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Gas Prices Could Surge as Oil Supply Hits a Breaking Point · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: It's Chuck, it's Mike, it's Tucker with you here on
1:13
Speaker 2: the first Monday of May. It's not a special day,
1:19
Speaker 2: you know. It's it's not like tomorrow, which is, by
1:22
Speaker 2: the way, Cinco de Mayo. It's a date that we've
1:25
Speaker 2: had circled on the calendar for basically the last two months,
1:30
Speaker 2: where if you were to pull one of our shows
1:32
Speaker 2: from the first week of March. You heard me at
1:35
Speaker 2: some point saying, hey, if the straight Offoor Moves is
1:38
Speaker 2: still closed on you know, by the time you get
1:42
Speaker 2: to Cinco de Mayo, you've got some real problems that
1:45
Speaker 2: you can't escape from. And where it stands right now
1:49
Speaker 2: is that Despite and we'll talk about what this means
1:52
Speaker 2: and what it doesn't mean in a little bit. Despite
1:56
Speaker 2: announcement yesterday that the United States is going to try
2:00
Speaker 2: to guide ships through the Strait of Horror Moves, the
2:04
Speaker 2: strait is effectively closed to any kind of traffic resembling
2:09
Speaker 2: normal operations. You're seeing a handful of ships a day
2:13
Speaker 2: that are crossing. Some are still being shot at, including
2:18
Speaker 2: a couple in the last day that we're attacked by
2:21
Speaker 2: Iranian drones and other projectiles that have not yet been identified.
2:26
Speaker 2: And so the issue that we have here and why
2:30
Speaker 2: Sinco Demayo matters is because there are two reasons. The
2:36
Speaker 2: first is that it inevitably takes the impact from just
2:40
Speaker 2: being you know, okay, things were you know bad because
2:44
Speaker 2: of the straight of horror moves in Q two and
2:47
Speaker 2: being able to put a bow on that and move on.
2:49
Speaker 2: It takes it from being that to now okay. The
2:52
Speaker 2: timeline for this is clearly going to move into Q
2:55
Speaker 2: three as well, when things can still be worsening. But
2:58
Speaker 2: the more important one is the one that we talked
3:00
Speaker 2: about last week, which is now that you are starting
3:03
Speaker 2: Syncle demorrow this week is that was the week where
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Speaker 2: most of the people I talked to thought you would
3:09
Speaker 2: start to see draws in US crude inventories because of
3:14
Speaker 2: ships finally arriving in the US because they can't source
3:18
Speaker 2: the oil or oil products that they need elsewhere. And
3:23
Speaker 2: sure enough, last week we did indeed see a draw
3:27
Speaker 2: of crude oil from the United States. And specifically I
3:32
Speaker 2: want to give some context to this just because I
3:37
Speaker 2: think it matters when we're trying to look at the
3:42
Speaker 2: numbers here. So we get data every week from the EIA,
3:47
Speaker 2: the Energy Information Administration, and what they do is they
3:52
Speaker 2: put out a report telling you how much crude and
3:55
Speaker 2: refined product moved around the United States, went in, went out,
3:59
Speaker 2: how much is still in storage, so on and so forth.
4:02
Speaker 2: And what we saw last week, between the commercial stocks
4:06
Speaker 2: that were depleted and the strategic petroleum reserve release, we
4:10
Speaker 2: saw around thirteen point three million barrels flow out of
4:15
Speaker 2: US crewed stockpiles, which is the sixth largest flow on record. Now,
4:21
Speaker 2: a lot of the other ones you can look at
4:23
Speaker 2: and you're like, Okay, these dates don't particularly mean anything.
4:25
Speaker 2: It didn't lead to anything the next week. But the
4:28
Speaker 2: point I'll make is that the straight of hor moves
4:30
Speaker 2: was not closed during any of those and so there
4:32
Speaker 2: was not a clear reason for it to continue. In
4:36
Speaker 2: this case where we are heading. And again we'll just
4:40
Speaker 2: have to see what the draws look like in the
4:42
Speaker 2: coming weeks. But you are going to get to operational
4:46
Speaker 2: minimums in the US pipeline capacity, pipeline system and CREWE
4:50
Speaker 2: transportation system somewhere between July fourth and Columbus Day, most
4:58
Speaker 2: likely towards the end of July or early August's that's
5:02
Speaker 2: where we're going in. And here's why this matters for
5:04
Speaker 2: all of us. When you get to those levels, effectively,
5:11
Speaker 2: you only have so much oil that you can move
5:13
Speaker 2: within the system then in order to maintain operation. Otherwise
5:17
Speaker 2: it just breaks down. And so I plain breakdown. Yeah,
5:20
Speaker 2: I'm not sure I follow. So let's say that you
5:23
Speaker 2: are if you're pumping anything, you need to have a
5:28
Speaker 2: minimum amount of the liquid in the system that you
5:33
Speaker 2: are pumping. Otherwise it doesn't work, It loses efficiency. You
5:36
Speaker 2: can't like you need to have pressure in order to
5:39
Speaker 2: actually move things through the system. When you get below
5:43
Speaker 2: a certain capacity, a that stops working. And the other
5:47
Speaker 2: piece that you run into is when it comes to storage.
5:50
Speaker 2: And again, this is just how oil tanks are built.
