Venezuela’s Oil Reserves Versus Reality: Why Output Can’t Jump Overnight

Summary

Merryn Talks Money: "Venezuela’s Oil Reserves Versus Reality: Why Output Can’t Jump Overnight"

Podcast: Merryn Talks Money
Host: Merryn Somerset Webb (Bloomberg)
Guest: Michael Haigh, Managing Director & Global Head of Fixed Income and Commodities Research, Societe Generale
Date: January 12, 2026

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Episode Overview

This episode explores the global ripple effects of dramatic political change in Venezuela, a country claiming the world's largest proven oil reserves, following the U.S. seizure of President Nicolás Maduro. Merryn and guest Michael Haigh delve deep into whether Venezuela could actually increase oil output, what its reserves really mean for the markets, and why the answer isn’t as straightforward as headlines suggest. The conversation then broadens into related topics: oil market mechanics, energy transitions, China's strategic oil policy, and trends in metals like copper, silver, and gold—with actionable insights for investors.

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Main Discussion Points & Insights

Venezuela: Oil Reserves Versus Reality

Venezuelan Oil: Why Big Numbers Don’t Equal Big Barrels

• Venezuela claims the largest proven oil reserves globally (303 billion barrels), but these numbers are highly sensitive to oil prices and technical definitions.

• Michael clarifies “proven reserves”:

  “When we talk about reserves, we talk about proven reserves. That has to do with the geology, how likely it is that we can extract this easily, and the economics behind it. If it’s not economic to extract at current oil prices, it isn’t counted as a proven reserve.” – Michael Haigh [05:02]

• At current prices ($60/bbl), real accessible reserves are much lower.

• Venezuela currently produces under 1 million barrels/day—far from historic peaks (~3.4M/day).

Oil Quality Challenge

• Venezuelan oil is "extra heavy", almost like “goo”, requiring imported diluents such as naphtha to be processed and shipped.

  “Its oil isn’t just heavy, it’s what we call extra heavy… you need to add dilutant or condensate… even to refine it.” – Michael Haigh [05:18]

• Venezuela depends on imports of naphtha from Russia, Singapore, or the US.

Can Venezuela Realistically Boost Output?

• Even with major political change and heavy investment:

  “To get to between 2 and 3 million barrels a day, most industry experts say it would take five to ten years. Trump says 18 months; I think 10 years to get back to peak.” – Michael Haigh [08:53]

Impact on the Oil Market

• In barrel terms, Venezuela’s near-term influence is negligible. Real impact is geopolitical: China and Russia are heavily vested in Venezuela’s oil ecosystem, and changes could trigger ripple effects.

  “Does the political change in Venezuela mean anything for the oil market? The answer is kind of no… but it definitely means something geopolitically.” – Michael Haigh [09:33]

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The Macro Oil Picture: OPEC, Demand, and China

OPEC Supply Management

• OPEC is currently limiting production to stabilize prices amid global surpluses and lagging demand.
• Michael predicts OPEC must revisit this strategy in April 2026 as oversupply persists.

China’s Strategic Petroleum Reserve (SPR)

• China’s oil buying for its SPR is a major force propping up oil prices.

  “China imports roughly 12 million barrels a day… We guess they have roughly 1.4 billion barrels in SPR, compared to the US’s 400 million.” – Michael Haigh [11:45]

• Some speculate SPR builds are strategic preparation for contingencies like a Taiwan conflict, but at its core, it’s about energy security.

Oil Transition Outlook: Demand Peak and Evolution

• Shifting energy infrastructure takes decades. Reference to whale oil’s gradual eclipse by crude, illustrating slow transitions.

  “If an energy infrastructure is set up for one energy, it takes a very, very long time to shift.” – Merryn Somerset Webb [14:51]

• Most models show uncertainty in mid- to long-term demand for oil. Michael expects a gradual demand peak around 2035–2040, declining due to developed world shifts to natural gas and renewables.

On “Peak Oil”

• Fears about physically running out of oil have receded. New technologies (shale, etc.) and higher prices drive new discoveries and extraction.

  “When prices are getting too high, technology has a way of fixing the problem… high prices incentivize oil companies to invest more—places you weren’t extracting oil before.” – Michael Haigh [19:26]

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Copper and the Electrification Theme

Why Copper Is Different

• Copper’s original demand came from urbanization and population growth (mainly China), now plateauing.

• The electrification megatrend—especially grid upgrades and renewables—apps a new dimension. Recent drivers include:

  • AI/data centers (very copper-intensive)
  • Defense rearmament globally (weapons and rebuilding)
  • Potential mega-rebuilding projects (e.g. post-war Ukraine)

  “The demand for copper from AI and data centers wasn’t even talked about two, three years (ago)—now, it’s substantial.” – Michael Haigh [22:45]

• The “cure for high prices is high prices” may not apply in copper: New mines take years to develop, environmental permitting is harder, and existing inventories only buffer shocks briefly.

  “It actually can’t. There is no way to… open new mines anywhere, because of environmental regulation, etc. If one big mine goes offline, there’s no way to compensate.” – Merryn Somerset Webb [26:10]

• Michael expresses difficulty in finding short-term bearish factors, except a global recession; even then, defense and reconstruction demand could hold up copper.

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Broader Industrial Metals & Strategic Stockpiling

Other Metals: Bull Market?

• Reindustrialization in the West, defense spending, and possible stockpiling of critical materials all boost demand for base metals.

• Stockpiling on the scale of oil reserves would massively impact prices across the industrial metals basket.

  “If countries decided to stockpile 90 days’ worth of imports [like oil], you’d be talking about a tremendous amount of material that would put these markets in big deficits…” – Michael Haigh [29:53]

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Gold, Silver, and Investment Themes

Silver: Bubble or Foundation?

• Silver is 50% industrial, 50% precious: more volatile than gold, prone to sharper swings.

