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Why $100 Oil May Be the New Normal · The Financial Exchange Show

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Speaker 1: making a donation today. This is the Financial Exchange with
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Speaker 1: Chuck Zadath, and Mike Armstrong.
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Speaker 2: Chuck, Mike, and Ben with you today and as we
1:14
Speaker 2: kick off our show, stocks again kind of awaiting next
1:19
Speaker 2: word from the Middle East, I think in terms of
1:21
Speaker 2: trying to make up their mind for whether to continue
1:25
Speaker 2: the rally higher or maybe reverse a little bit. But
1:30
Speaker 2: we're going to start today with further discussion of energy
1:33
Speaker 2: prices and a couple different pieces. One from Baron's titled
1:37
Speaker 2: one hundred dollars oil could be here to stay whatever
1:40
Speaker 2: happens with the peace deal. The second one is from
1:44
Speaker 2: the Wall Street Journal. It's an exclusive titled jet fuel
1:47
Speaker 2: prices are spiking and Trump's advisors are worried. Mike, where
1:52
Speaker 2: do you want to start in this broad conversation about energy.
1:55
Speaker 3: Well, let's start on the oil prices, since you just
1:58
Speaker 3: saw a ten dollars drop in the price of oil
2:01
Speaker 3: this week, and the argument being that it could stick
2:04
Speaker 3: around one hundred dollars. In light of that most recent jump,
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Speaker 3: I recognize Brent is still over close to one hundred
2:12
Speaker 3: bucks a barrel, But in light of that recent drop
2:15
Speaker 3: in pricing, given the rumored news of a potential deal
2:20
Speaker 3: with Iran, I have a tough time buying that it
2:24
Speaker 3: sticks around one hundred. Now, I absolutely am convinced that
2:28
Speaker 3: it stays elevated for a prolonged period of time. I'm
2:33
Speaker 3: just I'm having a tough time picking a dollar amount.
2:37
Speaker 2: Well, look, let's let's be honest, because I don't want
2:41
Speaker 2: to be stupid about this. Neither of us are energy analysts. Sure,
2:47
Speaker 2: I don't have a specific price target for oil. I
2:51
Speaker 2: can't tell you if ninety dollars oil is appropriate. I
2:56
Speaker 2: can't tell you if a hundred is. I can't tell
2:59
Speaker 2: you if a one hundred and ten is. What I
3:02
Speaker 2: can tell you is that before this whole thing kicked off,
3:07
Speaker 2: if we look at West Texas Intermediate and where we were,
3:11
Speaker 2: you know, again, anytime from last June through this February,
3:19
Speaker 2: I can tell you that fifty five to sixty five
3:21
Speaker 2: dollars oil is not appropriate. Sure, we're not going back there.
3:27
Speaker 2: If you think we are going back there, you've got
3:31
Speaker 2: to show me the math. Because from the people I
3:35
Speaker 2: know that are energy analysts, they've shown me their math,
3:40
Speaker 2: and there is no path back to fifty five to
3:43
Speaker 2: sixty five dollars oil in the next two to three years.
3:47
Speaker 3: Yeah, that's where I would agree I have no idea
3:49
Speaker 3: if it's one hundred dollars to one hundred and twenty
3:52
Speaker 3: or eighty to one hundred, but it's very sixtyl to
3:58
Speaker 3: imagine that it's back to sixty. And maybe we should
4:01
Speaker 3: talk about the why factor with all of that, I guess.
4:06
Speaker 3: I guess first and foremost would be damaged infrastructure in
4:10
Speaker 3: the Middle East. Right, Let's start there, because that's been
4:14
Speaker 3: the front and center stuff in terms of the war,
4:17
Speaker 3: and then we can kind of work our way back
4:19
Speaker 3: through the supply chain. But first and foremost, there's been
4:23
Speaker 3: an unknown amount of damage done to all sorts of production, storage,
4:28
Speaker 3: and other facilities when it comes to oil, gas, and
4:32
Speaker 3: other commodities coming out of the Middle East?
4:33
Speaker 4: Am I wrong?
4:35
Speaker 2: You're right? But even before that, let's look at the
4:39
Speaker 2: situation before the war started, Okay, in general, and again
4:46
Speaker 2: these are estimates because no one knows exactly like this is.
4:49
Speaker 2: Again it's not like every single barrel is you know,
4:53
Speaker 2: accurately tracked to the barrel. But the estimates are that
4:56
Speaker 2: prior to the conflict, there was anywhere from a one
5:00
Speaker 2: to three million barrel a day surplus in production, so
5:07
Speaker 2: oil markets were not perfectly in balance to begin with. Okay,
5:13
Speaker 2: that one to three million barrel surplus can end up
5:15
Speaker 2: going into a number of different areas, but ultimately it
5:18
Speaker 2: has to make its way into storage somewhere. And part
5:21
Speaker 2: of the reason why to this point you've been able
5:25
Speaker 2: to get by with a rise just to where we
5:27
Speaker 2: are in gas and oil prices is because largely that
5:31
Speaker 2: surplus existed in the form of on water tankers that
5:34
Speaker 2: we're sitting around with cargoes that they couldn't deliver because
5:38
Speaker 2: no one wanted them quite yet. And so what we
5:42
Speaker 2: have here is a situation where that surplus was kind
5:45
Speaker 2: of the entry into this situation. So then we get
5:52
Speaker 2: to the point that you make, which is, hey, there's
5:53
Speaker 2: been damaged infrastructure. Some of it is refineries, some of
5:57
Speaker 2: it is production facilities. You've got a bunch of production
6:00
Speaker 2: facilities that are stopped and are going to need to
6:03
Speaker 2: take time to get flowing back to normal capacity again.
