come from Europe, Asia, and worldwide. So, when this energy crisis hits places like Europe, it will impact the earnings of US-based companies because the US stock market isn’t just domestic; it’s global. So, it will feel the effects. I believe Americans will first feel the wealth impact, then the income and cash flow effects. Unfortunately, Europeans are likely to feel both very quickly.