  “Silver… is just like gold but on steroids.” – Michael Haigh [32:11]

• Three years of physical market deficits, investment flows, and possible industrial shortages are supporting prices.
• Bubbles? Maybe, but fundamentals make the bull case rational and possibly sustainable, especially with ongoing deficits.

Gold: Central Bank Buying and De-dollarization

• Central banks are the key driver, especially as some countries rebalance reserves toward gold.

  “[If large central banks] moved 1% of their reserves into gold, you’d be talking close to a thousand tons of gold demanded. That would lift prices $1,000 an ounce.” – Michael Haigh [35:04]

• Central banks aren’t sensitive to gold price when buying (no sign higher prices slow purchases, except in jewelry segment).
• Risk points: possible reversal in central bank buying (currently not seen), or a dramatic drop in global uncertainty (which would reduce ETF demand). Michael tracks UK gold exports to China as a leading proxy for this.

Gold and Silver Miners

• Both gold and silver miners are now highly profitable and may continue to perform well as metals appreciate.

Bitcoin as a Reserve Asset?

• So far, only fringe central banks have even considered holding bitcoin (Czech Republic, Kazakhstan), and then as a very limited proportion. Not a near-term risk for the gold bull case.

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Oil Bear Market Outlook & Investment Advice

Why Michael Is Bearish on Oil:

• Surpluses are building as OPEC brings supply back and non-OPEC (US, Brazil, Guyana, Canada) steps up output.
• China’s SPR buying has disguised the oversupply; when they stop, prices may fall sharply.

  “When you subtract incremental demand from this new supply, you end up with a surplus of about 3 million barrels a day—a gigantic percentage. That means inventories build and prices collapse.” – Michael Haigh [43:07]

• House forecast: Brent could fall to $50/bbl by year-end (from $60 at time of recording).
• Cheaper oil is good for global growth/inflation dynamics, as recessions often follow high oil prices.

Investing in Energy—For Ordinary People

• Avoid direct futures/options; use energy company equities or ETFs for simple exposure.
• Michael remains bearish on oil prices for now and cautious even on oil services companies.

  “I’d stay away from the flat price of energy through futures and options… The most sensible way is through energy companies, or an ETF linked to those companies.” – Michael Haigh [41:05]

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Notable Quotes & Timestamps

• On Venezuelan Proven Reserves
  “If it’s not economic to remove it… at the current oil price, it doesn’t count as a proven reserve.”
  — Michael Haigh [05:02]

• On extra-heavy Venezuelan oil:
  “Its oil… is almost like goo coming out of the ground.”
  — Michael Haigh [05:18]

• On Venezuela’s chances of boosting output:
  “To get back to peak, I’m going to guess 10 years.”
  — Michael Haigh [08:53]

• On China’s SPR buying:
  “We guess they have roughly 1.4 billion barrels in [SPR]... compared to the US’s 400 million. Gigantic.”
  — Michael Haigh [11:54]

• On copper’s macro signals:
  “Copper is literally everywhere… it’s my favorite commodity because we call it Dr. Copper—it can forecast the macroeconomic outlook.”
  — Michael Haigh [27:35]

• On silver’s volatility and role:
  “It’s just like gold but on steroids.”
  — Michael Haigh [32:11]

• On central banks driving the gold price:
  “Gold isn’t about jewelry or ETFs anymore; this is now a central bank story.”
  — Michael Haigh [34:07]

• On the bearish oil call:
  “We end up with a surplus… 3 million barrels a day. That means inventories build—and prices collapse.”
  — Michael Haigh [43:07]

• On the best way to invest in energy:
  “Stay away from the flat price of energy through futures and options. The most sensible way is through energy companies, or an ETF linked to those companies.”
  — Michael Haigh [41:05]

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Key Timestamps

• 02:22 – Merryn sets the agenda: Venezuela, oil, gold, silver
• 04:05–09:25 – Venezuela’s reserves, extraction challenges, and output timelines
• 10:17–13:54 – OPEC strategy, Chinese SPR, and oil market mechanics
• 14:07–19:36 – Long-term oil demand, energy transitions, and “peak oil”
• 21:53–28:53 – Copper, electrification & industrial metals, supply bottlenecks
• 30:59–36:35 – Silver and gold: market drivers, central bank actions, bubble diagnostics
• 36:35–40:00 – Gold vs Bitcoin as reserves, risks to the gold bull thesis
• 40:02–44:39 – Energy investing advice for ordinary investors & 2026 oil outlook
• 44:39–45:08 – Closing thoughts: why lower oil benefits the global economy

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Tone and Takeaways

The conversation is insightful, candid, and occasionally irreverent—Merryn’s droll skepticism draws clear, jargon-free explanations from Michael. Technical detail is balanced by actionable, concrete takeaways for regular investors:

• Venezuela’s oil cannot change the global market overnight.
• Demand for oil is plateauing, but supply and geopolitics matter far more to near-term prices.
• Copper’s bull story is tangled up with global megatrends—its price is robust.
• Silver and gold remain attractive, with central bank flows and real-world deficits supporting the thesis.
• For energy investing: pick the right vehicles and stay wary of trying to time oil’s price.

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Transcript

[Sponsor/Advertiser]

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[Michael Hague]

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[Maren Somerset Webb]

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[Maren Somerset Webb]

Apply. Bloomberg Audio Studios Podcasts Radio News. Welcome to marantalks Money, the podcast in which people who know the markets explain the markets. I'm Maren Sumset Web and today I am speaking with Michael Hague, managing director and global head of fixed income and commodities research for Societe General. Well, it has been a fairly eventful start to the year, to say the least. In a move that stunned most of us, US Forces carried out the audacious seizure of Venezuela's president, Nicolas Maduro. Now, given that Venezuela holds the largest proven oil reserves on the planet, this has major implications for the oil markets. Or rather, a lot of people think it has major implications for the oil markets. We're going to get into that with Michael, but also, of course, we are not going to let them go without talking about gold and silver and how we can all make even more money in precious metals. Michael, we're welcome to Mehren Talks.