6:07
Speaker 2: And there are some of those wells that do not
6:11
Speaker 2: get one hundred percent back to full capacity. Ever, when
6:14
Speaker 2: you shut in wells like that's one of the uncertainty.
6:16
Speaker 2: In general, you can get pretty close, but occasionally you
6:19
Speaker 2: run into cases where, hey, production topped out at you know,
6:22
Speaker 2: ninety five percent of what we used to do, and
6:24
Speaker 2: that's just you know, how it is. So I think ultimately,
6:28
Speaker 2: when you look at, you know, the twelve million barrels
6:30
Speaker 2: a day that are offline, I think it's a fair
6:33
Speaker 2: assumption that you probably get at least like eleven and
6:35
Speaker 2: a half of that back over time. But it probably
6:37
Speaker 2: takes three to four months to get back up to
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Speaker 2: full speed once they start pumping again, which is not
6:43
Speaker 2: right when Hormuze reopens because.
6:45
Speaker 4: The ships cant again move out.
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Speaker 2: These are you've got to get ships in to unload
6:49
Speaker 2: the cargoes that are filling up the land based storage
6:52
Speaker 2: and then you can start pumping again. Like that's the
6:54
Speaker 2: only way that you do it. So ultimately you're probably
6:58
Speaker 2: looking at that normal production if everything goes well. Let's
7:03
Speaker 2: say that there is a Horror Moves reopening today, it's
7:06
Speaker 2: going to take another month or so to get ships
7:09
Speaker 2: back in and actually you know, moving this stuff. So
7:11
Speaker 2: now you're into mid June, then you got three to
7:14
Speaker 2: four months from there. It's gonna be mid to mid
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Speaker 2: September to late October by the time you have full
7:20
Speaker 2: production back if things start moving today.
7:24
Speaker 3: So that's the supply side of things, unless you have
7:27
Speaker 3: other supply side points to make you want to shift
7:31
Speaker 3: over the demand side of the equation for a moment here.
7:33
Speaker 2: A couple other small supply side things. Yeah, you do
7:37
Speaker 2: have some additional production that is going to be coming
7:40
Speaker 2: online from Venezuela over the next year or so, assuming
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Speaker 2: things start to go well there. The estimate's there maybe
7:46
Speaker 2: half a million to three quarters of a million barrels,
7:48
Speaker 2: so it probably makes up any gap in what you
7:51
Speaker 2: lose from those well shut ins. The other piece, over
7:56
Speaker 2: a longer time frame, you've got all kinds of countries
7:59
Speaker 2: now talking about you know, hey, do we want to
8:02
Speaker 2: change our drilling policies to become more energy and dependent. Mexico,
8:06
Speaker 2: Australia like these are some of the ones that are
8:09
Speaker 2: talking about it. They're talking now. It doesn't mean anything
8:12
Speaker 2: actually happens right now, but there's the potential for increased
8:15
Speaker 2: production as you get out like three to five years
8:18
Speaker 2: from now, because of the conversations that are happening.
8:20
Speaker 3: Okay, So then moving over to the demand side of
8:24
Speaker 3: the equation, you now, let's assume for a minute that
8:28
Speaker 3: we do not get a big recession here in the
8:31
Speaker 3: United States or China or or Europe some of the
8:34
Speaker 3: you know, bigger oil consumers out there. Let's assume that
8:38
Speaker 3: we're still dealing with a status quo economy that's being
8:41
Speaker 3: driven by this AI trade and other factors. You have
8:45
Speaker 3: demand that's you know, relatively stable. But I do wonder
8:51
Speaker 3: about the energy independence point that you just made, or
8:55
Speaker 3: if it's not energy and dependence, then it is you know,
8:58
Speaker 3: multiple layers of security after countries like Vietnam, India, Australia
9:05
Speaker 3: and most of Europe are learning some hard lessons right
9:08
Speaker 3: now about energy storage and what it means to not
9:11
Speaker 3: have the types of reserves that China, for instance has.