5:52
Speaker 2: I don't know why it's this way, but I'm sure
5:54
Speaker 2: there's a very reasonable and actually I do know why
5:56
Speaker 2: it's this way. The pipes that flow out of oil
6:00
Speaker 2: tanks aren't at the bottom of them. And the reason
6:04
Speaker 2: why is because you get all of this sediment and
6:06
Speaker 2: everything that collects in there. And it's so basically you
6:09
Speaker 2: have a minimum amount that can never be pumped from
6:12
Speaker 2: the tank because the outflowing pipes aren't at the bottom
6:16
Speaker 2: of the tanks. They're designed that way for a reason,
6:20
Speaker 2: but it still is just how it is. And so
6:23
Speaker 2: when you look at US commercial crude inventories and see
6:25
Speaker 2: four hundred and sixty million barrels of oil sitting there,
6:28
Speaker 2: you say, ah, it's fine, Like there's plenty of you know,
6:31
Speaker 2: plenty of oil in the system. Part of this is
6:33
Speaker 2: that the estimates now are anywhere from like one hundred
6:36
Speaker 2: to one hundred and fifty million barrels is actually in
6:39
Speaker 2: the pipelines flowing at any given time. So you can't
6:42
Speaker 2: just use that because otherwise you don't have a pipeline
6:45
Speaker 2: system that works. There's another two hundred million barrels or
6:49
Speaker 2: so that needs to be in the tanks in order
6:53
Speaker 2: to maintain proper again eventually you know, flow in and out.
6:58
Speaker 2: And also there's some that you just can't pump because
7:01
Speaker 2: it's below the line that is pumpable. I think that's
7:05
Speaker 2: a new word that we just madeable pumpable. So where
7:09
Speaker 2: this goes is it's not like you have a four
7:11
Speaker 2: hundred and sixty million barrel buffer here. The actual buffer
7:15
Speaker 2: that you have is somewhere in the ballpark of seventy
7:17
Speaker 2: to ninety million barrels, and commercial stocks drew by six
7:21
Speaker 2: million last week. You've got somewhere again, depending on how
7:25
Speaker 2: fast the flow rate is, somewhere probably between like eight
7:28
Speaker 2: and sixteen weeks before you get to operational minimums. And
7:33
Speaker 2: the reason why that matters is when you get there,
7:36
Speaker 2: it's not like oil just continues to stay at the
7:39
Speaker 2: same price. Because ultimately, if you're a refinery saying, hey,
7:43
Speaker 2: I want to buy oil, and oil sitting there at
7:44
Speaker 2: a hundred barrel and you can't find it, and you
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Speaker 2: just say, okay, I'm just gonna keep bidding on one
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Speaker 2: hundred dollars.
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Speaker 3: Barrels, so eventually it stops flowing outside of the United States,
7:52
Speaker 3: it'll stay here.
7:54
Speaker 4: No, it's at a higher price.
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Speaker 2: Because what will happen is, Okay, the suppliers can't deliver
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Speaker 2: that barrel of one hundred because there's just not enough,
8:02
Speaker 2: and so in order for suppliers to not default on contracts,
8:07
Speaker 2: the price moves up. It's not profiteering, it's not greed like,
8:11
Speaker 2: don't get me wrong, I'm sure they're happy to make
8:13
Speaker 2: the extra money. But the reason this happens is because
8:17
Speaker 2: if you have two million barrels of oil that are demanded,
8:21
Speaker 2: and both companies are willing to pay a hundred for it, Well,
8:24
Speaker 2: then you've got to be able to sell two hundred.
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Speaker 2: You got to be able to sell two million barrels
8:28
Speaker 2: of oil in order to clear that market. If you've
8:31
Speaker 2: only got a million that you can deliver, you keep
8:34
Speaker 2: raising the price until it gets to hey, there's only
8:37
Speaker 2: a million barrels of demand, and now we're matched. And
8:41
Speaker 2: so this is where we are going this summer. There
8:45
Speaker 2: is no changing course on this. It is set in
8:48
Speaker 2: stone right now as far as where we are going
8:52
Speaker 2: to get to at some point later this summer that
8:56
Speaker 2: you are going to get pretty close to. If things
8:59
Speaker 2: stopped like right now, maybe you can avoid being at
9:02
Speaker 2: minimum operational capacity for very long, but you're basically going
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Speaker 2: to hit there because you have this line of ships
9:09
Speaker 2: that is coming to the US to fill up and
9:12
Speaker 2: they've got nowhere else to go. They can't go anywhere
9:16
Speaker 2: else to get this oil. And if you said, oh,
9:19
Speaker 2: let's let's ban exports, great, now you are going to
9:22
Speaker 2: have refineries getting all backed up in the US. You're
9:25
Speaker 2: not gonna have the product that you need domestically. And
9:27
Speaker 2: it's a whole different problem that is not solving the situation.
9:31
Speaker 2: So we're at the point now where this is destiny.
9:34
Speaker 2: There is nothing that can be done to change this.
9:38
Speaker 2: The only question is how long does it last, and
9:41
Speaker 2: that's dependent on when flow begins through Horror moves again.
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Speaker 3: So oil price is today barely moving. On the Brent side,
9:47
Speaker 3: they're moving up about two percent. West Texas crewed moving
9:50
Speaker 3: about a quarter of a percent. But we're still sitting
9:52
Speaker 3: over one hundred and two dollars per barrel when I
9:54
Speaker 3: look out, you know, we've been talking about how oil
9:57
Speaker 3: is actually priced, because we're looking at a May contra
10:00
Speaker 3: right here, taking a look at a December contract for
10:03
Speaker 3: a barrel of oil. We're now sitting at eighty one
10:05
Speaker 3: dollars fifty four cents earlier, just over the last few weeks,
10:10
Speaker 3: we were in the seventies.
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Speaker 4: This has been steadily climbing up.
