The Iran war started a month ago. The price of U.S. oil closed at a new high yesterday.
That's right. We closed over $100 a barrel for West Texas Intermediate crude oil, or WTI, for the first time since 2022. Yes, the price had briefly spiked higher on a Sunday night a few weeks ago. But it didn't last. It reversed lower in that session and ultimately fell all the way back down to the mid-$80s.
And it looked at that point like the worst of the oil shock might be over. But it wasn't. The price of WTI and the international benchmark, Brent, keep steadily moving higher. WTI hit $106 this morning. Brent is at $118, just a hair shy of its high water mark from that Sunday.
Both of them influence the price of gasoline, which is now at $4.02 on average nationwide. A month ago, when the war first broke out, it was at $2.98.
So yes, stocks might be rallying today on a Wall Street Journal report that President Trump might end the Iran war even if the Strait of Hormuz remains "largely closed." But remember, the S&P 500 has already slid 8% this month on the back of surging oil prices.
And Jeff Currie of Carlyle warned on our show last week that the price spike may not be over. "Oil is not a financial instrument. It does not price expectations. It's a spot instrument that has to clear today's supply and demand," he said. The disruptions that began in the Strait of Hormuz weeks ago are literally only now just starting to show up as a lack of ocean-borne imports.
"The way to think about it is that there's an air pocket going through global energy supply chains...that's getting bigger and bigger," Currie told us. "We're talking the biggest supply disruption this world has ever seen."
It's hard to tell, in other words, how much worse the oil shock might get. In the Russia-Ukraine war, Currie noted, supplies from Russia kept flowing more than expected, which helped cap the price spike. This time, supplies appear to be more affected, which is why we're seeing globally coordinated efforts to release oil from reserves.
One thing to watch are the "future" oil price contracts that settle in the summer and fall months. When the war first broke out, those prices were still down in the $70s. They have since risen to the $80s and beyond.
The stock market isn't doing worse because those levels are manageable for the U.S. economy, and we saw oil trade in those ranges throughout 2023 and 2024. If we do settle there later this year, it could even be a "win-win" for energy producers and for customers.
It's only if oil stays in the $90s, $100s, or worse, that we start pricing in bigger problems.
See you next week!
Kelly