[Michael Hague]

Money. Great to be here. Thank.

[Maren Somerset Webb]

You. Okay, now, I just. I said that at the end about making even more money in gold and silver because Marin Talks money listeners, I think, are quite heavily invested in precious metals. So we will get to that. Hopefully, we'll have quite a lot of time for that. But I think we kind of got to start with Venezuela, haven't we? I said in the introduction about the massive oil reserves, the largest on the planet, but of course, at the moment, Venezuela produces very little oil, well under a million barrels a day. And this move doesn't really mean that they'll be producing much more in the near future. So maybe there aren't really any implications for oil markets at.

[Michael Hague]

All. I think there is something a little bit technical that we have to just bring up before we get into how this affect the global market. So when we talk about the largest oil reserves in the world, this is what Venezuela says that they have. And actually, when we talk about reserves, we talk about proven reserves. And that has to do with the geology, how likely it is that we can extract this easily, and the economics behind it. So unless the economics make sense, it's not considered to be proven reserves. So when they announced they had 303 billion barrels of oil in reserves, this is when oil prices were roughly $100 a barrel. Now they're at 60. So I don't know the exact proven reserves that they would have, but it's certainly less than 303 billion barrels in reserves, but it's still.

[Maren Somerset Webb]

Massive. Hang on, Michael, can I just stop you there? I want to go back to your definition there of proven reserves. Do you mean if it's not economic to remove it extracted at the current oil price, it doesn't count as a proven.

[Michael Hague]

Reserve? That's right.

[Maren Somerset Webb]

Yeah. Okay.

[Michael Hague]

Interesting. These things aren't Audited all the time. It's kind of a little bit, you know, the beauty is in the eye of the beholder. The SEC actually has very strict definitions as to what is considered to be a proven reserve. But price is $40 lower than when we had the 303 billion barrel number. Being released to the market is a bit high, but nonetheless it's still massive. Even 80 billion barrels would be massive. But we have this number of reserve out there, as you rightly point out, that doesn't match what they produce and certainly doesn't match what they export. So you're right, they produce about 900,000 barrels a day right now and export 900 minus 250ish, because that's what they consume locally. Now that difference, that export number has even dropped further with sanctions. The other thing to point out, of course, is that not all oil is equal. And Venezuela is in a very special place in the sense that its oil isn't just heavy, it's what we call extra heavy. So it's almost like goo coming out of the ground. And that means that you need to add dilutant or condensate or as we keep an eye on, naphtha. So you need to add that into the solution. It comes out of the ground and you even need it to refine. So even if you could manage to change the entire refining industry in the world to use just Venezuelan oil at 303 billion barrels, that would satisfy eight years worth of consumption. Now, that's not what's going to happen, but just to give you some context on the size of their.

[Maren Somerset Webb]

Reserves. Okay, can I just check with you? So where does that additive come from? I think, as I understand, it comes from Russia into Venezuela at the moment, but could also be imported from the U.S. is that.

[Michael Hague]

Right? Yes. So back in the day, about 300,000 barrels of naphtha was being imported into Venezuela from the United States. That matches about 3 million barrels a day of production. So right now 900,000 barrels a day is being produced of crude oil and about a hundred thousand barrels is being imported, of which in the last month that we had observation, it came from Russia and Singapore actually, but normally it comes from Russia and.

[Maren Somerset Webb]

China. Okay, so Venezuela can only be a major oil producer and exporter if it has a symbiotic relationship with an exporter of. Sorry, what's it called.

[Michael Hague]

Again?

[Maren Somerset Webb]

Naphtha. Naphtha could only do it if it has a symbiotic relationship with somebody.

[Michael Hague]

Who produces naptha for its, for its very extra heavy oil. It doesn't have just extra heavy oil. It has. The majority of it is extra.

[Maren Somerset Webb]

Heavy. Okay, thank you. And just for context, if we talk about Venezuela producing at the moment under a million barrels of oil a day, how much do the really big producers. So the top producers in the world are the US, Saudi, Russia, and they're all churning out well over 10 million.

[Michael Hague]

Right? Yeah. I mean, the US 13 million barrels a day. Saudi is roughly 9. But they're cutting back on their production on purpose. They could go up to 11. Russia's around 10. So they're pretty small by all.

[Maren Somerset Webb]

Accounts. Yeah. And then after that, you get down to Iraq, Iran, 3 million barrel, UEA, et cetera. All 3, 3, 4ish, and Norway a bit below that. Exactly, et cetera. So it is possible, in theory, for Venezuela to get up to sort of 2,3ish, right? There were three at its.

[Michael Hague]

Peak. Oh, yeah, for sure. I mean, but this, the question is how long that would.

[Maren Somerset Webb]

Take. Okay, that's my next question. How long? If everything went well for Venezuela, we can argue about what well means, but in this context, let's have, well, becoming a country that people feel is politically stable and financially stable enough to invest in, and the oil infrastructure is gradually built out, as President Trump would like, using the big US Oil services companies. How long would it take for Venezuela to start producing? Much.

[Michael Hague]

More. So if we think about getting to between 2 and 3 million barrels a day, most industry experts would say, without rushing the situation, that would take between five and 10 years. If you listen to Donald Trump, he said that his ambition is to actually get these things moving in the next 18 months. Now, it could get moving, but it's certainly nothing to be excited about in terms of barrel. But if we wanted to go back to where we were back in the days of the peak, 3.4 million barrels a day, I'm going to guess 10.

[Maren Somerset Webb]

Years. Okay, so I suppose the answer to the original question, does the political change in Venezuela mean anything for the oil market? The answer is kind of.

[Michael Hague]

No. It doesn't mean anything from a barrel perspective. It definitely means something from a sort of a geopolitical perspective, because within Venezuela, you have China, that is very much part of its industry. Russia is very important in the context of supplying that naphtha. And also it's important in the context of because Venezuelan oil has declined over the years, Russian oil has replaced it because they're quite similar kind of gravity levels, viscosity. So if you change the Venezuelan makeup, you change the outlook for Russia, you change the outlook for China. And then you might get responses from them, which creates some sort of more geopolitical turmoil potentially. And that then could, as a second order, affect the oil.