10:13
Speaker 3: Obviously, the longer this conflict, and you know, regardless of
10:17
Speaker 3: whether it's terminated or not, regardless of all that, really
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Speaker 3: the conflict is whether or not traffic is flowing through
10:23
Speaker 3: the strait. This contract for December oil has continued to
10:27
Speaker 3: creep up and up and up, and.
10:29
Speaker 2: Quite honestly, I'll make the point, the December oil contract
10:31
Speaker 2: doesn't matter. It's not predictive of where oil is going
10:34
Speaker 2: to be. It's just hey, if you want to secure
10:37
Speaker 2: barrels right now for delivery, then this is what you
10:40
Speaker 2: can pay. That balances the market. Ultimately, the number that
10:43
Speaker 2: matters is when you look at like brent, it is
10:47
Speaker 2: what is the number four either prompt delivery of brent
10:50
Speaker 2: meeting within the next three weeks or dated meeting three
10:52
Speaker 2: to six weeks out. Like that, there is a date,
10:55
Speaker 2: there's a date of delivery. That's where the term dated
10:57
Speaker 2: brent comes from. And so what this what you see
11:01
Speaker 2: when you look at the numbers, Prompt and dated are
11:03
Speaker 2: trading like twenty to thirty dollars above the first futures contract.
11:08
Speaker 3: So if you're a refiner in India, that's what you're
11:10
Speaker 3: paying delivered, you're paying.
11:12
Speaker 2: Like that's what you're paying actually in order to get
11:14
Speaker 2: it right now. And so the problem that you have here,
11:19
Speaker 2: like again the die is cast on this. There is
11:23
Speaker 2: a ceiling as to how high gas prices can go
11:25
Speaker 2: just based on supply and demand. But it's a lot
11:29
Speaker 2: higher than where we are today. And again I know
11:33
Speaker 2: this might sound kind of crazy, it's not unreasonable to
11:39
Speaker 2: think that if the straight of Hoom Moves is closed
11:40
Speaker 2: for the next month or two, still seven or eight
11:43
Speaker 2: dollars a gallon gas in the United States is not
11:46
Speaker 2: out of the question.
11:48
Speaker 3: What was our all time high back during seven five
11:52
Speaker 3: oh one, and that wasn't twenty two, that was twenty
11:55
Speaker 3: two two.
11:56
Speaker 2: Diesel right now is knocking on the door of all
11:58
Speaker 2: time highs Diesel seventeen sense under. It might pass those
12:02
Speaker 2: all time highs this week. We are still around fifty
12:05
Speaker 2: five cents under on gasoline right now. But the question
12:11
Speaker 2: for this summer is basically, can you have like a
12:14
Speaker 2: very short lived peak somewhere in the low fives or
12:19
Speaker 2: do you end up going higher? And the limit there's
12:22
Speaker 2: probably in the seven to eight dollars a gallon range,
12:26
Speaker 2: but that's where you could potentially get to if we're
12:30
Speaker 2: still sitting here on the fourth of July with the
12:32
Speaker 2: straight of horn Moos closed, which again I know sounds crazy,
12:36
Speaker 2: and I hope my dream in this is that like
12:39
Speaker 2: this all just you know, somehow gets resolved in the
12:41
Speaker 2: next month and we sit here and we laugh at
12:44
Speaker 2: me all summer, like, oh, chuck, that was so funny. Like,
12:48
Speaker 2: I hope that's where we go. But I'll be honest,
12:50
Speaker 2: I didn't think we would be here on Cinco de
12:52
Speaker 2: Mayo Eve, which is my favorite Eve.
12:55
Speaker 4: Sinko to quatro, It's what we call today, Sinko to quatro.
12:59
Speaker 4: I enjoyed the breast development.
13:01
Speaker 2: I knew I heard it somewhere.
13:02
Speaker 4: Yeah.
13:03
Speaker 2: But again, we're at the point now where, like the
13:07
Speaker 2: die is cast, there is no escaping what's coming this summer.
13:11
Speaker 2: It's just a matter of how long does it last
13:12
Speaker 2: and how high is the peak. Let's take a quick break.
13:15
Speaker 2: When we return, we'll talk about the latest plan for
13:18
Speaker 2: the straight ofform Moves next.
13:21
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13:57
Speaker 2: Yesterday I think it was somewhere around five pm or so,
14:02
Speaker 2: the President put out a post on truth Social quote
14:06
Speaker 2: her countries from all over the world of us if
14:08
Speaker 2: the United States if we could help free their ships
14:10
Speaker 2: which are locked in the Strait of Horror moves for
14:12
Speaker 2: the good of Iran, the Middle East, and the United States.
14:14
Speaker 2: We've told these countries that we will guide their ships
14:16
Speaker 2: safely out of these restricted waterways so they can freely
14:20
Speaker 2: be able to get on with their business. And the
14:23
Speaker 2: President dubbed it Project Freedom. So I then this piece
14:28
Speaker 2: in the Wall Street Journal came out last night a
14:30
Speaker 2: bit after that, and I was I was reading through it,
14:33
Speaker 2: and I was like, okay, like, you know, show me, like,
14:36
Speaker 2: what's what's going on here? And I got to the
14:38
Speaker 2: paragraph immediately afterwards. The new mechanism is effectively a coordination
14:42
Speaker 2: cell to move traffic through the Strait, involving countries, insurance companies,
14:46
Speaker 2: and shipping organizations. According to two senior US officials, it
14:49
Speaker 2: doesn't currently involve US Navy warships escorting vehicles through the strait,
14:55
Speaker 2: So basically it sounds like there it was the US
14:59
Speaker 2: trying to say, hey, this is the path that you
15:02
Speaker 2: can take, and we're not going to escort you through,
15:05
Speaker 2: but we can provide information and so on and so forth.