9:14
Speaker 2: Yeah, so number one, you got to believe that all
9:17
Speaker 2: those countries that don't have significant strategic reserves are going
9:21
Speaker 2: to be trying to build them up if they can
9:23
Speaker 2: afford to, and if you can afford to is an
9:26
Speaker 2: important piece. Sure, there are some countries that won't have
9:30
Speaker 2: the capacity to build strategic reserves with oil priced at
9:34
Speaker 2: ninety to one hundred a barrel. They just they don't
9:37
Speaker 2: have the money to do so based on their budgets
9:40
Speaker 2: and currencies. So that's gonna be one piece that plays
9:43
Speaker 2: into this, but ultimately you've got a bunch of countries,
9:46
Speaker 2: you know, you mentioned India in particular, you know Europe,
9:49
Speaker 2: like you go through, you know, one by one, Australia
9:53
Speaker 2: and you say, Okay, the countries that you know didn't
9:56
Speaker 2: have meaningful strategic reserves, you better leave that on the
10:00
Speaker 2: back end of this. They are going to be building
10:04
Speaker 2: those up because they don't want to get stuck in
10:07
Speaker 2: this situation if there's a flare up in the Middle
10:09
Speaker 2: East five years from now. Again right number two. One
10:13
Speaker 2: of the reasons, the one of the other reasons why
10:15
Speaker 2: we've been able to navigate this with oil prices only
10:20
Speaker 2: going up to where they are, is that the countries
10:22
Speaker 2: that do have larger strategic reserves, Japan, the United States,
10:26
Speaker 2: most notably, we are releasing those to the tune of
10:29
Speaker 2: worldwide somewhere in the ballpark of two million barrels a day.
10:33
Speaker 2: Those reserves are likely to be exhausted down to minimum
10:38
Speaker 2: operational levels by the late fall, like that's that's where
10:43
Speaker 2: you're going to be. So those also need to be
10:46
Speaker 2: refilled because if you have another crisis like this that
10:50
Speaker 2: does come up, you can't have that ballast offsetting it.
10:54
Speaker 2: If you don't have the strategic petroleum reserve refilled at
10:58
Speaker 2: least partially, you know, and Chartley is not gonna be like, hey,
11:01
Speaker 2: three million barrels over five years, It's gonna have to be. No,
11:05
Speaker 2: you probably need to start, you know, putting fifty to
11:08
Speaker 2: one hundred million barrels a year into this thing, with
11:11
Speaker 2: the idea that you can get it refilled within the
11:14
Speaker 2: next five to ten years. Like that's that's the plan
11:17
Speaker 2: that you need to have. So that's gonna be additional
11:20
Speaker 2: demand as well that is potentially increasing. And so where
11:25
Speaker 2: this ultimately goes then is between infrastructure that's going to
11:31
Speaker 2: take some time to spool up, plus normal demand returning
11:34
Speaker 2: because already, like again the prices that we're seeing are
11:37
Speaker 2: happening with Asia and Europe and Africa curtailing demand significantly,
11:43
Speaker 2: that's going to ramp back up. What is the path
11:48
Speaker 2: to oil getting back into the sixties. Yeah, it's I again,
11:51
Speaker 2: I don't know if eighty is the right price.
11:54
Speaker 3: Global recession is the answer, check right, But my point is, look,
11:58
Speaker 3: I don't know if one hundred dollar.
12:00
Speaker 2: Oils here to stay, but I know that sixty dollars
12:03
Speaker 2: is not. And if you know, if you want my
12:07
Speaker 2: range well, against can depend on how long this lasts,
12:09
Speaker 2: and so on and so forth. Anywhere from seventy five
12:13
Speaker 2: to one hundred and twenty seems reasonable depending on exactly
12:17
Speaker 2: how things play out. But I don't know exactly how
12:21
Speaker 2: things are going to play out. So that's kind of
12:23
Speaker 2: where we are right now. Let's take a quick break.
12:26
Speaker 2: When we return, let's talk about this jet fuel piece.
12:29
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13:21
Speaker 2: All right, let's talk a little bit about what we
13:23
Speaker 2: are seeing with jet fuel right now. Sure as one
13:27
Speaker 2: of the major refined products that is obviously in demand
13:32
Speaker 2: because of the eighty thousand some odd commercial flights that
13:35
Speaker 2: take place around the world on any given day. We've
13:38
Speaker 2: got real concerns about jet fuel shortages that have led
13:42
Speaker 2: to European airlines starting to cancel flights for the late
13:46
Speaker 2: spring and summer period. And you've got a Wall Street
13:50
Speaker 2: Journal piece out today titled jet fuel prices are spiking
13:53
Speaker 2: and Trump's advisors are worried. And basically what we're seeing
13:57
Speaker 2: here is that if you look at what's happening happening
14:01
Speaker 2: to airline ticket pricing, that's the other side of reduced
14:06
Speaker 2: supply that you see. Airlines cutting flights is one thing.
14:09
Speaker 2: The other piece is that ticket prices have moved up.
14:12
Speaker 2: And in March again not even April, the price of
14:15
Speaker 2: a US domestic round trip economy ticket rose twenty one
14:18
Speaker 2: percent from a year earlier to five hundred and seventy dollars,
14:21
Speaker 2: and so you've got some real upward pressure on airfares.
14:25
Speaker 2: The airlines that have reported earnings have indicated billions of
14:28
Speaker 2: dollars in additional fuel related charges that they're needing to take,
14:32
Speaker 2: and so this is something that is obviously front and
14:37
Speaker 2: center when you look at trying to manage the economy here.
14:41
Speaker 4: Yeah, this is a.
14:44
Speaker 3: We're all hyper aware of gas prices. Most of us
14:47
Speaker 3: are then looking at diesel prices on a regular basis. Two,
14:51
Speaker 3: we don't really see jet fuel prices, but they have
14:53
Speaker 3: roughly they roughly doubled in a matter of weeks following
14:56
Speaker 3: the war. The concerns I would imagine for the Trump
15:00
Speaker 3: administration or a fewfold.
