"Veteran of commodities": The U.S. stock market is like "a child rushing to the beach," unable to see the "shark fins swimming in the distance," and the essence of AI computing power is oil.

Senior commodity veteran warns that the current financial markets are seriously disconnected from the physical bulk commodity markets. The extreme complacency of U.S. stock investors is like “beach children” turning a blind eye to distant dangers, while the ultimate bottleneck for trillion-dollar AI computing power investments will be the fossil energy sources that are heading toward actual shortages.

On May 8th, Energy Aspects (EA) research director Amrita Sen and Wall Street veteran, former Goldman Sachs head of commodities research and now co-chair of Abaxx Exchange Jeff Currie, engaged in an in-depth dialogue. During the interview, Currie expressed strong shock at the “huge disconnect” between the current physical bulk commodity markets and the financial/stock markets.

Even amid escalating geopolitical conflicts and supply chain disruptions, physical goods have seen spot premiums, yet equity markets (especially U.S. stocks) continue to hit new highs. Confronted with this contrast, he used a vivid metaphor: “Current U.S. stocks are like the scene in the movie ‘Jaws’—the beach is open, all the kids are running around, but you can clearly see the shark fins swimming along the shoreline.”

Currie believes Wall Street’s sluggish response to the continuous surprise of declining crude oil inventories—this level of “complacency” leaves him utterly baffled as to why people can “completely ignore the impending severe shocks.” He straightforwardly states that he can explain what is happening in the oil market, but is “absolutely dumbfounded” by the market’s enthusiasm for stocks.

Don’t confuse “deficit” with “shortage”: The key is when diesel inventories hit bottom

Regarding why oil prices are falling now, Currie proposed a core framework difference: the market is in a “deficit,” but not yet in a “shortage.”

“This is my view on oil: there’s a big difference between a deficit and a shortage. We are in a deficit—demand exceeds supply, and we are drawing down inventories. So right now, we are borrowing oil from the future, and we will keep borrowing until we hit the lowest limit of the oil tanks,” Currie explained.

He emphasized that the market must pay close attention to U.S. diesel inventories, which is a “pain point.” “I only know that U.S. diesel inventories are now at 8B barrels, whereas a few weeks ago it was 10k. If you drop from 120 to 102, you are about to run out, and this is right during the peak summer driving season,” he pointed out. Based on historical experience in oil trading, “100” has always been a critical warning number—once it falls below, the market will truly feel the power of a “shortage.”

The essence of AI computing power: “Mud and Diesel”

When discussing the current craze for AI on Wall Street, some believe that as GDP’s energy intensity declines, tech giants will invest up to $1 trillion next year in AI capital expenditure, making Middle Eastern geopolitics or oil no longer relevant. Currie sharply criticizes this view.

“They spend money as if AI computing power is infinite,” Currie retorted. “What is the biggest input for AI computing power? It’s oil, energy, diesel, natural gas—call it whatever you like.”

He pointed out that the current absurdity is that tech enthusiasts don’t even ask about the price of AI computing power; they just assume it’s zero. “You could even say natural gas and oil are no longer needed, but without natural gas, how can massive computing platforms deliver what they promise? Almost all bulk commodities—including copper—are ultimately just ‘mud and diesel.’ Without diesel, you’re in big trouble.”

The serious mispricing of forward crude oil: passive funds may face “forced rotation”

In macro re-evaluation and investment opportunities, Currie sees the biggest mispricing in the forward crude oil market. Currently, the back end of the forward curve remains around $70–77, which does not reflect the real structural supply and demand.

He pointed out that once physical shortages erupt, not only will front-month oil prices surge, but due to inflation in production costs, forward oil prices and the valuations of traditional energy companies (like ExxonMobil, Shell, etc.) will undergo significant revaluation.

Currie traced a transmission chain for the U.S. stock market: the energy sector’s weight in the S&P 500 is just over 2%. “If energy prices rise 30%, that’s a 2% weight, the market doesn’t care. But when the energy weight finally climbs to 5%, they will face serious problems. Since most funds are passive, they will have to sell off Nvidia and other tech stocks and be forced to reallocate into hard assets like energy.” This will trigger a self-reinforcing sector rotation.

