Eric NuttallA Comment -- General Comments From an ExpertA CommentaryCOMMENTApr 15, 2025

Expects it to retrace. If you assume that peace holds with Iran, his suspicion is that the higher oil prices that we've endured for a while will kill some demand in lower-income countries (such as Pakistan and Sri Lanka), but not make much of a difference in Canada and the US. When supply comes back, he expects price volatility to the downside (as long as peace holds).

He doesn't know, and he's not sure anybody does. His own view is that the oil price runup that we saw was more a function of an anticipated supply shortage, while countries were able to work off inventories. He's told that there are ~200 loaded cargoes north of the Strait, and ready to proceed through. He suspects that producing countries (with the possible exception of Iran) have pretty good stored inventories that they couldn't move. 

This is all speculation on his part, based on whatever he's been able to read. To say that the data is conflicting is an understatement.

To the extent that the oil price falls off, his suspicion is that the market will begin to discount the fact that we're going to have shortages in the future that aren't war-related. Rather, they'll be related to the industry under-investing by ~$1B a day in terms of sustaining capital investments.

Over the next 5-10 years, he feels good about precious metals and mining. In the very near term (this summer), he wouldn't be surprised to see mining stocks in all shapes and forms go down. Two reasons for this: rising US interest rates plus higher oil might cause a synchronized global slowdown.

If mining and oil/gas stocks are sharply lower, this summer would be a lovely time to establish positions. Both industries should do very well over the next 5 years.

Gold price should do well over the next decade. Not so sure it'll do well over next 2-3 months given relatively high US interest rates. Hawkish stance of the Fed will be bad for gold in the near term. Gold will do well because of high US debt, high US deficits, and unfunded entitlement liabilities. 

He's a short-term bear, but a long-term bull.

And that's why he likes it. Natural gas has been in systemic oversupply in NA for 5-6 years. Oversupply in the US is beginning to take care of itself with massive investments in infrastructure. Canadian investments have been constrained politically. 

He wouldn't be surprised to see nat gas prices trend lower over the summer. Next 3-5 years should see them higher. Canadian nat gas is a more leveraged play than US nat gas, as Canadian companies are selling at higher discounts. The current Canadian PM is anti-energy, but also pragmatic on the need to fund deficits. If the political headwinds disappear in Canada, companies like PEY and BIR will do extremely well.

Really believes in the intermediate future of uranium. Current supply deficits. Political winds around uranium in the US have changed from vilification to subsidies. 

He is bullish in the short term. Rapid decline in price has everything to do with vastly increased production, especially laterite nickel in Indonesia. That's changing, as Indonesians are angered by the environmental destruction; government is being forced to crack down. Laterite mining is energy-intensive, and a lot less pleasant at $90 oil. So it's no longer a significantly better cost proposition than the sulphide nickel that Canada produces.

It's done too well of late. Suspects an economic slowdown in the very near term due to the impact of higher oil. So he's a near-term bear. In the long term, he's an incredible copper bull.

Underinvestment for 20 years. Use continues higher for AI plus for the electrification of the world. Five years from now, we'll be rationing copper by price.

Difficulty is between now and, say, October. But that's not enough to put him off.

If we're facing an economic slowdown due to higher oil prices, it should probably appear by then. If not, then the game is on for everybody. Over the summer, he's fairly cautious on the economy (both US and Canada) and on commodity prices.

Operation excellence. Definable development upside. Project pipelines with visible continued revenue growth. Making sustainable capital investments necessary to maintaining production (rather than distributing disproportionate amounts of cash back to shareholders). Dividends and share buybacks are good up to a point, but it's now reaching dangerous levels (particularly in the US). He's not in favour of cannibalizing a company's balance sheet.

Names he owns include CNQ, TOU, and (until recently) ARX.

Difficult to say, there's an argument for both cases. Oil has come off fairly aggressively the last 2 weeks. His gut feeling is that this won't hold. 

When the supply/demand balance gets disrupted, very difficult to get things to match again. We're going to have higher energy-price volatility, and he'd expect more upside volatility than downside.

No. When you get a disruption of this magnitude, it has longer-term implications that are difficult to fix with just some statements. 

If you look at the Fed's mandate and at what the new chairman echoed yesterday, they've had a 5-year problem with inflation. Their target goal is 2%, and they've exceeded that for longer than 5 years. Yesterday saw a very hawkish tone, and a willingness to take a fresh look at some new data sources.

As there's more onshoring, and if the trade balance were to rightsize more, there's less demand for US treasuries. With less demand comes upward pressure on rates. So inflation plus trying to rightsize the trade deficit are two factors that likely push interest rates up.

Yes. If you look at the largest foreign buyers of US treasuries, and if the US is to have a smaller trade deficit, there's less demand for US treasuries. The trade deficit and the demand for treasuries are tied together.

There is a workaround for the US government if they decide they want to increase their balance sheet, and the Fed alluded to that via one of its working groups. Japan's been doing this for more than 25 years. In the past Warsh has indicated he's not a fan of growing the balance sheet (and that may change). But it would facilitate downward pressure on interest rates.

Wonderful businesses, very well run. But valuations are a bit rich right now.