Podcast #30: Adam Rozencwajg - commodities

L2 Capital

In today's episode, Marcelo López talked to Adam Rozencwajg, managing partner at Goehring & Rozencwajg, a company specialized in natural resource investments, such as mining, energy and agriculture.

Adam explains the model developed by G&R to understand the dynamic of the shale oil production in the United States and the conclusions drawn regarding the level of productivity and quality of each oil well.

Rozencwajg talks about the price war between Russia and Saudi Arabia and the impact that the clash has had on the oil market. He mentions the strengths and weaknesses that each side has in this dispute, such as, for example, the ability to deal with low prices, oil price needed to balance the budget and the influence of the currency on the costs and profitability of oil companies.

Adam comments on the impact that the COVID-19 pandemic is having on world oil demand and stocks so far and his expectations going forward.

In the face of low oil prices, Rozencwajg discusses the ability of U.S. shale producers to continue to pump oil after price normalization and highlights the role and importance that shale has in meeting global energy demands.

Adam explains the behaviour of prices in the oil futures market, which is currently in contango, and the possibility of returning to backwardation.

Rozencwajg comments on the discrepancies he has found and as well as the upcoming potential opportunities in the oil and gas companies, then finally, on what is important to take into account when analyzing the sector now.

As for the gold-oil ratio, which represents the ratio between the price of gold and the price of a barrel of oil, Adam acknowledges that it is at a very high level and gives his interpretation to the number and how it can be an indicator for positioning in shares of the energy sector in relation to the shares of producers of the precious metal.

Another index, the gold-silver ratio, (which is the ratio between the price of gold and that of silver), also at multi-year high levels, is discussed with Adam, who believes one has to have exposure to precious metals and the shares of companies that produce them.

Finally, Rozencwajg talks about uranium, the fundamentals of the sector and his expectations for the price of the commodity.