Full transcript of the interview (assisted by AI translation)

Sen:

Unfortunately, the conflict is ongoing. I’m glad to speak with you again; we had a previous conversation. That was before the U.S.-Iran conflict escalated. First, I want to ask if two things surprised you: one is the current oil price level, and the other is the serious disconnection between the spot market and the financial markets. Some traders still tell me that physical crude oil cargo prices are significantly premium to the financial market. How do you view these current phenomena?

Currie:

I can still make sense of the crude oil market situation, but I am completely baffled by the stock market’s movements. Indeed, the stock market also confounds me. This week, in a Bloomberg interview, I used the movie ‘Jaws’ as a metaphor—like in the film, people declare the beach is open again, children rush to the seaside, but they are completely unaware that the shark fins have already appeared near the shoreline.

This metaphor is very apt. Take the crude inventory data from two weeks ago: inventories plummeted by 25 million barrels. We’ve been in this industry for many years and know that such a large draw during a demand off-season is extraordinary. Then, the American Petroleum Institute (API) reported another 25 million barrel draw, but subsequent official data showed only a 11 million barrel reduction, and the market immediately relaxed, thinking the situation had eased. This complacency is hard to understand—I simply cannot comprehend why the market ignores the looming crisis.

Sen:

So you believe oil prices are just a matter of timing, and the real turning point has not yet arrived?

Currie:

In my view, the supply-demand gap and actual supply shortages are two entirely different concepts. Currently, the market is only in a “demand-supply gap” state—demand exceeds supply, and inventories are being depleted. It’s like borrowing oil from the future, and this will continue until inventories hit the red zone of minimum reserves. Many banks are still debating the exact minimum safe reserve level for crude oil, but that number is actually irrelevant. I only know that U.S. distillate prices have fallen from around $120 a few weeks ago to $102 now.

We are now in the peak summer driving season, and distillate inventories and prices are already at a critical point. I really don’t understand what the market is still debating. Many even believe we can deplete all 100 million barrels of strategic reserves, but even if we do, the shortage of crude supply cannot be resolved.

Let me analyze the current situation: many market participants naively believe that crude inventories can be completely wiped out, and some even claim that the world’s crude reserves are as high as 8 billion barrels. But the reality is, 20% of that is bottom-of-the-tank crude that cannot be used, and a large portion is allocated for infrastructure and other uses, making it unavailable for market circulation.

I recently compiled relevant data, which will be published soon. At the start of the year, the actual surplus of crude was far greater than the public perceived—initially, the global market accumulated a surplus of 375 million barrels, all from last year’s stockpiles. Because of this, the current market only shows a demand-supply gap, not a real supply shortage.

I expect the turning point in the crude market to occur between late May and early June. The previous price rally was followed by a rapid retreat, which fostered complacency. Many mistakenly believe the crisis has been resolved, which I find hard to understand.

I’ve spoken with many Asian industry colleagues and found that Trump’s policy stance is highly variable. It’s clear that whenever the 10-year U.S. Treasury yield hits around 4.4%, he rushes to push negotiations and agreements. What really worries him is high interest rates, and oil prices directly influence the U.S. breakeven point. As long as oil prices stay stable, he can control domestic interest rates, which are the second-largest expenditure for the U.S. government. This is his main motivation for easing tensions.

Many Asian insiders believe the current situation is entirely dominated by the U.S., but we all know that’s not the full picture. I realized as early as March that this confrontation is unlikely to end quickly. Someone asked me if I had considered the perspective of the opposing side—I mentioned before that their position is like Afghanistan’s, relying on complex terrain to deploy rockets and drones, making it impossible for external forces to force open shipping routes.

While there is some room for negotiation and reconciliation, the U.S. remains firm on issues like uranium enrichment and nuclear negotiations. From Iran’s perspective, having suffered multiple airstrikes, they will demand war reparations, which is a core obstacle to reaching consensus.

Additionally, the information war is polarized: in the U.S., public opinion favors the U.S. in cyber battles; globally, the narrative leans toward Iran. My seven-year-old daughter in London has heard such opinions at school, which completely overturns her understanding—most Americans are unaware of the complex geopolitical realities.