15:09
Speaker 3: And to be clear, while there's a lot of fog,
15:12
Speaker 3: going on in the first five hours of this morning
15:14
Speaker 3: on Eastern time.
15:16
Speaker 4: It appears that.
15:18
Speaker 2: Guys, I want to tell you, like, no one knows
15:20
Speaker 2: anything about what's happening right now, so I think what.
15:23
Speaker 3: We can say confidently, it doesn't appear that a bunch
15:25
Speaker 3: of ships are now moving through the Straight of Hormos.
15:27
Speaker 2: So here's that much, here's the lay of the land
15:30
Speaker 2: this morning. And again, like it's almost impossible to verify
15:35
Speaker 2: any of this because we don't have access to real
15:39
Speaker 2: time data surrounding the movement and damage status of various
15:44
Speaker 2: ships throughout the Straight of Horn moves. So the United
15:49
Speaker 2: States United States Central Command is indicating that two US
15:54
Speaker 2: destroyers have passed through going inbound in order to provide
15:58
Speaker 2: additional assistance to ships that are already in the Persian Gulf.
16:03
Speaker 2: SENCOM also indicated that two US flagged commercial vessels have
16:08
Speaker 2: exited the strait at this point. But we don't have
16:11
Speaker 2: any tracking data on any of this, Like it's all
16:13
Speaker 2: happening without what's called the AIS systems turned on in
16:16
Speaker 2: these ships, so we don't know where they actually are.
16:18
Speaker 3: Other pieces of information, some Iranian media outlet claim to
16:23
Speaker 3: have struck US Navy ships the USA Command denied as much.
16:27
Speaker 4: And then there's a.
16:28
Speaker 2: South Korean ship that has been struck. There's a UAE
16:31
Speaker 2: one that's been struck that again we think no, the
16:34
Speaker 2: UA is confirmed at the US the UA confirmed that,
16:37
Speaker 2: and South Korea confirmed that their ship got hit. Yeah,
16:40
Speaker 2: the other thing that happened this morning. And this is
16:43
Speaker 2: wild in like forty three different ways. So Iran also
16:48
Speaker 2: published pictures of the new of their new map for
16:53
Speaker 2: their zone of control through the Strait of Hormus, and
16:56
Speaker 2: the part that's really interesting and potentially escalatory is on
17:02
Speaker 2: the eastern side, So outside of the strait, there's a
17:07
Speaker 2: port in the in the UAE Fujaira, which is where
17:11
Speaker 2: there's a one and a half million barrel a day
17:13
Speaker 2: pipeline that's been running there that has been allowing you know,
17:17
Speaker 2: exports from the UAE from a port outside the Strait
17:20
Speaker 2: of Horror moves. The new Iranian maps that they published
17:24
Speaker 2: today claim it are claiming that area as Iranian water,
17:30
Speaker 2: and so basically any ship that's loading there may in
17:32
Speaker 2: theory be targeted. So where we're heading right now is
17:35
Speaker 2: a pretty dangerous spot this week because the United States
17:40
Speaker 2: and what's probably like a pretty like strong tactical move
17:45
Speaker 2: is saying, look, we're going to you know, basically, dare
17:49
Speaker 2: you to start shooting at US if we're going through
17:51
Speaker 2: the strait Iran may or may not have if these
17:54
Speaker 2: ships actually pass through, Like we really don't know what's
17:57
Speaker 2: happened yet. Iran likewise is saying, Hey, we're now claiming
18:02
Speaker 2: a larger area, as you know, something under our control,
18:06
Speaker 2: and we might start shooting at stuff in that larger area.
18:10
Speaker 2: And so it does feel like things are kind of
18:12
Speaker 2: coming to a head this week because you can only
18:14
Speaker 2: escalate rhetorically for so long before you have to actually
18:18
Speaker 2: do something in the physical.
18:19
Speaker 3: World been fairly quiet for now what about three weeks,
18:22
Speaker 3: and so like, this is a dangerous week here, and
18:25
Speaker 3: we're gonna have to see how this plays out.
18:27
Speaker 2: I have no idea what's going to happen. Maybe the
18:31
Speaker 2: US is successful in being able to start moving things
18:34
Speaker 2: because Iran doesn't want to actually start shooting at US ships.
18:40
Speaker 2: Maybe that's not the case, Like, I don't know.
18:43
Speaker 4: I mean, it's pretty clear that it wasn't the case
18:45
Speaker 4: of the UAE ship.
18:46
Speaker 2: But this is a pretty big week here, and I
18:49
Speaker 2: think that it has the potential to evolve in a
18:52
Speaker 2: number of ways that are unpredictable as we look at
18:56
Speaker 2: what each side is pushing into, you know, the middle
19:00
Speaker 2: of the table for a poker analogy. So again, we'll
19:05
Speaker 2: see where this goes here. But the fog of war
19:09
Speaker 2: is thick right now. It's very hard to know what's
19:13
Speaker 2: actually going on. But we'll have to just see how
19:16
Speaker 2: things evolve over the rest of the week because it's
19:20
Speaker 2: messy at the moment. Quick break in Wall Street Watches Next, Like.
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19:44
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19:47
Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch,
19:53
Speaker 1: tracking the stocks, the data, and the headlines driving markets
19:56
Speaker 1: so far today right here on the Financial Exchange Network.