15:02
Speaker 4: One.
15:03
Speaker 3: You generally don't want much higher prices leading into midterm elections,
15:08
Speaker 3: especially around the summer travel season.
15:10
Speaker 2: Two.
15:12
Speaker 3: Spirit Airlines may have gone out of business regardless, but
15:16
Speaker 3: higher jet fuel prices certainly exacerbated the issue. And if
15:19
Speaker 3: you have another airline that goes belly optimestically, I think
15:23
Speaker 3: there's going to be serious political pressure to do something
15:26
Speaker 3: about it. So I think it's not just the ticket
15:30
Speaker 3: prices that consumers are facing and the you know, higher
15:33
Speaker 3: costs for taking that summer road trip that we're going
15:36
Speaker 3: to face. I was talking to my clients who bought
15:39
Speaker 3: an RV a couple of years ago, and they're like,
15:41
Speaker 3: thank god we filled it up with diesel back in February.
15:44
Speaker 3: But the airline piece of all of this is a
15:48
Speaker 3: big question too. And you know, Spirit was in very
15:54
Speaker 3: rough position going into this whole event. But it's not
15:58
Speaker 3: as though other airlines are in perfect financial health right
16:01
Speaker 3: now across the United States. And I do just openly
16:05
Speaker 3: wonder what it would look like if you had another
16:07
Speaker 3: one slip into bankruptcy.
16:09
Speaker 2: Yeah, and I think again to this point, it's the
16:13
Speaker 2: higher prices are what you are seeing. But we've talked about,
16:16
Speaker 2: you know again, kind of just the overall math when
16:19
Speaker 2: you look at US domestic commercial crude oil inventories, and
16:25
Speaker 2: ultimately you get to a place where, hey, it's part
16:29
Speaker 2: of the reason why Europe is able to maintain the
16:32
Speaker 2: level of flights they are right now is because they
16:36
Speaker 2: are drawing on US either refined product or crude product
16:41
Speaker 2: or crude stocks at the moment. Eventually, you get to
16:44
Speaker 2: a point somewhere in the mid to late summer where
16:48
Speaker 2: that becomes impossible and the problem is exacerbated and it
16:52
Speaker 2: becomes just a question of hey, who can pay the
16:53
Speaker 2: highest price for whatever is remaining on the markets. So
16:58
Speaker 2: this is something that again, the only way this resolves
17:04
Speaker 2: is through the strait of hormoves opening, and every day
17:06
Speaker 2: that we go the problem is simply backbuilding and going
17:10
Speaker 2: to reveal itself to be a larger problem once we
17:12
Speaker 2: finally get to that point.
17:14
Speaker 3: Yep, I think that that really does it.
17:19
Speaker 4: I'll be interested to hear.
17:21
Speaker 3: You know, we don't really have a good sense of
17:23
Speaker 3: what bookings look like yet. For I guess we do,
17:29
Speaker 3: because you tend to book that summer travel pretty far
17:32
Speaker 3: in advance. But I'll be interested to hear. You know,
17:34
Speaker 3: we'll be hearing locally about all sorts of you know,
17:37
Speaker 3: summer travel along the Capean Islands and all across New England.
17:41
Speaker 3: And you know, does demand hold up in twenty twenty
17:44
Speaker 3: six with fuel prices.
17:46
Speaker 4: Being where they are. It's, you know, an interesting question,
17:49
Speaker 4: tou ponder.
17:51
Speaker 2: Sticking with energy markets, pieces and market watch traders point
17:55
Speaker 2: to suspicious activity in the oil market on Wednesday. I
17:59
Speaker 2: got to be honest, I don't know if there's anything
18:01
Speaker 2: that's actually suspicious about this or not. I am not
18:04
Speaker 2: an energy trader. Maybe it is, maybe there's a perfectly
18:07
Speaker 2: good explanation, but someone just before the announcement of the
18:14
Speaker 2: one page document, the memorandum of understanding being discussed, apparently
18:19
Speaker 2: took a big short position in crude oil. I don't
18:23
Speaker 2: know if there's any meat on the bone for that.
18:25
Speaker 2: Actually being suspicious or if these things happen all the
18:27
Speaker 2: time and it's just people are paying attention. Now.
18:30
Speaker 3: Yeah, I don't know either, Chuck, But clearly they're paying
18:32
Speaker 3: attention because there's been reports of these types of actions
18:35
Speaker 3: all over the course of the last year. We had
18:38
Speaker 3: the big announcement of.
18:41
Speaker 4: It.
18:41
Speaker 3: Was it a Special Forces guy who was placing bets
18:44
Speaker 3: on the Venezuela thing, And so I think clearly people's
18:49
Speaker 3: hackles are up on all of this. And while the
18:52
Speaker 3: sec you know when you're talking about manipulation of individual securities,
18:57
Speaker 3: is involved in pretty darn good at detecting all this,
19:02
Speaker 3: it seems to me from experts that the CFTC, which
19:05
Speaker 3: regulates commodities and all of the new bets being placed
19:08
Speaker 3: on Calshi for instance, do not have the same mechanisms
19:11
Speaker 3: in place to be able to research and detect all
19:13
Speaker 3: of this stuff and are playing a bit of catch up.
