00:00Paul, I'm glad you went there because it's switching over to a classic, significant short cleansing in the U.S.
00:06contract.
00:07Now, Brent's up. Brent's running $91 a barrel, but WTI's caught up to Brent.
00:11It's almost the same price.
00:12Typically trades about a $5 discount.
00:15That's classic sign of get me out.
00:17I can't be short for the weekend.
00:18If something goes worse, I have a problem.
00:20But if this unprecedented event, which I did not expect the straight-of-home rules to close,
00:25if it opens up, maybe by Monday, that's going to be a big problem because we've cleansed this market of
00:30shorts.
00:30The key thing to remember, though, is the U.S. is a massive net producer, net exporter of crude oil.
00:36So this actually benefits U.S. producers.
00:38It's the rest of the world, most notably China.
00:40China is the number one place where that Gulf oil goes, and they're kind of bottlenecked by straight-of-home
00:47rules.
00:48But there's a pattern there.
00:48So for now, that's all that matters.
00:50But the bottom line is straight-of-home rules is closed.
00:52If it stays closed, crude oil is strong.
00:55If it opens, crude oil is going to collapse.
00:57Yeah, well, Mike, I mean, obviously the conversation around $100 oil back in play here.
01:04And, you know, a lot of questions about how that's going to impact the economy and markets.
01:08But what's your take?
01:09I mean, is it actually possible to see as much as $100 oil within the month?
01:14Or is it still very much a tail risk sort of scenario?
01:17Every bit that crude oil goes up like this enhances the potential for recession.
01:22That's the way it works.
01:23I just remember very clearly when the average price of gasoline got to $4 a gallon in 2008, that was
01:29a signal the recession was kicking in.
01:31But that's when crude oil peaked at $145.
01:33Now we're talking maybe it gets to $100 in the U.S. or Brent.
01:36So to me, that's what shifted.
01:38Back then, the U.S. was a massive net importer or a massive net net exporter.
01:42But what you saw in the data today, the bottom line for all these markets is we're seeing significant volatility
01:47in commodities, most notably energy and precious metals.
01:50It's very rare to have that kind of volatility without it trickling over the stock market.
01:54So to me, that's the bottom line.
01:55If the volatility from commodities trickles over the stock market, there's your recession.
02:00So, Mike, is all this, I guess, war premium in the oil markets, will that come out dollar for dollar
02:08when this thing is over?
02:10Or will there be some residual damage, I guess, and maybe a little bit higher prices?
02:15Oh, I think it's going to accelerate the bear market.
02:18So look what happened in natural gas this year.
02:20In January, on the year, the front natural gas future was up 100%.
02:24Now it's down 15%.
02:26It went to 7%.
02:26Now it's down to 3%.
02:27To me, that's a guide what to expect in crude oil.
02:29It's getting near 100% in the front contract.
02:31That December contract, which will be front month when there's midterms, is running around 68%.
02:36And by the time we get to midterms, if this is cleared up, it's probably running below 50% or
02:40lower, particularly if the stock market drops a little bit.
02:43So this is what accelerates the bear market.
02:45And the bottom line is the U.S. is a major glut of food and energy.
02:49In the past, we were a net importer, not of food, but of energy.
02:52That's how the world shifted.
02:54Do you think people, traders, I guess, smart people that you know are, I don't know, lack of a better
03:00word, shorting oil right here?
03:03Well, it's hard to short.
03:04You don't want to really look at the front contract as short.
03:06Maybe short further out.
03:07But I can almost guarantee you what the U.S. producers are saying is, oh, boy, we can lock in
03:12profits for a year or two out at much higher prices and bring on more supply?
03:17Thank you very much.
03:18They've been waiting for that.
03:19That's what happened when Russia evaded Ukraine, particularly with all the grains.
03:22And they ended up bringing up too much supply.
03:24That's why they're in a bear market.
03:25Which, remember, this is a bear market bounce in crude oil.
03:27Prices go up.
03:28What's it going to do?
03:29Bring on more supply.
03:30Now, the Gulf is a different story.
03:32You have to cut off that supply for a long time.
03:33I doubt that's going to happen.
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