The core of this conflict has never been missile exchanges but the blockade of shipping routes. This morning, Trump publicly stated that his only goal is to reopen shipping channels. But these channels were open two months ago; his recent remarks are clearly lowering his own negotiation bottom line.

The trend of U.S. Treasury yields is also crucial. The two most important market indicators are the stock market and the 10-year Treasury yield. Many clients ask me what my most confident trading strategy is. Besides crude oil-related positions, I always believe that buying put options on the S&P 500 is a prudent choice, and that remains my preferred approach.

Previously, the market expected the 10-year yield to rise to 4.5%. Now, with various peace negotiations, no substantial progress has been made. If yields continue to climb to 4.6% or 4.7%, the U.S. will be forced to seek a resolution. I recently returned from the Middle East, where industry insiders are extremely pessimistic about the reopening of shipping routes. Not only will it be difficult to restore navigation in the short term, but even if it reopens later, the process will be fraught with difficulties.

Moreover, Trump is pinning hopes on sovereign wealth funds from Qatar, the UAE, and Saudi Arabia to invest $8B in AI, plus the upcoming IPO of space exploration tech companies. The enormous capital demand cannot be met by the credit markets, which are unable to support such a huge funding gap—this is a widely overlooked issue.

From Iran’s standpoint, after years of airstrikes, their demands for war reparations and shipping tolls are reasonable. I have always believed this confrontation will not end easily.

The situation in the Red Sea offers a clue: earlier, multiple countries launched airstrikes against the Houthi forces, which are far weaker than Iran, yet today, shipping through the Red Sea has dropped by 75%. Currently, oil transportation in the Red Sea is barely functioning.

It’s clear that the overall situation is unlikely to see substantial improvement soon.

Rumors say Trump will meet with Shia factions around tonight at around 10 p.m. New York time. The American public still blindly believes their economy and markets are insulated from external risks, convinced that the U.S. will be the ultimate winner. It’s undeniable that recently, U.S. exports of oil and chemical products have surged significantly.

Another key data point: last week, the U.S. became a net oil exporter again for the first time in 83 years—since the establishment of the Bretton Woods system. But most people mistakenly think the U.S. has ample oil reserves; in fact, the U.S. is actively selling strategic petroleum reserves and commercial crude inventories.

The U.S. built its oil reserves for national strategic security, but now, due to its own geopolitical crises, it is dumping reserves into the global market, which carries obvious risks.

Industry insiders clearly see the crisis risk; hedge funds and macro trading firms remain overly optimistic, ignoring that with the current daily export of 6 million barrels, the U.S. will soon face a shortage of crude feedstock.

Experts estimate that the safe bottom for crude inventories along the Gulf Coast is 200 million barrels. Once inventories fall below 220 million, supply will become extremely tight, and current levels are already dangerously close to the warning line.

This is why I am always concerned about the current market: everyone believes existing inventories are enough to balance supply and demand, but data shows inventories are declining continuously. Only when inventories hit the bottom will the market realize that the world is truly facing a severe crude shortage.

Many banks still claim that in two weeks, all crises will be resolved—such talk is now just empty words. Aside from the tangible impacts of geopolitical conflicts—like blocked shipping and logistical paralysis—no one can give an accurate estimate of when shipping channels will reopen.

Early this year, foreign investment banks were extremely bearish on crude oil; now, their attitude has slightly improved but they still refuse to acknowledge the severity of the global energy crisis. They mechanically adjust their price forecasts based on market trends, almost deliberately avoiding the harsh reality—either hiding risks or simply failing to see the true scale of the crisis.

Some institutions estimate daily crude oil drawdowns at 14 million barrels, yet only raise their price forecasts from $65 to $90, which is a passive adjustment aligned with current spot prices hovering around $90. Meanwhile, the nearby futures prices have already risen to $110–115, showing a disconnect between their forecasts and actual market conditions.

The root cause is that many seasoned professionals, relying on past experience, believe geopolitical shocks will eventually subside and markets will self-correct. Many once confidently predicted Saudi Arabia would quickly boost production to 12 million barrels per day to resolve the supply crisis—such optimism has long been dashed.