[Maren Somerset Webb]

Market. Okay. And there are other things that may affect the oil market at the moment as well. I mean, you say that OPEC has been restricting output, but there is political shifts in Saudi. Right, which may change.

[Michael Hague]

That. Yeah, I mean, OPEC does what it has originally set up to do, which is to manage the market, reduce the volatility. And by doing that, it's essentially cutting its own production or bringing its production back online. Right now they are still cutting. They were bringing back a lot of oil barrels last year. In 2025, they have cut because they see surpluses rising, demand being quite low. So they have refrained from bringing back their barrels until April. In my own opinion, they're going to have to reevaluate their strategy in April because we're very, very oversupplied. And that's even ignoring Venezuela. Okay. So yeah, there's a few dynamics at play here. There's another dynamic, of course, which is, which isn't real demand. It's Chinese strategic petroleum reserve buying. So that's them putting oil into their commercial as well as government stockpiles for quote, unquote, energy security that has been absolutely rampant over the last six months, maybe even last nine months. And that is part of the reason, if not the majority of the reason, as to why oil prices haven't dropped.

[Maren Somerset Webb]

Yet. So, Michael, let's talk more about this Chinese strategic reserve. Why are they building this? What's the.

[Michael Hague]

Plan? Well, China imports roughly 12 million barrels a day of oil. 1112 million barrels a day. They're not a significant enough producer so that they don't have to rely on the international markets. Most of that oil is obviously coming from the Middle east and Russia. Some of it a little bit comes from Venezuela. But obviously they're in a very sensitive situation. So they have been building out their SPR Strategic Petroleum Reserve. And they combine that with their commercial reserves actually that belong to the state owned oil companies. And we guess that they have roughly 1.4 billion barrels in SPR. Compare that to the US which has probably about 400 million barrels. So it's gigantic. And some people believe and think it's a little bit extreme that this could go to 2 billion barrels by the end of 2026, but probably more like 1.5, 1.6. If you divide those billions by their daily import numbers, they're covered for not just 30 days, they're covered for hundreds of days should anything go wrong. So you have a lot of conspiracy theorists that think, okay, well, what if they invaded Taiwan and the west, cut off their supplies of oil? How long could they survive for? Who knows what the motivation is? They'll say they're building their SPR Energy security. There's no rule in place as to how much they must accumulate. But these numbers are gigantic. But at some point they'll stop buying and that's what will affect the oil.

[Maren Somerset Webb]

Market. Slight side question, how do you store that amount of.

[Michael Hague]

Oil? Well, I mean, it depends on where you are in the world. There are natural caverns in the US for instance. They're called salt dome caverns. They're along the Gulf Coast. So these are natural caverns with very thick salt that has been solidified. So it's a natural storage facility and it's very cheap to store it there. But generally speaking, speaking, you're building these facilities. These could be above or underground storage facilities, which by the way is very metal intensive. So these are basically large storage.

[Maren Somerset Webb]

Facilities. Huh. Okay. Amazing. Well, I mean, it seems perfectly sensible for China to do that under the circumstances, wouldn't you say? And obviously they must have much higher reserves than the US if they're going to do it because the US is such a big producer and China is.

[Michael Hague]

Not.

[Maren Somerset Webb]

Exactly. This makes sense in not necessarily a scary.

[Michael Hague]

Way. It does. It's just that we've never seen these kind of builds. We have in the past with China, which leads to the question of why they're doing it. But without trying to get too deep into that, it's about energy security at the end of the.

[Maren Somerset Webb]

Day. Yeah. Let me ask you about the long term outlook for oil. I know you wrote an interesting article the other day. Not the other day, a while back, about comparing whale oil to oil and about how long it took, even once crude oil was discovered and started to be used, how long it took for people to stop using whale oil. So you say it was about 50 years until it was only negligible supply coming into the us and of course you could argue that's because there weren't very many whales left. Or it could just be the gradual shift from well oil to crude oil. And I think the point you were trying to make there was that if an energy infrastructure is set up for one type of energy, it takes a very, very long time to shift it to using a different type of.

[Michael Hague]

Energy. No, that's exactly right. And by all accounts, back in the 1860s, 70s, 80s, 90s, where we saw this decline in whale oil imports into the US and the growth of the crude oil industry. You know, the infrastructure was a lot more simple, let's say, and the world wasn't addicted to oil. Now the entire world is set up for oil. In fact, you know, if we did want to transition away from oil, that's certainly likely to happen within the developed markets. But I don't anticipate it happening in the emerging markets. In fact, that's going to continue to.

[Maren Somerset Webb]

Grow. Yeah, I mean, one of the unusual things about the wailaud story, while it's very interesting, is it is one of the few examples of a source of energy stopping being used, whereas everything else has been not a transition, but an addition. Right. So we use more wood, we use more coal, we use more oil, et cetera, et cetera. Everything we add on is simply an addition. So with that in mind, the idea that long term demand for oil will actually fall is up for argument, isn't.

[Michael Hague]

It? It certainly.

[Maren Somerset Webb]

Is. That would be very unusual in the history of the world. Very, very.

[Michael Hague]

Unusual. That's right. And if you look at projections from US oil majors, from European oil majors, from industry associations like the International Energy Agency, for example, the EIA out of the USA, the path of oil demand out to 2050 is just so wide in terms of opinions as to where we go. Some think it continues to grow, some things it declines dramatically from here on out. My own opinion on this matter, when you look at the vast array of parts that oil could go, is that I anticipate that we peak at about 130 million barrels a day of demand for oil, and then we get a gradual decline starting around 2035.

[Maren Somerset Webb]

2040. What is total demand.

[Michael Hague]

Now? So that 113 million barrels a day compares to total demand today of around 100, 304 million barrels a.

