Geopolitics & Commodities

Global tensions War, drought, political events among a myriad of other global tensions easily affect the output of commodity producing countries worldwide. How do we navigate commodities with heightened geopolitical risk?



Disclosure:
The commentary provided during this podcast reflects the personal opinions, viewpoints and analyses of the participants providing such comments, and should not be regarded as a description of advisory services provided by USCF Investments or its affiliates or SummerHaven Investment Management or its affiliates or the performance returns of any fund managed by any such entities.

The views reflected in the commentary are subject to change at any time without notice. Nothing said during this podcast constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.

Investments involve the risk of loss. Diversification does not eliminate the risk of experiencing investment loss. 

Commodity trading is highly speculative and involves a high degree of risk. Commodities and futures generally are volatile and are not suitable for all investors. 

Past performance is no guarantee of future results.

Kevin Baum, Maya Lowry, and Katie Rooney are Registered Representatives of Alps Distributors, Inc.

ALPS Distributors, Inc. is not affiliated with USCF Investments, member FINRA.

Thank you for listening!

Transcript

Commodities & Geopolitics
Season 5: Episode 2

 Katie Rooney (00:00)
Welcome to The Real Spiel with USCF Investments. I'm Katie Rooney.

Maya Lowry (00:04)
and I'm Maya Lowry.

Katie Rooney (00:06)
And today we're joined by Kevin Baum, Chief Investment Officer of USCF to get the real spiel on how geopolitics affect commodities. Hi, Kevin.

Kevin Baum (00:15)
Thanks, Katie. Yeah. Hey, great to be with you, Maya. Great to be with you. I'm looking forward to this.

Maya Lowry (00:22)
Great, Kevin. So geopolitical risk affects various types of commodity markets in different directions. It can present a positive effect on some while having some negative effects on others. Can you kind of break that down for us?

Kevin Baum (00:36)
Yeah, I think that's an important concept that you're introducing, Maya, because indeed, geopolitics and different outcomes can impact different commodities in various ways. I think it's important, though, to note that right now, there's not a commodity sector that isn't being touched by some type of geopolitical event or situation around the world. And so let me compare and contrast a little bit where some commodities can be negatively affected in terms of their price. that would be if a geopolitical event did significant damage to an economy or the global economy that in turn impairs demand for commodities that are closely linked to the economy like industrial metals, aluminum, copper, et cetera. But oftentimes, and I think most often, Maya, what we find is that geopolitical risk ends up being a tailwind for commodity prices because geopolitical events, more often than not end up actually impairing the production or the supply of those commodities. And so you can see that today with agriculture being impaired in Ukraine because of the war, energy in the Middle East. So again, more often than not, geopolitical risk tends to be a concern for financial markets, but oftentimes a bullish factor for commodity markets.

Maya Lowry (01:57)
With our upcoming election here in the United States, how do you think that's going to impact commodities?

Kevin Baum (02:03)
I'm glad you brought that up because of course we're for good reason focused on the wars and the conflict around the world. And I guess one could say that, you know, conflict is a word we could use for the U.S. political situation these days. But the U.S. election will be important. I think sometimes there's some misperceptions about what it will mean for certain markets. But there are some real world impacts from this. And I'll give you a couple of examples, Maya.

 If we think about again, just in the energy market, what this can mean for production. I think there's a misperception that US oil production is going to be dramatically different based on the outcome of the election. Now, different policies, whether it's, know, the let's say a Trump presidency being more likely to offer drilling permits on federal lands or being a little bit quicker to permit pipelines. You know, those things can impact on an incremental basis, production levels longer term. But in the short term, I don't think they have much of an impact. In fact, if you go back and look at the last 20 or 25 years where we've had both Democratic and Republican administrations, you see that U.S. production has been growing sharply under both Republican and Democratic presidents. And that's because of technological advances, prices at levels that incentivize producers to drill, and to produce oil. And so I think it really, we need to keep in mind, again, what the election will impact and what it won't. Now, let me give you an example of where the election does matter. If a Trump second term comes about, he has said very publicly that he is going to work to try to bring an end to the Russian-Ukraine war. Now, does that happen? Time will tell.