19:17
Speaker 2: Yeah. Yeah, it's it's one where I just I don't
19:20
Speaker 2: have the market expertise in these niche markets to be
19:23
Speaker 2: able to tell quick break. Here Wall Street watches Next.
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21:20
Speaker 5: sees marketplace gross order value ranging from thirty two point
21:24
Speaker 5: four billion dollars to thirty three point four billion dollars.
21:28
Speaker 5: And finally, I on Q shares are off over four percent.
21:32
Speaker 5: The Quantum Computing Company said that adjusted losses before interest, taxes, depreciation,
21:37
Speaker 5: and amortization came in at ninety six point eight million
21:40
Speaker 5: dollars in the first quarter. That's wider than the loss
21:43
Speaker 5: of eighty point four million dollars analysts polled had sought.
21:47
Speaker 5: I am ben Kitchen and that is Wall Street Watch Mike.
21:51
Speaker 2: We got a pc here in the New York Times.
21:53
Speaker 2: Why gas prices vary so much by state, county and
21:58
Speaker 2: city and good piece. I think it gets it, you know,
22:01
Speaker 2: a lot of the key things, and there's some other
22:03
Speaker 2: things that I would add as well.
22:05
Speaker 3: Yeah, I think we've brought this up before, where it
22:08
Speaker 3: turns out Pennsylvania has the highest state level gas taxes
22:13
Speaker 3: in the country. But you know, we never talk about
22:16
Speaker 3: Pennsylvania as having way higher gas prices, for example, than California.
22:20
Speaker 3: And the reality is that there are some unique circumstances
22:24
Speaker 3: in different parts of the country that lead to gas
22:26
Speaker 3: prices being off the charts in places like the West
22:29
Speaker 3: Coast and California in particular, and not so much in
22:33
Speaker 3: other parts of the country.
22:34
Speaker 4: But one would just be.
22:36
Speaker 3: Yes, the state tax is very dramatically placed by place,
22:39
Speaker 3: but in California in particular, they have a few weird
22:42
Speaker 3: things going on. One notoriously bad pollution and small problems
22:47
Speaker 3: over the decades caused them to require a different blend
22:51
Speaker 3: of gasoline than pretty much anywhere in the country. And
22:54
Speaker 3: then you know, follow that up with a lack of
22:58
Speaker 3: refineries in the state, combined with just plain geography that
23:02
Speaker 3: makes it difficult, for example, to ship gasoline from Texas
23:06
Speaker 3: to California because of sprawling mountains and those issues, they
23:11
Speaker 3: end up importing it all, oftentimes via foreign producers by
23:17
Speaker 3: ship into California, leading to well combination of high taxes,
23:21
Speaker 3: unique blend requirements, and just their plane geography driving gas
23:25
Speaker 3: prices to where we're seeing now over six bucks a gallon.
23:28
Speaker 2: Other things that other things that matter, quite honestly, like
23:33
Speaker 2: the town that you are buying the gas in matters,
23:38
Speaker 2: not because like towns have their own gas tax, but
23:42
Speaker 2: you see this when you drive around, if you are
23:44
Speaker 2: driving through a wealthier part of the state that you
23:47
Speaker 2: live in, do you see higher lower gas prices. Yeah,
23:51
Speaker 2: it's it's it's just how it's just.
23:53
Speaker 3: Like they don't have market baskets in Weston, they tend
23:56
Speaker 3: to charge higher gas prices.
23:58
Speaker 2: Too, Right, you can see I mean locally, I would
24:01
Speaker 2: say normally you might see like a ten to fifteen
24:05
Speaker 2: percent swing from wealthier to poorer areas of the state
24:10
Speaker 2: in terms of gas prices.
24:12
Speaker 3: This comes up every week with me with Ed Lambert
24:14
Speaker 3: down the Cape because whenever I talk to him, I'm
24:17
Speaker 3: generally driving along Route one in Saugus, where you have,
24:22
Speaker 3: like notoriously, some of the cheapest gas prices in the state,
24:25
Speaker 3: and he's talking to me from Cape and probably filling
24:27
Speaker 3: up his you know, his Mercedes with ninety three octane,
24:30
Speaker 3: and we're looking at like a dollar difference in price
24:32
Speaker 3: gas prices at pretty much any given point in time.
24:36
Speaker 3: I'm sorry, Ed, I'm ripping on you a little bit,
24:38
Speaker 3: but I think you have told me that you put
24:39
Speaker 3: in the higher octane gas into your vehicle, whereas I'm
24:42
Speaker 3: driving a Honda Civic and don't care what I put
24:44
Speaker 3: into it.
24:45
Speaker 4: And yeah, that is a reality.
24:47
Speaker 3: If you try and buy gas on the Cape compared
24:49
Speaker 3: to in Saugus, you're going to pay a heck of
24:50
Speaker 3: a lot more.
24:51
Speaker 2: So I think ultimately this is a situation where some
24:56
Speaker 2: of these differences in re you know, proximity to refinery
25:00
Speaker 2: and the types of oil that are needed, the types
25:02
Speaker 2: of gasoline that are needed in different areas, These are
25:06
Speaker 2: going to become more apparent as we go through the
25:09
Speaker 2: summer and supply of crude and product gets tighter. So
25:14
Speaker 2: I think this is something to watch just because price
25:18
Speaker 2: disparities are likely to widen more as a result of that.