[Maren Somerset Webb]

Day. Okay. And then a decline from 2035 as we shift to what? Or as global population peaks in.

[Michael Hague]

Declines. The population angle wouldn't really have a big of an impact there. I think what's replacing oil at that point is natural gas. Obviously, we see a lot of investment in liquefication and regasification facilities around the world. Natural gas is most certainly the transitional commodity that can be shipped around globally and is a lot more appealing than say, something like coal. But yes, I mean, the vast majority of what declines for oil by 2035 and 2040 is coming from the developed markets and that switch to natural gas and alternatives, renewables, et cetera. But you know, as I mentioned, if you looked at the growth of demand out of the developed markets, you'd see it coming down in 2035. You'd see the emerging markets still increasing beyond 2035. But the decline in the developed mildly offsets the increase in the emerging markets. And that's why you see the.

[Maren Somerset Webb]

Decline. Interesting. I'm briefly back to whale oil. There was a supply problem there. Right. And I don't know if you remember. I certainly do. The stress over peak oil a while back where everyone was convinced that we were actually going to run out of oil. Would there be no more discoveries, there'd be no more reserves and we had to make the transition to other sources of energy, not because of climate or environmental worries, but because we were going to run out of the stuff. And that no longer seems a risk at all. We constantly seem to be new discoveries. And did peak oil just disappear as an.

[Michael Hague]

Idea? Yeah, I think so. Because you know, we went through in fairly recent history and call it the 2000 to 2015 period of time where technology really was developed to extract oil that we didn't think we had before. At least we didn't think we had access to. And what I'm talking about there is shale oil, which is a US story. This was not part of any conversation before the year 2000. Now I know I'm going back 25 years, but that is relatively recent and is still and incredibly part of the equation. So that wasn't part of the discussion when we were talking about peak oil back many, many decades ago. But it just goes to show, you know, when you're, when you're running out of something or prices are getting too high, technology has a way of fixing the problem and high prices have a way of fixing the problem. So even without delving into technological advancements, if prices start to go up because you're thinking about running out of something, this incentivizes the oil company is to invest more in places where you weren't extracting oil.

[Maren Somerset Webb]

Before. Yeah, well, as they were saying, commodities. Right. The solution to high prices is high.

[Michael Hague]

Prices.

[Sponsor/Advertiser]

Exactly. Support for the show comes from public on public. You can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index. With AI, it all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated Assets are completely customizable and based on your thesis, not someone else's. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by.

[Michael Hague]

Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors, llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or.

[Sponsor/Advertiser]

Advice. Complete disclosures available at public.com.

Disclosures. With Bali from iShares, you get access to both monthly income and growth potential in one simple ETF. It's the best of both worlds. Discover Bali iShares Large Cap Premium Income Active ETF iShares the market is yours. Visit www.ishares.com to view perspectives for investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Risks include principal loss and the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepared by BlackRock Investments, LLC these.

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[Maren Somerset Webb]

AI3. We could leave oil now, but stick with energy and move maybe to talking about copper. Because a big part of the idea of transitioning into a more electrified world is one in which we upgrade our grids, we we make everything run off electricity and we use renewable sources more, et cetera. Now everyone who listens to this podcast, in fact anyone who reads the newspapers, know what a problem that is and the huge infrastructure demands that we have going forward. And that of course has affected the price of various industrial commodities. And copper is the classic right for the electrification of the world. And we've seen it hit new high after new high after new high. Is the solution to high prices there high prices or is the dynamic different.

[Michael Hague]

Today? Copper does have a very unique outlook actually, because we can talk about electrification of the world and need for copper and other base metals in energy transit transition. But you know, before we started, let's just step back before we started talking about energy transition. The whole premise behind copper's rise or demand was purely about urbanization and population growth. That became less of a subject because we're all pretty much aligned that China has peaked in terms of its use for copper, incremental demand for, for copper, for urbanization needs and population growth. And the question then became 10 years ago, would the incremental demand from electrification, demand for copper outweigh the decline that you would get from copper through demand declines from traditional demand? And the answer to that is yes. So if you go country by country and you look at what they're planning to do, their stated policies for electrification, and you add up what does that mean in terms of tonnage of copper and you compare that to the declining copper through traditional needs, it offsets it. So it always had this kind of bullish story. And we've been talk about this for four or five years. Even before COVID Covid hits, we didn't talk about it anymore. We had lots of other things to worry about, including energy security and the cost of living crisis etc. But a couple of things have changed in the last two, three years for copper and it's given it an extra leg up. So the first one of course is AI and data centers, right? We talk about data centers and we talk about how energy intensive they are. But let's imagine you go inside one of these things, it's all about copper wiring. So the demand for copper from AI and data centers wasn't even talked about two, three years and now we're talking about substantial amounts of copper needed for that. On top of that, we have to take into account the unfortunate geopolitical situation we're in right now where everybody is basically trying to increase their defense expenditure. And actually that is incredibly metal intensive because you think about aircraft carriers, bullets, tanks, it's all metal and copper is in everything.

[Maren Somerset Webb]

So. Well, it's even just the building of the factories, isn't it? I mean, you know, let alone the products themselves, but the building of the factories requires large amounts of.

[Michael Hague]

Industries. Well, copper is, copper is literally everywhere. If I took apart this, this room was sitting in, I'd find it pretty much in everything that we're touching or looking at. But you're exactly right, it's the building of factories as well. And you have add into account, of course, hopefully successful resolution between Russia and Ukraine and then we have to rebuild Ukraine and that's incredibly copper intensive. If you look at countries in the past that have had to be rebuilt, the amount of copper that you need to do that is enormous. And you can look back even in World War II, where we had to rebuild most of the world and that was incredibly copper intensive. So there's lots and lots and lots of things going on in copper that are supporting its price, not just one thing. So I'm not sure that the cure to high prices is high prices, which we generally say is the way that prices are going to drop. I have a hard time seeing how all of these things lose momentum in the short term here for copper. And I see it continuing to.