20:01
Speaker 5: Markets at the beginning of the weekend mixed territory, with
20:04
Speaker 5: oil prices jumping higher over ongoing uncertainty. With this strait
20:08
Speaker 5: of horror moves, traders are also ready for the April
20:11
Speaker 5: jobs report on Friday morning. Right now, the dows down
20:15
Speaker 5: a tenth of a percent, SMP five hundred is up
20:18
Speaker 5: a tenth of a percent, NASDAC up nearly two cents
20:20
Speaker 5: of one percent, or forty two points RUSS two thousand
20:24
Speaker 5: is up about a third of a percent, sen You're
20:26
Speaker 5: Treasure reeled up three basis points at four point four
20:29
Speaker 5: to one two percent, and oil is edging higher, trading
20:33
Speaker 5: at one hundred and two dollars a barrel. Aside from Iran,
20:36
Speaker 5: the big development over the weekend came from game Stop,
20:39
Speaker 5: after CEO Ryan co made an unsolicited offer to buy
20:43
Speaker 5: eBay for about fifty six billion dollars. In an interview
20:47
Speaker 5: with The Wall Street Journal, Cohen said that putting his
20:49
Speaker 5: video game retailer and eBay under one roof could create
20:53
Speaker 5: opportunities to cut costs and improve earnings. eBay stock is
20:58
Speaker 5: up four percent, while game Stop share they're down by
21:01
Speaker 5: four percent. Meanwhile, shares a Norwegian cruise line dropping eight
21:04
Speaker 5: percent after the company cut its outlook, citing higher fuel
21:08
Speaker 5: prices and also said consumers are rethinking travel plans Elsewhere.
21:13
Speaker 5: Tyson Foods posted better than expected quarterly results, but said
21:17
Speaker 5: soaring cattle prices weighed on its results. That stock is
21:20
Speaker 5: up over one percent and after today's closing bell, we'll
21:24
Speaker 5: see earnings from paramounts, sky Dance and Pallanteer. I'm Tucker
21:29
Speaker 5: Silva and that is Wallstree.
21:30
Speaker 4: Watch.
21:33
Speaker 2: Yeah, we do need we got to talk about cattle
21:35
Speaker 2: prices at some point. The uh, the beef is.
21:39
Speaker 4: Too damned high. Cats not getting any better.
21:41
Speaker 3: The beef is too damn high. Well, I'm just looking
21:45
Speaker 3: forward to some of that lab grown meat.
21:47
Speaker 2: I mean especially we're heading right into prime grilling season.
21:49
Speaker 4: Michael, lab grown t bone.
21:52
Speaker 2: How do you grow the bone?
21:53
Speaker 4: It's plastic. It's my favorite part though, very high melts point.
21:58
Speaker 2: Let's talk a little bit about out this piece from
22:02
Speaker 2: the New York Times. It's titled Spirit Airlines demise could
22:05
Speaker 2: help other.
22:06
Speaker 3: Airlines insofar as there won't be as much competition and
22:11
Speaker 3: therefore prices will they will not need to compete with
22:14
Speaker 3: them on price quite as much.
22:15
Speaker 2: Well, and here's the thing. So there are a bunch
22:18
Speaker 2: of fixed assets that are going to be for sale now,
22:22
Speaker 2: whether you're talking about airplanes that Spirit was leasing that
22:25
Speaker 2: you know someone else could pick up and lease, whether
22:28
Speaker 2: you're talking about gates and landing slots that are available
22:31
Speaker 2: at airports now. And so it is something where hey is,
22:35
Speaker 2: airlines are facing all kinds of cost pressures on the
22:38
Speaker 2: fuel side of things. For the ones that are forward looking,
22:42
Speaker 2: they might be able to pick up some assets that
22:44
Speaker 2: they would want to add in the future at discount prices.
22:49
Speaker 3: One thing that so all these airlines did a few
22:52
Speaker 3: years ago, Delta, American, United is who I'm talking about here.
22:56
Speaker 3: They all rolled out new pricing models. And what I
23:01
Speaker 3: mean by that is not an entirely new wave price
23:03
Speaker 3: in the airplanes like Southwest did. But if you want
23:06
Speaker 3: to on American right now, you can buy what I
23:09
Speaker 3: think they called their basic fair.
23:11
Speaker 4: You won't get to choose a seat, you won't get yep.
23:13
Speaker 4: I don't think you'll get a checked bag.
23:15
Speaker 3: You might even have to pay for a carry on bag,
23:18
Speaker 3: just like Spirit was doing.
23:20
Speaker 4: They were forced to do that, or they felt forced.
23:22
Speaker 3: To do that because they wanted to have a price
23:25
Speaker 3: point that was more similar to what Spirit was offering.
23:28
Speaker 3: I'll be interested to see if they even hold on
23:29
Speaker 3: to that right like this. This is a money loser
23:32
Speaker 3: for them. They don't make money on that seat that
23:35
Speaker 3: they are selling dramatically, or if they do, it's a
23:37
Speaker 3: very slim profit margin. And they only really offered it
23:41
Speaker 3: because hey, you know, we can't have consistently Spirit airlines
23:45
Speaker 3: showing price tickets. You know, ticket prices that are thirty
23:48
Speaker 3: percent cheaper than ours. They won't anymore.
23:51
Speaker 2: No, And the other piece is, I'll quote here from
23:55
Speaker 2: the piece and may have twenty twenty four, the airline
23:57
Speaker 2: operated three point four percent of all domestic flights. Yes,
24:01
Speaker 2: before it shut down. Spirit schedule for me would have
24:03
Speaker 2: mounted to just one point one percent of domestic flights.