25:22
Speaker 2: And unfortunately to anyone who might be listening from California,
25:26
Speaker 2: that probably means that you're gonna be feeling even more
25:29
Speaker 2: pain than you already are. And this comes despite California
25:33
Speaker 2: right now as always having the nation's highest gas prices
25:36
Speaker 2: north of six dollars and sixteen cents a gallon. It's
25:40
Speaker 2: not crazy to say that California could be seeing again
25:45
Speaker 2: if the strait of hor moves does not reopen very
25:50
Speaker 2: very quickly here. It's not crazy to think that California
25:54
Speaker 2: could be seeing gas prices close to nine dollars a
25:56
Speaker 2: gallon later in the summer if things move more rapidly,
26:02
Speaker 2: maybe they only get up to like six fifty or seven,
26:04
Speaker 2: but like you could very easily be heading towards higher
26:07
Speaker 2: numbers there because of again, just how the overall network
26:12
Speaker 2: of production and distribution works.
26:15
Speaker 3: I know that I sound like a smug little jerk,
26:18
Speaker 3: but does that not make anybody else smile and giggle
26:20
Speaker 3: just a little bit to hear about gas prices being
26:23
Speaker 3: like two dollars more than anywhere else in this country
26:25
Speaker 3: in California just a little bit?
26:27
Speaker 2: Why would it make me smile? Mike? Like what, I
26:31
Speaker 2: don't really ever wish pain on anyway.
26:33
Speaker 3: Yeah, it's just one of those situations of your own
26:36
Speaker 3: making that makes me laugh a little bit. But yeah,
26:39
Speaker 3: I guess I do wish pain on some people a
26:41
Speaker 3: little bit more than you do, Chuck. So I apologize
26:45
Speaker 3: in the story of the year that did not need
26:47
Speaker 3: to be printed because who didn't know this? The New
26:48
Speaker 3: York Times tells us that higher gas prices are hitting
26:52
Speaker 3: lower income Americans the hardest. Wait, to which I say,
26:56
Speaker 3: who was unaware of that? It don't mean to be insensitive, No, but.
27:01
Speaker 2: You're telling me no, Mike. The the person you're being
27:04
Speaker 2: insensitive to is the writer of the piece. True, because
27:07
Speaker 2: quite honestly, like look of course, like when you have
27:11
Speaker 2: a smaller income, gas takes up a disproportionately larger portion
27:16
Speaker 2: of it if you happen to own or lease or
27:19
Speaker 2: rent a vehicle, And so because of that, it's not
27:23
Speaker 2: surprising that someone making thirty thousand dollars a year feels
27:27
Speaker 2: the pain of gas going up by fifty percent more
27:30
Speaker 2: than Jeff Bezos does.
27:31
Speaker 1: Yes.
27:32
Speaker 3: Do you remember when we were talking about nine percent
27:33
Speaker 3: inflation in twenty twenty two, Yes, also happens to hit
27:36
Speaker 3: the lowest income earners the hardest. During that period of time,
27:40
Speaker 3: there was at least a bit of an offset there
27:42
Speaker 3: where at the same time those same wage earners were
27:44
Speaker 3: getting the biggest percentage increases in wages. But yeah, generally speaking,
27:48
Speaker 3: goods inflation being higher than normal and I'm gonna include
27:52
Speaker 3: gasoline in that category will hit the people that can
27:55
Speaker 3: afford that increase the least the hardest. So thank you
27:57
Speaker 3: New York Times for really breaking that brainbuster down for us.
28:02
Speaker 2: Also, I was poking around on Shell's earning call earnings
28:07
Speaker 2: call this morning, just because again, whenever you have an
28:11
Speaker 2: energy company reporting earnings right now, what they say in
28:14
Speaker 2: the earnings isn't really interesting. It's more hey, tell me, like,
28:17
Speaker 2: give me the context of what you're talking about on
28:19
Speaker 2: your call. Sure, And the CEO on the call basically
28:23
Speaker 2: confirmed what we've been talking about for the last month
28:25
Speaker 2: or so, which is the best case scenario right now
28:29
Speaker 2: that is already pretty much come and gone. Is a
28:32
Speaker 2: billion barrel production shortfall worldwide this year, and every month
28:39
Speaker 2: that the straight remains closed, you're talking about adding another
28:43
Speaker 2: three hundred and fifty to four hundred million barrels of
28:45
Speaker 2: production shut in to that. So basically where you stand
28:50
Speaker 2: right now is look, the best case for getting things
28:53
Speaker 2: reopened there and production resuming is starting in mid June. Again,
29:00
Speaker 2: like you could have things open today, but production still
29:02
Speaker 2: doesn't restart till mid June. You're looking at somewhere in
29:06
Speaker 2: the range of like one point six to one point
29:09
Speaker 2: seven billion barrels in production capacity lost for this year,
29:13
Speaker 2: and every day that you go, you can add another
29:15
Speaker 2: twelve million to that.
29:17
Speaker 4: Like, this is a lot.
