Latest / Energy Economics with Fexingo: Oil Prices, Renewables, and the Cost of Power / Why Oil Is Down and Natural Gas Is Quietly Rising
Transcript
- Lucas: So oil prices have now completely erased the gains they made during the Strait of Hormuz disruption. WTI crude is sitting around sixty-nine dollars a barrel as of this morning, down more than seven percent over the past five trading days. Luna: Yeah, and the headlines this morning are saying tanker traffic is resuming. Iran issued that warning about the route being 'unacceptable and dangerous,' but the immediate supply fear seems to have faded. Lucas: Exactly. The market priced in a worst-case scenario where a significant chunk of Gulf oil got cut off. Now that traffic is moving again, it's unwinding fast. But here's the thing I find interesting — natural gas is actually up this week. Henry Hub futures are at three twenty-eight, almost a percent gain. Luna: That is interesting. Usually when oil drops on a supply story, gas comes along for the ride. So what's different this time? Lucas: I think it tells us something about the structural demand picture. Oil is still very much tied to the global economic cycle — and there are real demand concerns right now. Gas, though, has a different set of drivers. It's more regional, more tied to power generation and LNG exports. And we're seeing a quiet divergence that might persist. Luna: Before we dig deeper, can I say something about what we're doing here? We've been putting out these episodes daily for over a year now, and we deliberately don't run ads. No sponsors, no mid-roll interruptions. It's a choice we made from the start. Lucas: Yeah, and it's not because we're anti-business. It's because we think the conversation flows better without someone trying to sell you a mattress or a meal kit every ten minutes. If walking through the economy with us has made something click, and you want to support that, the link is buy me a coffee dot com slash fexingo. Luna: It's a small thing that makes a big difference. Keeps this exactly what it is. Okay, back to the divergence. You were saying gas has different drivers. Lucas: Right. So let's look at the data. Brent crude is down to about seventy-two dollars, and the five-day drop is almost seven percent. That's a rapid move. But the economic indicators this month show core PCE still creeping up — we're at one twenty-nine point six on the index as of April. Inflation is sticky, and that's weighing on demand expectations. Luna: And the ten-year breakeven inflation rate has actually ticked down to two point one eight percent. That suggests the market doesn't see inflation running hot forever, but it also means growth expectations are being revised lower. Lucas: Exactly. Lower breakevens usually come with weaker growth outlook. And oil is the most sensitive commodity to that. Gas, on the other hand, is more about weather, storage, and the structural shift in how we generate power. Right now, storage levels in the US are actually a bit below the five-year average for this time of year. Luna: And you've got Europe still weaning itself off Russian pipeline gas. Even with the mild winter they had, LNG import capacity is being built out fast. That creates a floor under global gas prices that didn't exist five years ago. Lucas: Exactly. The US is now the world's largest LNG exporter, and that links our domestic gas price more tightly to global markets. So even if US demand is moderate, the export pull keeps prices from falling too far. That's part of why Henry Hub is holding above three dollars when oil is getting hammered. Luna: And the oil selloff — how much of it is actually about Hormuz easing versus something more fundamental? Lucas: I think the Hormuz story gave the market a reason to sell. The underlying concern has been building for weeks. We saw it in the prior episodes — oil stocks falling faster than crude, factory job cuts weakening demand. The supply fear was a temporary floor, and once it cracked, the selloff accelerated. Luna: Right. And the energy sector stocks reflect that. XLE is down one point three percent this week, Exxon down two point seven, Chevron down three point five. That's not a panic, but it's a steady grind lower. Lucas: Yeah, and ConocoPhillips is down almost four percent. Those moves tell you that earnings expectations are being repriced. If oil stays in the sixties, a lot of those companies' cash flow projections start to look different. Luna: So where does natural gas go from here? Are we looking at a sustained rally? Lucas: I don't think 'rally' is the right word. More like a slow climb. The fundamentals are supportive but not explosive. We're not seeing the kind of supply shock that would push gas to four dollars. But the floor is higher than it used to be. Luna: And the clean energy angle — we saw ICLN flat this week, TAN down half a percent. So it's not like money is rotating out of oil and into renewables in a big way. Lucas: No, not yet. But if oil stays low for a while, it could change the political calculus around energy policy. Lower gasoline prices take some of the heat off politicians, but they also reduce the urgency for renewable subsidies. It's a complicated dynamic. Luna: And for listeners who are watching their own energy costs — regular gasoline is down to three ninety-one a gallon from four-oh-five a couple weeks ago. That's a meaningful drop at the pump. Lucas: It is. And if oil stays around sixty-nine, we could see another ten to fifteen cents come off in the next couple weeks, assuming refineries don't run into issues. But the sticky core inflation means the Fed is still on hold. That's the macro backdrop that's really driving this. Luna: So the key takeaway is that oil and gas are decoupling. Oil is telling a demand fear story, gas is telling a structural supply story. Lucas: Right. And the next thing to watch is the inventory data. We'll get the EIA storage report later today, and a big drawdown in gas could push prices higher. For oil, the focus is on the next few weeks of economic data — especially jobs and manufacturing — to see if the demand fears are justified. Luna: It feels like the market is trying to price in a soft-ish landing, but oil is saying maybe it's a harder one. Lucas: That's a good way to put it. Oil is the most honest commodity we have. It doesn't spin. It just moves. Luna: Alright, we'll keep tracking it. Thanks for listening. Lucas: See you next time.