24:06
Speaker 2: But the thing that you have to focus on here is, Look,
24:10
Speaker 2: if there is supply of seats that is coming off
24:13
Speaker 2: as well, but you still have the same number of
24:15
Speaker 2: flyers who want to fly, all else being equal, that
24:19
Speaker 2: in and of itself is going to push ticket prices
24:21
Speaker 2: up because you have the same number of passengers, but
24:24
Speaker 2: you don't have the same number of planes flying right now.
24:27
Speaker 2: So you've got a situation where this is coming again. Like,
24:32
Speaker 2: I'm not saying that this is good because again the
24:35
Speaker 2: seeds for this demise. Look back in twenty twenty two.
24:42
Speaker 2: Was it when they were when Jet Blue times to
24:44
Speaker 2: buy them? Yeah, started up, yep, And I think it
24:46
Speaker 2: was it was shut down in twenty four. Look, the
24:50
Speaker 2: DOJ did no favors to Spirit with rejecting that merger agreed.
24:55
Speaker 2: There's also no guarantee that a combined Jet Blue Spirit
24:59
Speaker 2: would have actually been able to survive.
25:01
Speaker 4: Can we talk about that right now?
25:02
Speaker 3: Because Jet Blue the company, by the way, who has
25:05
Speaker 3: not made a profit since twenty nineteen, they're caring about
25:08
Speaker 3: eight and a half to nine billion dollars worth of
25:11
Speaker 3: debt right now. I mean, this is not a financially
25:14
Speaker 3: healthy company. There's been this fascinating, like partisan debate that
25:18
Speaker 3: I've been seeing who's to blame for the demise of Spear.
25:20
Speaker 2: Everyone wants to blame someone, right Here's the thing. Jet
25:23
Speaker 2: Blue was losing money, still is, Spirit was losing money
25:27
Speaker 2: still is. Their potential path to surviving was through a
25:31
Speaker 2: merger that still might have resulted in the combined company
25:34
Speaker 2: going out of business. Yeah, they would have had a
25:37
Speaker 2: better chance to compete, absolutely, And it completely sucks that
25:41
Speaker 2: the DOJ did not even give them a chance to
25:44
Speaker 2: survive because again, as we've seen, like Spirit is this,
25:48
Speaker 2: they tried to declare bankruptcy like three times in three years.
25:51
Speaker 2: It just would not hit. Like that's not good, that's
25:53
Speaker 2: not healthy. So it's clear that freak chance is better
25:57
Speaker 2: than no chance at all. But it's unclear that the
26:00
Speaker 2: combined company would have, you know, actually been able to
26:03
Speaker 2: survive either These were two companies that were losing money
26:07
Speaker 2: trying to live by merging and finding some efficiencies. You
26:13
Speaker 2: can absolutely blame the Biden DOJ for not letting them merge, yep.
26:16
Speaker 2: But even if they had, it might not have worked.
26:19
Speaker 3: Sure, And you can blame you know, high oil prices
26:22
Speaker 3: on the Trump administration if you want. I don't think
26:24
Speaker 3: the blame game is terribly useful in all of this context.
26:28
Speaker 3: Here's another question. I don't have any there's no insinuation
26:31
Speaker 3: whatsoever that Jet Blue has a you know, going concern
26:34
Speaker 3: risk right now. If they do, they'll be required to
26:37
Speaker 3: disclose it. But they haven't made any money on an
26:40
Speaker 3: annual basis since twenty nineteen. That's not a sign of
26:42
Speaker 3: a healthy company. Were they to go bankrupt. I know
26:48
Speaker 3: there was this talk of a bailout for Spirit. How
26:51
Speaker 3: big is the push for a bailout of Jet Blue
26:53
Speaker 3: if Jet Blue starts going that direction, because there's not
26:58
Speaker 3: a whole lot of competition left at that point. Like
27:00
Speaker 3: if we're talking about full long, I don't mean bankruptcy,
27:02
Speaker 3: because there's a lot of different types of bankruptcies.
27:04
Speaker 4: Spirit went through two of them over.
27:06
Speaker 3: The course of the last four years, and their plan
27:08
Speaker 3: was to re emerge so Jet Blue can go through bankruptcy.
27:12
Speaker 3: That's not what I'm talking about. But if Jet Blue
27:13
Speaker 3: is pushed to liquidate, do you have to bail them?
27:17
Speaker 4: Ount? I don't.
27:18
Speaker 3: You don't have to bail one does not have to
27:20
Speaker 3: do anything, right, but there there would certainly be immense
27:24
Speaker 3: political pressure to do so.
27:26
Speaker 2: So here's the thing. This is potentially something that's closer
27:31
Speaker 2: than you think. And what I mean by that is
27:35
Speaker 2: they're free cash flow right now. Trailing twelve months is
27:37
Speaker 2: negative one point one to six billion dollars. They're sitting
27:41
Speaker 2: on two point twenty seven in cash and short term investments.