Sen:

Past market experience no longer applies; today’s energy crisis is unfolding in reality. Let’s return to the stock market. Recently, a market theory has circulated: as GDP grows, the overall economy’s dependence on energy and oil declines, so Middle Eastern energy fluctuations are insignificant; secondly, major tech companies will increase capital expenditure to $1 trillion next year, which will offset the impact of energy market volatility. This is the core logic behind the stock market’s continued rise. I’d like to hear your thoughts on these two points.

Currie:

First, I recently learned an astonishing fact: nearly 60% of profits for a leading AI company do not come from its core business but from asset appreciation of its equity investments and holdings. The stock market’s reliance on such inflated earnings creates a huge bubble risk—once the market declines, risks will erupt all at once.

Returning to the dependence of oil and economic growth, data shows that reliance on oil is indeed decreasing. But the high or low prices of commodities and the actual market supply volume are two entirely different concepts. If core energy commodities like oil experience supply disruptions, the chain reaction will be enormous. I previously wrote an article comparing oil to rare earths in the energy sector—when core energy starts to leak out of the market, all industries will suffer.

Even major airlines like British Airways claiming they are unaffected by energy issues is a superficial statement. While energy may seem to have a minor impact on macro GDP figures, shortages will directly cause production halts in chips, fertilizers, and other essential consumer and industrial products. The crisis in downstream manufacturing chains is far more deadly than fluctuations in energy prices, and the crisis caused by distillate shortages could erupt at any time.

Currently, distillate prices have fallen from 120 to 102, right during the peak summer logistics and travel season, and prices and inventories could further decline rapidly. I’ve studied energy supply-demand balances for years, and 100 is a critical threshold for distillate prices and inventories—now approaching that point, the crisis is imminent.

Extending from middle distillates to chemicals like sulfuric acid, nearly all bulk commodities depend on basic energy and diesel support. Once diesel supplies tighten, the entire bulk commodity market will grind to a halt.

Sen:

Let’s discuss the narrative of trillion-dollar tech capital expenditures. These companies are heavily investing in AI computing power, as if it can be supplied infinitely, but they deliberately ignore the most critical production factors—oil, electricity, diesel, natural gas, and other energy sources.

Currie:

Everyone is frantically expanding into the computing power race, assuming that the cost of computing power can approach zero and that the industry will expand infinitely. But they have never properly considered the high energy costs behind computing power, and many practitioners are unaware that the computing industry itself is a highly energy-intensive physical industry, heavily dependent on energy and industrial supply chains.

Even without oil, rising natural gas prices will also choke the expansion of tech companies. Without sufficient cheap energy, all development plans in the tech sector are just paper talk.

Today, a few people see the crisis’s core, but most market participants remain immersed in the optimism of stock market highs. Our rational risk analysis still risks being labeled as “overstating the crisis by commodity practitioners.”

But the reality is clear: global crude oil flows are decreasing by 9 million barrels per day, crude capacity is shrinking by 12 million barrels, refined product capacity is down by 5 million barrels, and disruptions in chemicals, natural gas, and other energy supplies compound the problem. The market’s complacency is the biggest hidden danger.

If shipping channels reopen smoothly in the future, the market will inevitably see a surge in crude stockpiling and infrastructure expansion.

The most unreasonable current pricing is in the forward crude oil contracts. The near- and mid-term price structures are reasonable, but the forward prices remain stuck at $70–77, grossly underestimating the upcoming supply crisis and destined for revaluation.

As a result, ExxonMobil, Shell, and other traditional energy giants’ stock prices continue to decline. The previous valuation recovery in old economy assets has already ended, and funds are flowing back into popular tech sectors.

My own investment approach is very clear: sell call options and buy put options in the stock market; overweight traditional energy companies like ExxonMobil, Shell, BP, and other old economy assets, betting on valuation recovery. I am almost certain that the current mainstream market logic is fundamentally flawed, and I see no flaws in my own strategy after careful review.

Today, many tech investment rationales are unsustainable—driven by hype rather than actual performance or industry fundamentals. The only thing I need to ensure before the market turns is sufficient liquidity. The upside potential in stocks is now very limited, and it’s hard to break through current high levels.

Even if shipping channels reopen, the market will soon realize that the actual cost of crude extraction has already exceeded $100 per barrel, far above current prices. I firmly believe that the global macro market is about to undergo a comprehensive revaluation—since all bulk commodities depend on basic energy extraction and processing, a surge in diesel prices will inevitably push up production costs across the board.