 But that could have an impact on Russia's ability to bring more oil back to the market. But also, and I think less understood by most, is the impact on Iran and Iran's production. Because we've seen under the Obama administration, when you had the Iranian nuclear deal in place, that relaxed sanctions on Iran's ability to export oil. And Iranian exports and production rose gradually towards the end of the Obama administration, up to almost four million barrels a day and that's in a hundred million barrel a day global market. When Trump came into office, he withdrew from the Iranian nuclear deal, imposed very strict sanctions and enforced those sanctions. And we saw Iranian production almost cut in half to below two million barrels a day. And then again, with Biden Harris administration coming into office, the sanctions were relaxed and we've seen Iranian oil production gradually climb back up to almost three and a half million barrels a day.

 So I do think it's fair to assume that a Trump presidency versus a Harris presidency would mean very different policies and approaches to dealing with Iran that would have ramifications on the amount of supply in the global market.

Katie Rooney (05:13)
Thanks for talking about the various commodities and how they're affected. As an asset class, we sometimes fixate on only the energy sector. However, with everything that's happening in the Middle East right now, it seems especially poignant. Can we take a deeper dive into energy?

 Kevin Baum (05:31)
Yeah, thanks, Kitty. know, and I'm remiss that I didn't previously mention agriculture. And let me just take two seconds to do so, and then we'll drill into the Middle East. You know, I think in response to Maya's comments and questions, you know, it's also worth noting, and I think probably less obvious to people, just how a sector like agriculture is impacted by, let's say, the Russia-Ukraine war. You Russia is one of the top producers and exporters of many agricultural commodities.

 But a lot of people don't even realize that Ukraine is a top five exporter of many grains and oil seeds in the agriculture market. And so, you if you think about wheat, you think about, you know, sunflower seeds, you think about all of these different commodities, Ukraine becomes very, very important. And right now their production levels and their export levels are down dramatically from pre-war levels. So I do appreciate though your comment.

 That energy is in focus right now, and I think for good reason, not just because of the Russia-Ukraine war, but as you say, the Middle East. And I think everyone's aware that some of the biggest producers in the world are domiciled there along the Persian Gulf, whether that's Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, Iran, you name it. But now that we're talking about a war that's not just... Israel versus Iran's proxies, but more directly involving Iran. Right. We saw that the ground incursion of Israeli forces moving into southern Lebanon that was met by a 200 missile strike by Iran against Israel. And now Israel is promising a very, very serious response directly against Iran. Well, what does that mean? That could mean nuclear facilities, but it could also mean strikes against their oil infrastructure and their oil facilities. So with a country like Iran producing almost three and a half million barrels a day, again, in a hundred million barrel a day market, that's a significant portion of global oil supply. And if those oil terminals or the infrastructure along the Persian Gulf is attacked, you're gonna see oil prices move. Now, the other thing I think we need to keep in mind, Katie, is that Iran has a history of causing problems to ships in the Persian Gulf. And so, you know, might that be one of the ramifications of this or God forbid that they end up laying mines in the Strait of Hormuz. You say, well, they wouldn't do that, right? Because their own oil can't make it to the market. Well, they did it during the Iran-Iraq war. So there is a history of this. And why do I bring that up? 20 % of the world's global oil supply each and every day passes through the Persian Gulf and through that narrow waterway, the Strait of Hormuz. So I'm not calling for a scenario where that's my base case expectation. But I just simply want people to be aware of just how serious this situation is and just how relevant this is, not just to the energy markets, Katie, but the global economy, frankly, and even financial markets.

Maya Lowry (08:40)
Thank you, Kevin. Thanks for all of these insights. We really appreciate your time and for joining us on The Real Spiel. And thank you to everyone else for joining us. Please reach out to us at the real spiel at USCF Investments.com if you have any questions. And please don't forget to subscribe at USCF Investments.com. And until then, this has been Maya Lowry.

Katie Rooney (09:05)
and Katie Rooney.

Maya Lowry (09:07)
And this is The Real Spill with USCF Investments.

Katie Rooney (09:11)
Thanks.

Kevin Baum (09:13)
Thanks guys.

Maya Lowry (09:15)
Thank you.