[Maren Somerset Webb]

Rally. Okay, and how could the supply of copper go up.

[Michael Hague]

Fast? Well, it.

[Maren Somerset Webb]

Can'T. What could we can't. It actually can't. There is no way to. I mean, obviously it's verging on impossible to open new mines anywhere anymore, isn't it? Because of environmental regulation, et cetera. And so if you get one big mine that goes offline for a short period or whatever, there's no way to compensate for.

[Michael Hague]

That. Well, we do have inventories within Shanghai, the London Metal Exchange, the comics market in New York. There are inventories and buffers there. But you know, that's just what they're there for is a moderate buffer in case there's a short term shock, really. But if we're talking about long term needs for copper to cater to all these things, we're talking about defense, AI rebuilding countries, electrification. You need more copper to come out of the ground and it takes ages to start a new mine, as you mentioned, for environmental.

[Maren Somerset Webb]

Reasons. So should everyone have a couple of existing copper miners in their.

[Michael Hague]

Portfolio? I don't think it's a bad idea. I mean, this is going to likely go on for quite some time. Obviously nothing goes up in a linear bottom left to top right hand graph in terms of price performance. But it's one of these things that I'm having a hard time finding reasons as to why it would collapse other than a recession or even a depression. But there's too many things that are.

[Maren Somerset Webb]

Supported. Yeah. Although even in a recession, those defense facilities are just going to keep being rebuilt, aren't.

[Michael Hague]

They? That's.

[Maren Somerset Webb]

Right. That's one thing. Recession is not going to.

[Michael Hague]

Stop. Yeah. And let's get a bit macro here. You'd mentioned. Well, copper is one of my favorite commodities because we call it Dr. Copper. It's the one thing that can forecast macroeconomic outlook. It's very, very good at that. But it's also very, very good at predicting a negative macroeconomic outlook if we were running into a recession. You look at copper prices historically and we can hundreds of years, actually, well, at least dozens in the futures market. But in the spot market, we can go back hundreds of years. The copper market is the one that collapses before anything else when you're running into a recession. So I keep an eye on that for that reason. But it's very resilient right.

[Maren Somerset Webb]

Now. Okay, let's talk about the other industrial metals briefly. And one of the things I mentioned earlier was that in this geopolitical environment, on top of the idea that everyone is rebuilding their defense industries, people are also attempting to rebuild their. Well in the west anyway, their manufacturing bases, to rebuild the infrastructure that maybe they've lost over the last 20, 30 years as a result of relentless globalization. So if we've got that rebuilding and we've got people slightly concerned for all sorts of geopolitical reasons about all sorts of things, maybe stockpiling various metals, is it the case that we're not just talking about copper, we're talking about the entire industrial metal base being in a fairly intense bull market over the next few.

[Michael Hague]

Years? Minimum, yes, some of them more than others. Nickel has always been a favorite as a potential bull market. Metal on the back of electrification, of course, Donald Trump and the US Administration right now kind of backing off from that has made that market a little bit less exciting. Also, nickel was previously used a lot in, primarily in building as a component in the steel manufacturing. That's less exciting right now because of the decline, if you like, or the slowdown in China. So they're not as exposed to all these very bullish elements as, say, something like copper. So that's bit of an outlier. But having said that, you've hit on something very important because another aspect of what is driving some of this bullish momentum, and maybe we can get into silver a little bit later, is.

[Maren Somerset Webb]

Oh, we are definitely on our way to talking about silver. I'm literally gearing up for that right.

[Michael Hague]

Now. It's about stockpiling, right? Critical material stockpiling. So, you know, to go back to oil, what countries generally do with oil in terms of stockpiling is that they collect, import 90 days worth of oil, put it in storage, and that's called their Strategic Petroleum Reserve. That's how much they're supposed to hold in case something goes wrong. We don't have things like that for base metals. And so if one was to look at the countries that import things like nickel and zinc and lead, aluminum, copper, etc. And you said, okay, well, what if they decided to do the same thing with those methods Metals that they do with the energy complex, notably oil, and buy 90 days worth of COVID of what they normally import. You'd be talking about a tremendous amount of material that would put these markets in big deficits and that would increase the prices. So we're not there yet in terms of critical material and the impact on things like zinc and lead, these smaller markets, but definitely copper and silver come up in this.

[Maren Somerset Webb]

Conversation. Yeah. Okay, well, let's go on to silver then. One of our favorite topics on this podcast. My co host, John Depek is mildly obsessed by silver. So I'm sorry he's not here to talk to you about it, but let me do it for him. So given everything we've just said, but also given these stunningly sharp rise in the silver price, is that sustainable? Is this a bubble? And if it is a bubble, is it a rational bubble or is this not a bubble at.

[Michael Hague]

All? Well, it's fascinating you say that we try and be very quanty in our analytics. Analytics At SocGen, we've got a model for almost everything, including bubbles is a particular market in a bubble. So I test these things out all the time and a couple of weeks ago we ran it through our silver complex and it churned out the fact that we were in a bubble. And I thought, well, hang on a second, have we been in a situation like we're in right now for silver compared to history? And the answer is no. What's going on there is the fact that silver, we have to remember, is basically 50% industrial and it's 50% precious. It doesn't move up and down with gold, but it can't move in a separate direction in the long term. So the gold silver ratio is fairly volatile, which means that they do have different parts. But generally speaking, silver does do what gold does. It's the market is 10 times smaller than the gold market, which means it's way more volatile. The way I explain the silver market, it's just like gold but on steroids, basically. If gold's going to go up, it's going to go up more. If gold's going to go down, it's going to go down with gold, but by more. But you have to add on top the industrial complex. Now what's going on with silver, of course, is the fact that we've been running into three years of deficit. Now before we got all excited about investing in precious metals and de dollarization, central bank buying, et cetera, nobody really cared about the small deficits in silver. But once you start getting a leg up in silver prices and ETF buying and movements of silver from one location to another because of fears of, of tariff impositions. Then all of a sudden the inventory of silver becomes incredibly important. And when you're in market of deficits and you're expecting to have more deficits going forward, that's the support behind silver. Now silver's very volatile. Is it going to come off? Yes, of course it will. Will it continue to rise? I think it.