Reflecting on my investment journey, I’ve made many mistakes. With thirty years in the industry, I should have directly invested in physical crude like West Texas Intermediate (WTI), but I prematurely bought energy stocks. This lesson has clarified my approach: initially, focus on rolling over near-month physical crude contracts; only after the long-term prices are properly revalued should I invest in energy stocks. The sequence of investments is crucial.

Under this energy crisis, near-month crude contracts will likely surge sharply. Although the current spot and futures prices are somewhat misaligned, the undervaluation of long-term contracts remains significant, and energy giants like ExxonMobil and Shell will inevitably see valuation recovery.

Once the energy sector experiences cost inflation, market funds will rotate into that sector. Currently, the energy sector’s weight in the S&P 500 has fallen from nearly 4% back to around 2%, ignoring the potential impact of the energy crisis.

If the sector’s weight gradually rises to 5%, the market will be forced to confront the crisis, selling off tech stocks like Nvidia and reallocating into undervalued energy assets. This passive rebalancing will further amplify market volatility.

The market currently underestimates the upside in oil prices; crude is far from peaking, and energy companies will undergo valuation restructuring. Most institutional investors are underweight energy assets now, and under continued tech losses, they will be forced to adjust holdings passively. When long-term contracts start rising, that will be the true climax of this cycle.

In the long run, the reopening of shipping routes will make countries realize the importance of energy shipping, prompting them to increase strategic crude reserves and accelerate diversification of energy transportation routes and large storage facilities—these investments will be enormous.

Sen:

Let’s talk about your top three investment strategies at the moment.

Currie:

First, I remain bullish on Brent crude and West Texas Intermediate (WTI), focusing on rolling over near-month contracts. The technical charts clearly show that whenever Trump signals easing, oil prices dip briefly and then rebound sharply. Sticking to a rolling near-month contract strategy minimizes short-term volatility risk, and the gains from rolling over contracts are substantial—this is my core oil trading approach.

Even if future developments introduce uncertainties, the gains from rolling contracts can hedge against volatility. Quantitative data also shows that many trend-following funds are leveraging spot price premiums by positioning in near-month contracts and holding long-term.

Second, I plan to invest in a broad commodity index, adhering to the theme of valuation recovery in the old economy. I currently serve as a senior advisor at a large asset management firm and will deepen my focus on liquid commodity investment products, creating diversified commodity portfolios for retail investors, covering agricultural products, cotton, and other bulk commodities—saving investors the trouble of selecting individual assets.

The old commodity indices we used in the past are outdated; now I prefer two new-generation commodity investment products developed by senior Goldman Sachs industry veterans, who understand the flaws of traditional indices and have delivered impressive excess returns over time.

The third strategy is to short gold. My previous short position has yielded good results. When global geopolitical tensions worsen, markets will sell off gold to raise cash for crises.

The best time to fully allocate into gold will be when major central banks end their hawkish rate hikes and shift to dovish easing—then, gold prices will soar to historic highs.

The de-dollarization process is accelerating worldwide and is unlikely to reverse.

The Bretton Woods monetary system, established after WWII, is already collapsing. Its core logic was that the U.S. guaranteed global maritime security in exchange for the dollar’s dominance in international settlements. But once key shipping routes are blocked, the U.S. loses the core leverage to sustain this system, and countries no longer blindly trust the dollar.

Looking ahead, geopolitical and economic orders will be reshaped. The world may return to a diversified settlement system based on gold, silver, and digital tokens—similar to the old East India Company trade model, relying on physical armed protection and technological infrastructure to secure trade routes. These risks are gradually emerging, with changes quietly unfolding across the Middle East, Asia, and other regions.

My core investment plan: long-term positions in crude oil, maintaining a focus on valuation recovery in the old economy, and currently shorting gold. I am not fully bearish on stocks for now; instead, I hedge by selling call options and buying put options. Additionally, the most prudent current strategy is to invest in volatility index products to hedge against market risks.

Sen:

Thank you very much, Jeff, for your in-depth insights. This exchange has provided many practical trading ideas, and I look forward to further discussions.