27:44
Speaker 2: Maybe they've got some credit lines outstanding that they haven't
27:46
Speaker 2: tapped in anything yet. And to be clear, I've got
27:49
Speaker 2: to imagine all of this disclosure happened prior to this
27:52
Speaker 2: was the beginning of the year, right, I mean, do
27:54
Speaker 2: we know anything about their financial states since they started
27:56
Speaker 2: paying whatever they're paying now for jet fuel? Let me
27:59
Speaker 2: see if I can find the most recent quarter. Hold on,
28:03
Speaker 2: just give me one second. Let's see. When is there
28:09
Speaker 2: that's an annual Tucker? Thank you for putting me on
28:11
Speaker 2: the clock. Here we go, Q one free cash flow
28:18
Speaker 2: was what the heck does that even mean? No, I
28:27
Speaker 2: can't read this right now, it's too much pressure. In
28:29
Speaker 2: any case, their free cash flow is not going to
28:32
Speaker 2: improve as a result of fuel jet fuel prices moving up,
28:37
Speaker 2: it's going to get worse. And so this is something
28:42
Speaker 2: where again, like, depending on what happens on the demand
28:45
Speaker 2: side of things, you could have a situation where Jet
28:48
Speaker 2: Blue is facing bankruptcy questions in the next two years.
28:53
Speaker 2: Like that's not crazy to say, sure. And by the way,
28:56
Speaker 2: that's reflected in the stock price right now with which
29:00
Speaker 2: is four dollars and ninety five cents a share. And
29:03
Speaker 2: to compare that to where it's been, you know over
29:07
Speaker 2: the last five years or so. From five years ago,
29:10
Speaker 2: it's seventy five percent down. Yeah, from three years ago,
29:15
Speaker 2: it's thirty one percent down. You know, it's it's again.
29:20
Speaker 2: And by the way, you see this also in the
29:23
Speaker 2: product that they're offering. I was one of the like,
29:27
Speaker 2: I was very much team jet Blue for the longest time.
29:30
Speaker 4: Yeah, they've been bottom.
29:31
Speaker 3: Of the reliability rankings for a better part of a decade.
29:35
Speaker 2: You can see that, like there's a difference in product
29:38
Speaker 2: quality that you get flying them now relative to again,
29:42
Speaker 2: like I put Delta at the top of the list.
29:44
Speaker 2: But look, you even go on like United or an
29:46
Speaker 2: American flight or Southwest quite honestly, you fly on, you're like, oh, like, yeah,
29:50
Speaker 2: product quality is like pretty solid Jet Blue. Like you
29:54
Speaker 2: get on some of the planes and you're like, man,
29:57
Speaker 2: the TVs don't work half the time now, oh, like
30:01
Speaker 2: the seats are like kind of ripped in some of
30:03
Speaker 2: the ones that haven't had the cabin's replaced yet.
30:05
Speaker 4: It's showing its age and they don't have the cash
30:07
Speaker 4: flow to reimprove.
30:09
Speaker 2: So we'll see what happens. They're going forward, but uh
30:12
Speaker 2: worth watching. Let's take a quick break. When we come back.
30:15
Speaker 2: We're talking gas prices after this.
30:17
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30:53
Speaker 2: All right, let's talk a little bit about gas prices.
30:55
Speaker 2: Triple A National afforts right now is sitting at four
30:59
Speaker 2: forty five and seven tenths of a cent. And the
31:03
Speaker 2: big thing, we use about three hundred and seventy five
31:06
Speaker 2: million gallons of gasoline a day in the United States. Uh.
31:11
Speaker 2: And so if you do the math just based on
31:14
Speaker 2: how much gas price have gone up over the last week,
31:17
Speaker 2: which is around thirty three cents, it means that you
31:19
Speaker 2: are seeing Americans and the aggregate paying around one hundred
31:22
Speaker 2: and twenty five million extra dollars a day for gas
31:26
Speaker 2: compared to a week ago.
31:27
Speaker 3: Yeah, we had done the math on some of this,
31:29
Speaker 3: you know, earlier this year, before tax refunds started going out. Yeah,
31:32
Speaker 3: it seemed to me that should gas prices remain around
31:36
Speaker 3: this high that you know, for the average person, they're
31:39
Speaker 3: spending you know, around three quarters of that tax refund
31:44
Speaker 3: on these elevated gas prices. Except I'm trying to get
31:47
Speaker 3: to there is there is obviously some benefit to tax
31:50
Speaker 3: cuts this year.
31:51
Speaker 4: Sure, the One Big Beautiful Bill Act is.
31:52
Speaker 3: Expected to increase the deficit by four trillion dollars over
31:55
Speaker 3: the next decade.
31:56
Speaker 2: So you know, it doesn't do that by not doing
31:59
Speaker 2: anything right.
32:00
Speaker 3: It's government spending On the other hand, this doesn't really
32:03
Speaker 3: work exactly because it's not like gas prices are a
32:05
Speaker 3: result of a new tax. But you know, if the
32:09
Speaker 3: US consumes about seven point four billion barrels of oil
32:13
Speaker 3: per year and you're talking about a price increase of
32:16
Speaker 3: around forty dollars, that's like, you know, close to three
32:20
Speaker 3: hundred billion dollars that's going to you know, some of
32:24
Speaker 3: that's going to the bottom lines of Exon and you know,
32:26
Speaker 3: executives there, but a lot of it's being sapped out
32:28
Speaker 3: of Americans pockets through higher prices, and it's being partially
32:33
Speaker 3: offset by things like, yeah, the One Big Beautiful Bill
32:36
Speaker 3: Act investment from you know, previously heavy, heavily profitable companies
32:41
Speaker 3: like Facebook and Google that are spending on AI and
32:46
Speaker 3: that can last for a while, I guess, in the aggregate,
32:49
Speaker 3: so long as we don't get to actual shortage problems.