[Maren Somerset Webb]

Will. Okay, that's what we want to.

[Michael Hague]

Hear. And gold, gold I have actually more conviction on because it's a much more solid market in terms of liquidity and central banks don't really get involved in silver at all but they're very much in the gold complex. So I took a very interesting experiment because nobody really knows how much more central banks are going to buy, how long this de dollarization story is going to continue. But if you take a list of all the central banks around the world and you look at see which central banks are holding lower amounts of gold relative to their total reserves. So some central banks like the US has 8,000 tons of gold, China has 2,300 tons of gold. So these are pretty big. But the really important question, and.

[Maren Somerset Webb]

We'Re sure about those numbers, are.

[Michael Hague]

We? No, we're not sure about the China number. These are self reported by China to the imf. We keep track of imports into China from London, we look at what they say they've bought, etc, so we go with the stated number but knowing there's a little bit of probably uncertainty there. But I think the important thing is, is that even if you take that 2300 ton number for China is roughly 6% of their total reserves. So if you're off by you know, another 2,000 tons, you're still below 20% of total reserves. And that's what most central banks are aiming to accumulate. So if you take the top say 50 central banks and you rank order them by the amount of gold that they're holding as a percent of total reserves and you exclude the ones that are holding a lot of gold and you're left with the remainder and you ask this one question, question what if those central banks moved 1% of their total reserves that are not gold into gold, just 1% and you looked at all these different countries, whether it's the Philippines, Japan, China, et cetera, these are the countries that have low relative reserves and you assume that they all did that, then you'd be talking close to a thousand tons of gold being demanded. Now remember in any given year, normally central banks buy about 700 tons. So if they made this incremental shift to 1,000 tons in addition to the 700 that's normally being purchased, that mechanically would lift gold prices about $1,000 an.

[Maren Somerset Webb]

Ounce. Okay. Which would make the share prices of the miners go even more berserk than they've gone.

[Michael Hague]

Already. Even more berserk. And by the way, we look at the cost of production of all the different miners and they are all making money. There is not one gold mine that is making no money money.

[Maren Somerset Webb]

Anymore. Makes a pleasant change, doesn't.

[Michael Hague]

It? It does.

[Maren Somerset Webb]

Yeah. So from your point of view, it is not too late to buy silver, to buy gold, or indeed to buy the silver or the gold.

[Michael Hague]

Miners. I don't think it is. I mean, our house view is that by the end of this year, gold's going to be at $5,000 an ounce. Now, of course, we said that when gold was at 4,000. Now we're up to almost 4,500. I have a few feeling, but I'm not sure when this will be, that I'm going to have to adjust that up again. If I adjust gold up, I'm going to have to adjust silver.

[Maren Somerset Webb]

Up. Can you see any point in time in which the central banks would hold Bitcoin as a reserve.

[Michael Hague]

Asset? That's a fabulous question. I have devoted a bit of time and attention of going to a variety of different central bank websites and looking at what their policies are on this, their statements, what they say they have, what they might do. I found two central banks that made a statement last year, the Czech Republic and Kazakhstan, that said they might consider holding bitcoin or crypto in their portfolios alongside gold. But the key question was might. And I think it was the Czech Republic Central bank that said if they did that, it would be a maximum of 5%. So it's a good question, but so far I'm not concerned about.

[Maren Somerset Webb]

That. Okay, so that is not a risk to your outlook for gold. What is the risk to your view on gold? What would turn it.

[Michael Hague]

Around? A month, two months ago, I was asked the question, obviously with higher prices, central banks are going to stop buying because it's just way too high. And so I looked at elasticities of response of prices to demand across jewelry, across central bank buying, across ETF buying, and it's all basically broken with the exception of jewelry demand elasticity, meaning if prices go up, people buy less jewelry. That is a very strong relationship. It's broken with central banks and etf buying, because those are the reasons why gold prices go up. So it's hard to think about an elasticity response when that is the reason why it goes up. So they are the causal influence. They have a positive elasticity, which means gold prices go up, they buy more. But so far central banks have not reversed course on their statements as to how they accumulate their gold. They still say that this is a very strategic thing. It's not really about the price of gold right now. That's my concern is if we, if we see a reversal in central bank buying. I do check on it every month using HMRC gold export data out of the UK into places like China. It has slowed down. I will admit that, compared to, say, this time last year. I think if I see another one or two or three months of central bank bank buying decline as proxied by exports out of the uk, then I'm going to have to reevaluate my thinking on the role of central banks and gold demand for 2026. But so far, haven't seen that. The other thing that people often ask about is what if we saw a massive reduction in uncertainty around the world, geopolitical uncertainty, because those things are very highly linked to ETF flows. So the average person on the street, like you and I, we don't go out and buy massive gold bars like central banks do. The easiest way of us accessing gold is to buy a gold ETF that's backed by gold. And the relationship between uncertainty and ETF flows is through the roof. So uncertainty is measured in a variety of ways. There's lots of indices out there, trade uncertainty, geopolitical uncertainty, et cetera, et cetera. You can go on the web and find these things everywhere. My favorite is economic policy uncertainty. It's an uncertainty index developed by some professors at University of Chicago. You get daily versions, weekly versions, and if you plot it alongside ETF flows, they go up and down together. So the question is, is uncertainty likely to come down? And my answer to that is no, not at least in the next three.

[Maren Somerset Webb]

Years. I can see why you might feel like.

[Michael Hague]

That.

[Maren Somerset Webb]

Yes. Listen, let's go back, if you don't mind, to energy and how is it best for an ordinary person to invest in the energy markets at the moment? I mean, it feels like it's very, very hard to forecast the oil price. I mean, you said that forecasts are all over the place and nobody even knows whether demand is going to be up or down over the next decade, except et cetera. Yeah. So if you want to Be invested somehow in energy. Where, where do you go? I mean, obviously, obviously copper is a good answer, but an answer that isn't.

