Crude oil prices have risen significantly since the war began due to Iran's threats on ships in Strait of Hormuz, pushing energy sector ETF to all-time high. Oil price has leveled off recently.
Host (speaker2)
Phil Streel
Oil is driving global stagflation theme. Crude oil is 90% positively correlated to US dollar and 90% inversely correlated to S&P 500. If oil prices break down, dollar index and yields should break down, raising rate cut expectations.
Phil Streel
Traders watching three things: de-escalation signs (could grind below 90, 85, 75; $67 is key pre-conflict level), hard oil infrastructure damage (could snap back over $100/barrel).
We entered this geopolitical event in an over-supplied state. Does that return? Talking about $67 or $65 barrel oil. Still have to replace SPR with smart swap that will flatten backwardation curve.
Host (speaker4)
Phil Streel
Ship movements through Strait averaged 150, now down to single digits. It's about rate of change - if we see 5, then 10, then 50 ships pass, that was probably the peak. We may have already seen the top.
Phil Streel
Global oil demand at 105 million barrels/day. IEA released 400 million barrels (only 4 days of global demand, but 20 days of normal Hormuz flows). IEA has 1.4 billion in reserves if needed.
Argument that prices will fall swiftly? Some burned by COVID inflation behavior where every month new reason for high prices. In 2022, 12 days for prices to spike and 148 days to return to prior levels.
Host (speaker2)
Phil Streel
Oil may take longer to get back, but again about rate of change. Markets take stairs up and elevator down. Oil caught airlines off guard - they scramble to buy calls, lock up inventory, squeezing prices higher.
Phil Streel
Many clients looking at June/July put options at 80s, 85s. Could return to normalized numbers, floor might be low 70s as opposed to 50-55 floor up to 65.
Phil Streel
With Fed meeting tomorrow - oil up 50% since January Fed meeting. They'll look at CPI: energy 6.3%, transportation fuel 2.9%. Goldman model: if Brent averages 110 for 2 months, US inflation at 3.3%, GDP at 2.1%, recession odds come back.