29:19
Speaker 2: This is the math. This is the math that is
29:21
Speaker 2: just unavoidable, and like it's there's just no way, uh
29:27
Speaker 2: to change it, and like to put this in perspective. Okay, Uh,
29:31
Speaker 2: the moon again, this is just the best way that
29:34
Speaker 2: I have to to frame this, Mike. Do you know
29:36
Speaker 2: how far away the Moon is from the Earth on average? No? Uh,
29:40
Speaker 2: it's about two hundred and fifty thousand miles, got it.
29:43
Speaker 2: Do you know how many feet that is? No, it's
29:48
Speaker 2: one point three two billion feet. That's how that's how
29:51
Speaker 2: many feet away from Earth the moon typically is.
29:55
Speaker 4: Good?
29:56
Speaker 2: How hi, do you think of a barrel of oil?
29:58
Speaker 2: I don't know, Chuck, Okay, just to sell I don't know, Okay,
30:03
Speaker 2: I was I was just saying, a barrel of oil,
30:05
Speaker 2: let's call it. It's it's four feet high, Okay. Yeah.
30:08
Speaker 2: That means that every month you are losing effectively a
30:15
Speaker 2: stack of oil barrels tall enough to go from the
30:18
Speaker 2: Earth to the moon.
30:20
Speaker 3: Thank you for contextualizing that, because I was having a
30:22
Speaker 3: tough time envisioning it until you put it in those terms.
30:25
Speaker 2: No, like, it's again, none of us are like, oh, like,
30:28
Speaker 2: let's just go to the moon. It's easy. That's how
30:30
Speaker 2: much oil you're losing each month in production is enough
30:34
Speaker 2: to go to the moon, not like physically like go
30:37
Speaker 2: to the moon, but enough to build a stack high
30:39
Speaker 2: enough to reach the moon. Like it.
30:41
Speaker 4: I like the comparison.
30:43
Speaker 2: I thought that was useful. It's kind of a nice
30:45
Speaker 2: way to like, No, no one knows what like twelve
30:48
Speaker 2: million barrels a day for a month looks like. And
30:50
Speaker 2: that's it. Let's let's take a quick break on that
30:54
Speaker 2: and when we return.
30:56
Speaker 3: Do you want to talk China? Are fast foods your option?
31:00
Speaker 2: I want to talk Can we talk Chinese fast food? No? Wow,
31:05
Speaker 2: let's talk fast food. It always gets me going.
31:08
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32:08
Speaker 2: Mike, we landed on fast food as our topic for
32:11
Speaker 2: the start of the segments. What do we want to
32:14
Speaker 2: talk about? Favorite side dish, favorite burger? What are we doing?
32:19
Speaker 3: Where would we be talking about, like, what's the favorite
32:22
Speaker 3: side dish for I guess like Boston Market.
32:25
Speaker 4: You could do that. That's kind of tough for me.
32:26
Speaker 2: For me, what do you mean it's not just Mike.
32:28
Speaker 2: You gotta look at this, Mike, as Taco Bell says,
32:31
Speaker 2: you got to think outside the bun it's not just
32:33
Speaker 2: French fries that you have. You go to Wendy's and
32:35
Speaker 2: get one of those lovely baked potatoes. You could go
32:38
Speaker 2: to Taco Bell and get a nice little side of
32:40
Speaker 2: nachos or something like that. There's all kinds of different
32:42
Speaker 2: options out there, depending on what you're looking for.
32:44
Speaker 3: I'm gonna come out and say that if you're at Wendy's,
32:47
Speaker 3: Burger K, McDonald's, or any of the traditional burger chains
32:50
Speaker 3: and it's anything other than French fries, and there's something
32:52
Speaker 3: wrong with you.
32:54
Speaker 2: And on your ring occasionally never heard anyone where do you.
32:57
Speaker 4: Even get on you? Okay, let's move on.
33:00
Speaker 2: Yeah, burger can get under rings.
33:02
Speaker 3: A bunch of the fast food companies reported earnings this week,
33:05
Speaker 3: including McDonald's, and most of them pointed to a pretty
33:09
Speaker 3: resilient consumer in the first quarter, and a bunch of
33:12
Speaker 3: authors or journalists are writing about how, you know, basically
33:17
Speaker 3: the consumers are showing up and buying in spite.
33:19
Speaker 4: Of the war in Iran.
33:20
Speaker 3: It doesn't it just feel a little bit early to
33:23
Speaker 3: you to write that story. Yeah, I mean, they barely
33:27
Speaker 3: experienced the war in Iran during the first quarter of
33:30
Speaker 3: the year.
33:31
Speaker 2: The data is through March. It's not really convincing to me.
33:34
Speaker 2: And the other thing that I will say so McDonald's,
33:36
Speaker 2: just as an example, they reported that same store sales
33:39
Speaker 2: were up three point nine percent from a year earlier. Mike,
33:42
Speaker 2: do you know what the CPI is for food away.
33:45
Speaker 3: From home for the last twelve months. I don't know,
33:48
Speaker 3: but it's probably pretty close.
33:50
Speaker 2: Three point eight percent. So you sased all the telling stuff.