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34:06
Speaker 2: Piece in the Wall Street Journal, an aluminum crisis is
34:09
Speaker 2: roiling the auto industry, and basically what you are seeing
34:14
Speaker 2: here I'll quote the relevant part. The US cost of
34:17
Speaker 2: primary aluminum from smelter is nearly ninety percent higher than
34:20
Speaker 2: a year ago. The Warren Iran is driving up prices
34:22
Speaker 2: by effectively choking off shipments from Persian Gulf countries, which
34:25
Speaker 2: supply about one fifth of the aluminum consumed in the
34:29
Speaker 2: United States.
34:30
Speaker 3: And don't forget that aluminum that's consumed from that area
34:33
Speaker 3: also faces a fifty percent US terror Yes, but.
34:36
Speaker 2: To be fair, you can't tear if something if you
34:38
Speaker 2: can't import it, true, so it doesn't compound that way.
34:42
Speaker 2: But what you are seeing right now is that effectively
34:46
Speaker 2: a metric ton of aluminum in the United States, it's
34:50
Speaker 2: costing sixty one hundred dollars right now compared with thirty
34:53
Speaker 2: two twenty a year.
34:54
Speaker 4: Ago, actually doubled.
34:55
Speaker 2: Yeah, okay, And so the problem that you have here
35:00
Speaker 2: is biggest actually for Ford, which is again it feels
35:03
Speaker 2: like Ford is just like running in This is not
35:05
Speaker 2: a problem that they like could have foreseen, so like,
35:08
Speaker 2: I don't blame them. But basically, what what happened here
35:13
Speaker 2: is that Ford was trying to improve the fuel efficiency
35:16
Speaker 2: of its F one fifty and went to a more
35:19
Speaker 2: aluminum construction in it. And so because of how big
35:23
Speaker 2: the F one fifty is, like just from a vehicle
35:26
Speaker 2: size and weight standpoint, this is something that is disproportionately
35:30
Speaker 2: affecting Ford because not only is the F one fifty big,
35:34
Speaker 2: but it's the biggest car, truck whatever that they sell.
35:37
Speaker 2: And so so.
35:39
Speaker 3: What you're telling me is pretty much the only product
35:41
Speaker 3: line that makes Ford any money.
35:42
Speaker 2: Is Yes, it's just it's it's brutal here, and so
35:48
Speaker 2: they're trying to deal with it the best that they can,
35:51
Speaker 2: but ultimately it's, uh, it's something that is just uh
35:56
Speaker 2: again really impacting Ford because they expect their commodity costs
35:59
Speaker 2: to go from a billion dollars to two billion dollars
36:02
Speaker 2: this year due to illuminum prices. Moving on.
36:06
Speaker 3: To be fair, I can't imagine that any I recognize
36:09
Speaker 3: why Ford's F one fifty and specifically, you know, Ford
36:13
Speaker 3: only really makes money on giant vehicles these days, so
36:17
Speaker 3: they're going to have a bigger illuminum problem than just
36:19
Speaker 3: about anybody else. But it can't be that, you know,
36:23
Speaker 3: Toyota is having a really easy time acquiring aluminum at
36:26
Speaker 3: good prices right now, Like this is a global problem
36:29
Speaker 3: that every auto manufacturer is facing. Ford arguably because of
36:33
Speaker 3: changes to their design as well as just the fact
36:36
Speaker 3: that every one of their cars tends to have a
36:39
Speaker 3: lot of metal in.
36:40
Speaker 4: It must be just the hardest hit with all of.
36:42
Speaker 2: This, you would think. So, yeah, it's it's not like
36:45
Speaker 2: Toyota is sitting there going, oh, we're making all of
36:47
Speaker 2: our cars with jeans, like you know, like no, like
36:51
Speaker 2: good thing.
36:52
Speaker 3: We switched to bamboo six years Yeah, yeah, No, that's
36:55
Speaker 3: not really how it works.
36:56
Speaker 2: The denim Corolla really took off, you know. It's no,
37:00
Speaker 2: they're all kind of in the same boat. It's just
37:02
Speaker 2: the product mix and sourcing is clearly impacting Ford in
37:07
Speaker 2: ways that other companies are not being impacted as heavily.
37:10
Speaker 3: There was also, you know, domestically here, there was that
37:13
Speaker 3: fire that took off an aluminum what do we call
37:16
Speaker 3: an aluminum factories It a smelt smelter smelt that took offline.
37:20
Speaker 3: Was that in New York or Ohio somewhere around there
37:23
Speaker 3: over the course of the last few months, so that
37:25
Speaker 3: is still offline. Ford's obviously, you know, pushing the Trump
37:28
Speaker 3: administration asking for a you know, relief valve on the
37:32
Speaker 3: tariff piece of it, at least if they can finally
37:34
Speaker 3: get some of that aluminum into the United States, which.
37:38
Speaker 4: I don't know.
37:39
Speaker 3: But again, the war in Iran and changes to supply.
37:43
Speaker 3: There was not the intent. The tariffs were right that
37:46
Speaker 3: that was part of the plan. Here is we want
37:48
Speaker 3: more of this stuff done domestically, and certainly Ford is
37:53
Speaker 3: going to be trying to push for more of that
37:54
Speaker 3: to be done domestically over the course the next few months.
37:57
Speaker 2: The word smelt has like two of the most divergent
38:01
Speaker 2: meetings out of any word in the world in my opinion,
38:05
Speaker 2: where it's like, depending on the context, it's either yeah,
38:08
Speaker 2: I'm talking about using a bunch of heat to turn
38:11
Speaker 2: one metal into a refined product, or I'm talking about
38:14
Speaker 2: a really small fish. Let's take a quick break and
38:18
Speaker 2: you can decide what we talk about next. On the
38:20
Speaker 2: Financial Exchange