[Michael Hague]

Copper. Yeah, well, so for, you know, the, the simplest way, simplest I use inverted commas on that, is to access the energy complex through things like ETFs or even if you're a little bit more sophisticated, buying or selling futures or options on future futures. The problem.

[Maren Somerset Webb]

You. We don't want to do that. We absolutely don't want to do that. We are simple people here. We're simple people. We want to buy an equity or we want to buy an.

[Michael Hague]

Etf.

[Maren Somerset Webb]

Yeah. And we want to buy a straightforward, properly exposed to the physical etf. Nothing else. We're.

[Michael Hague]

Simple. I mean, this is, this is probably the most sensible way of accessing these markets. Now, I do happen to be bearish on oil going forward, in case I didn't mention that before. So I wouldn't.

[Maren Somerset Webb]

Probably. No, you weren't quite clear enough on that. That was pretty much what the question was. You were totally clear that you were.

[Michael Hague]

Bearers. Yes. So I'm not sure I would, I would recommend that to people. But if you were in the interest of, of getting access in that, I think going through the, the energy companies themselves, or at least an ETF link to those companies is the most sensible. But I would stay away from the actual flat price of energy through futures and options because we have funny shaped curves, the forward curve, and if you invest in the front, you're going to lose money as it rolls down the curve, et cetera. So stairway from.

[Maren Somerset Webb]

That. We don't do that. What about the oil services companies in the U.S. now, they, for this, for this very reason, things we were discussing earlier with Venezuelan, they had bit of a pop after the incident. What about.

[Michael Hague]

Those? I'm not an equity analyst, so I tend to stay away with making judgments on particular sectors within energy and particularly the companies themselves. But you'd have to imagine, you know, aside from Venezuela and potential opportunities there for using US energy services companies, you know, if you're talking about a market that is to go through some sort of bearish cycle, which is what I think it's going to do in the next year, at least maybe two years, is. I'm not sure I would look at those.

[Maren Somerset Webb]

Sectors. Okay, and the bet. Can we just go back briefly to the bearish cycle? Because I don't think we completely covered it when we were talking about oil. That is based on what? Because we don't expect demand to fall off over the next couple of years, but you.

[Michael Hague]

Survive. Yeah, well, we don't expect demand to come off. It's not going to go negative. But the rate of growth is slowing every year and it will slow all the way up to 113 million barrels a day. That, as I mentioned before, but it's about the supply side. So OPEC has been cutting oil production, slash exports to keep prices at a high enough level. So the cost of extraction in the OPEC members is fully covered. But also the social costs within each country is covered. But at some point they've given up and they've said, okay, we're going to produce more because we want more of the volume that we've been holding back on, which enables places like Brazil, Guyana, the US and Canada to enjoy that incremental demand growth by adding that supply. So they've reversed course and said, we're not doing that anymore. We're bringing back oil into the market. So when you add in what the developed market is producing, when you add in what OPEC is putting back into the market, and you subtract from that the incremental demand that we might get next year, we end up with a surplus of about 3 million barrels of a day on a 104 million barrel a day market, which is gigantic as a percentage. And because of that, that means that inventories build around the world, they swell up, we've got plenty of oil, and prices collapse. The reason why they haven't collapsed right now is because China has been buying oil for its Strategic Petroleum Reserve, which is a whole different conversation in itself. But when they stop, that's when inventories kind of grow rapidly and that's when prices come off next.

[Maren Somerset Webb]

Year. Okay, so this is absolutely fabulous news. If we think as we do that, you know, all activity is energy transformed. The cheaper energy is, the better for everybody. And we know so many horrible recessions have been prompted by high oil prices. Seeing oil prices go lower and they're not exactly high in historical context at the moment, seeing them going lower will be absolutely fabulous for a global economic. Economic.

[Michael Hague]

Growth. It totally will. I mean, you know, I'm not talking for a collapse in oil prices. Our official forecast, as it goes for Brent anyway, which is the more global market, to go to about $50 by the end of the year. And we're at 60 right now, so we're not talking about a 20 or a 30% decline. And if I turn around and I tell my economist, hey, I've got some good news, oil's coming down, what does that mean for inflation? What does this mean for GDP growth they don't get overly excited by the level that I've just explained. Blame there, but obviously at the margin this is very positive for people's.

[Maren Somerset Webb]

Pockets. Excellent. Brilliant. Thank you, Michael. See how we ended there On a positive note, see how that.

[Michael Hague]

Works. We're.

[Maren Somerset Webb]

Done. Thanks for listening to this week's Mary and Talks Money. If you like our show, rate, review and subscribe wherever you listen to podcasts and keep sending questions or comments to marinmoneylumberg.net you can also follow me and John on Twitter or x. I'm Arnesw and John is JohnStepek. This episode was hosted by me, Marin Somerset Webb. It was produced by Somersadi and Moses Andam Sound designed by Blake Maples and Aaron Casper. And special thanks of course to Michael.

[Sponsor/Advertiser]

Hague. These days it seems like AI agents are just about everywhere you turn every field and every function. But without identity, you can't trust they'll serve your business instead of jeopardizing it. Fortunately, Okta helps you get identity right by securing your AI agents identities, giving you a single layer of control, a single standard of trust. So whether an AI agent supports a single user or your entire enterprise, with Okta you'll turn risk into opportunity. Secure every agent. Secure any agent. Okta secures.

AI. With VALI from Ishares, you get access to both monthly monthly income and growth potential in one simple etf. It's the best of both worlds. Discover Bali Ishares Large Cap Premium Income Active ETF iShares the market is yours. Visit www.ishares.com to view perspectives for investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Risks include principal loss in the use of derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepared by BlackRock Investments LLC. As a contractor, I don't pay for materials I don't use, so why would I pay for stuff I don't.

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