33:53
Speaker 2: It basically telling you there's like almost no organic sales growth,
33:57
Speaker 2: and it's just through price increases that you're able to
34:00
Speaker 2: see that. So I think that where I tend to
34:04
Speaker 2: land is, Yes, the companies that are reporting earnings on
34:07
Speaker 2: this stuff, these are the quarters that ended in March.
34:10
Speaker 2: You know, the real gas price increases. Like if you
34:13
Speaker 2: go and you take a look at the the charts
34:18
Speaker 2: that you have for how gas prices have moved. Gas
34:22
Speaker 2: prices didn't you know, get above four dollars a gallon
34:26
Speaker 2: until April first, you know, so if you're looking at
34:31
Speaker 2: you know, two thirds of Q one was not impacted
34:33
Speaker 2: by this. The second third was you know, generally running
34:37
Speaker 2: you know, somewhere around like a fifteen to twenty percent
34:40
Speaker 2: gas price increase and it's only now as you've gotten
34:43
Speaker 2: into May that you're looking at a fifty percent jump
34:46
Speaker 2: in gas prices. So yeah, I think it's a little
34:49
Speaker 2: bit early to be saying, you know, this is this
34:52
Speaker 2: is fine. And the McDonald's CEO, by the way, pretty
34:55
Speaker 2: much said the same thing on their conference call, and
35:00
Speaker 2: I'm trying to find the quote here. It's certainly it's
35:02
Speaker 2: getting it's certainly not improving and might be getting a
35:04
Speaker 2: little worse. How this plays out is you know, I
35:07
Speaker 2: think an open question, and our focus is on what
35:09
Speaker 2: we can control.
35:11
Speaker 4: Yeah, that haven't been said.
35:12
Speaker 3: I mean I can see that being an issue for
35:14
Speaker 3: Starbucks and maybe a few other of these fast food
35:17
Speaker 3: restaurants out there. I don't McDonald's continues to maintain their
35:23
Speaker 3: brand of a value option. I think, like Walmart, there
35:28
Speaker 3: are a few companies out there that I look at
35:31
Speaker 3: that have a better reputation for value and so I'm
35:35
Speaker 3: just unconvinced that higher gas prices would lead to a
35:38
Speaker 3: drop in sales for the likes of McDonald's and Walmart
35:40
Speaker 3: and a few others. Yeah, Starbucks, Chipotle, Sure, McDonald's, I
35:45
Speaker 3: don't know.
35:46
Speaker 2: Not buying Let's see here, I want to cover this
35:50
Speaker 2: one story, also from the Wall Street Journal, Craft Time
35:52
Speaker 2: CEO pushes value consumers are literally running out of money.
35:56
Speaker 2: And again it's not to say that this is not
35:59
Speaker 2: a really challenging environment for a lot of households right now.
36:04
Speaker 2: But again it's tough to match that rhetoric with what
36:09
Speaker 2: we're actually seeing as far as spending trends, which from
36:12
Speaker 2: all of the major banks continue to run somewhere between
36:16
Speaker 2: like five and seven percent year over year growth with
36:19
Speaker 2: no change in trajectory.
36:22
Speaker 3: Yeah, look, we've heard this affordability story a few times before.
36:27
Speaker 3: I also just I do have to comment on the
36:29
Speaker 3: photo of the Craft Hid CEO, who is kind of
36:32
Speaker 3: frighteningly standing in front of a giant.
36:34
Speaker 4: Kool Aid man Lloyd.
36:37
Speaker 3: Lloyd Man's going to get you know, he's got this
36:40
Speaker 3: reputation for just you know, blowing through buildings and he
36:43
Speaker 3: looks like he's about to tackle the Craft Time CEO.
36:45
Speaker 3: So interesting photo choice, but but yeah, look I'm with you, Chuck,
36:51
Speaker 3: insofar as affordability does matter, and there are several indications
36:57
Speaker 3: that the giant benefits that were paid out during the
37:01
Speaker 3: COVID era, combined with the pause on loan payments has
37:07
Speaker 3: left consumers in a pretty strapped place. But I'm also
37:10
Speaker 3: willing to say that that same exact narrative had been
37:12
Speaker 3: playing out for four years and has not caused an
37:15
Speaker 3: economic demise. So I'm kind of done reporting on it
37:19
Speaker 3: until we actually see it. Like, tell me when consumer
37:22
Speaker 3: spending decreases year over year, and then I'll buy that
37:25
Speaker 3: we have a problem. But in the meantime, these stories
37:27
Speaker 3: about mortgage defaults and student loan defaults climbing and oh,
37:31
Speaker 3: we've heard hit the highest level of you know, mortgages
37:34
Speaker 3: in it's not default, but you know, delinquency in the
37:39
Speaker 3: last five years, Like those are only interesting stories in
37:44
Speaker 3: the context of the last five years and doesn't really
37:46
Speaker 3: indicate anything about the broader economy. And I'm not sure
37:49
Speaker 3: anything about this moment does either.
37:51
Speaker 2: If you want to tell me increasingly that lower income
37:54
Speaker 2: consumers are becoming, you know, such a small part of
37:57
Speaker 2: our economy that it's not showing up, I can believe that,
38:00
Speaker 2: and that is not a good thing either. Let's take
38:03
Speaker 2: a quick break here. We've got our two coming up
38:07
Speaker 2: in just a little bit.