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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics, telling it like it is bullish or bearish. No holds barred. Now here are your hosts, Eric Townsend and Patrick Ceresna.
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Macro voices Episode 533 was produced on May 21, 2026. I'm Eric Townsend. Another week has passed and the Strait of Hormuz is still effectively closed as of recording time. There were rumors flying about that yet another deal was supposedly imminent, but we heard that story several times before and it didn't happen. But many of you who aren't professional crude oil traders don't know the name Morgan Downey. But for almost everyone who's a pro oil Trader, Morgan's 2009 book, Oil 101 is as familiar as Canes or Hayek. Morgan joins me as a first time guest to talk about this crisis and Morgan says that we've reached the point already now where the buffers and safety margins have all been consumed. Morgan says if the strait stays closed for another month, we'll be looking at $150 to $200. We'll discuss why he sees that outcome along with several other dimensions of this crisis in this week's feature interview. Then be sure to stay tuned for our Post Game segment when Patrick's Trade of the Week will explore a setup built around Morgan Downey's view that this oil shock may have consequences well beyond the next headline, creating a broader aftermath story for energy markets. And then we'll have our usual coverage of all the markets with Patrick's Post Game chart deck.
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And I'm Patrick Ceresna with the Macro scoreboard week over week as of the close of Wednesday, May 20, 2026, the S&P 500 index down 15 basis points, trading at 74.33. It's unchanged over the week, but the question will be will it be the semis or the Iran headlines that will drive the next move? We'll take a closer look at that chart and the key technical levels to watch in the Post game segment. The US Dollar Index up 61 basis points trading at 9900 July WTI Crude Oil Contract up 154 basis points trading at 9826 substantial volatility in the oil markets as depleted inventories wrestle with the optimism that the war ends soon. The July R bob of gasoline down 259 basis points, trading at 338. The June gold contract down 363 basis points trading at 4535 continues to grind with little attention. The July copper contract down 510 basis points trading at 633 and the May uranium contract down 146 basis points trading at 8,455. Now those US 10 year treasury yields up 12 basis points trading at 458, making fresh new multi month highs as yields press on inflation concerns. The key news to watch next week is the core PCE price index and the preliminary GDP numbers. This week's feature interview guest is Morgan Downey. Eric and Morgan discuss why the straight a hormuz disruption may be one of the most significant oil market events in modern history, why temporary buffers have kept prices contained so far, and how the longer term aftermath could reshape energy infrastructure production and market risk. Eric's interview with Morgan Downey is coming up as Macro Voices continues right here@macrovoices.com.
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And now with this week's special guest, here's your host, Eric Townsend.
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Joining me now is Boxwood CEO Morgan Downey, who's probably much better known as the Author of Oil 101. For any listeners who are not familiar with that book, I guess for most professional investors even maybe if you're not in the oil market, you haven't heard heard of it. But if you are in the oil market, there's nobody who's anybody who didn't start their career reading Oil 101 by Morgan Downey, which is a book that really goes from upstream to downstream and tells the whole story of how the energy market works, from the logistics and the tankers all the way to futures trading. It's an amazing book. There is a new version. We'll talk about that at the end of the interview. But Morgan, I want to start with the big picture boy, Middle East. I keep telling my listeners I think it's a really, really big deal, maybe more than the equity market is discount accounting. You're the expert. You're literally the man who wrote the book on the market. Is this just another hiccup, another little Middle east skirmish, or is this a significant event in the history of the oil market?
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This is the significant event the next 50, 100 years, whenever the next history of oil over the next 200 years probably is written. We are living in an event that people have modeled, traders have modeled it, risk managers have modeled it. The oil market itself has modeled it for the last 60 years. And this is it. The most significant event in the oil market. And since, you know, Probably World War II, to be honest, even it's greater than the 1970s crises. It's larger. It's a larger event. And what's interesting is that a lot of things that people had presumed were going to happen when a situation like this occurs, the shutting of the Strait of Hormuz have not happened. We haven't seen $500 oil yet because we're still in the middle of the crisis. We're at just over $100. And we also haven't seen kind of a PA panic. And equity markets are still relatively strong. So this is a crisis that everyone had worried about that potentially would happen. It's happened and is happening. But now a lot of the assumptions of how the world would react have not come to pass. As I said, equities seem to be sailing along. Okay. Oil prices are a little bit higher, but not at crisis levels higher. It seems that the world's kind of taking this in stride, which is very unusual. The world taking this in stride is not what people would have predicted.
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So why is that? Because, as you say, this is, you know, Strait of Hormuz closure has literally been the stuff of doomsday blogs. You know, it's what the doomers say. Oh my God. Strait of Hormuz closed for a few weeks. You'd see thousand dollar oil, you know. Well, it's been way longer than anybody. And I mean, I used to get laughed out of the room for worrying about this because people thought it was a doomsday scenari. That's never gonna happen. And even the people who were the biggest skeptics, Morgan, what they said is that can't happen because the consequences would be so dire that we couldn't possibly let it go on for more than a few weeks. Well, but it did. Nothing really that big of a deal has happened yet.
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Yeah, and I think a few key things have mitigated, at least in the short term. And we're two months into this situation. But a few things have happened. One was the huge Strategic Petroleum Reserves releases around the world. So you have the US SPR release a whole bunch of other countries within the IEA, the International Energy Organization released SPRs. China has a big SPR, their own domestic SPR. So there was a large short term dumping of oil, physical oil, into the oil market. And oil is a very unusual commodity. It's not unusual. It's like any commodity in that the oil industry hates to carry inventories. Carrying inventories, storing oil in tanks or in Pipelines or ships or whatever. It costs money. The oil industry loves to get it out of the ground and get it to the customer as quickly as possible. It's never really that profitable to store oil. So the oil industry tends to try and run inventories, stored oil as lean as possible. That's always been the case since the oil industry began 150 years ago. And that lot of oil from these Strategic Petroleum Reserves that that's a lot of oil for ought to be released in one month into the market. It's like someone a snake eating an antelope. It's kind of stalled the rally in oil markets because the oil market kind of has to digest that big glut of oil from the SPO releases that were released in one glut. So that was the first thing that stalled the rally. It stopped it immediately. It was like throwing water on a fire. It just quenched it. The challenge is that there's only so much SPR out there. This is not an indefinite situation where you can keep dumping SPR into the market. But it did stall that initial rally. And then in addition to that, you had some demand reduction. I mean, when you went from we were before the Crisis in the 60s basis WTI or even Brent crude and now we got up to 100, some demand did fall off. It wasn't a huge amount, but a little. Usually it's jet fuel is the first thing that reacts when oil spikes. So jet fuel demand fell off a little bit, enough that it took the edge off the rally. So you had the SBO release, you had a little bit of demand destruction. Demand destruction in oil. As I said, jet fuel is one of the first to go because it's discretionary. People just choose to drive to their vacation or take a train rather than fly to the other side of the world. So jet fuel, there was a little bit of demand destruction and then you had see the spr, so you had a little bit of demand destruction and then you had. What I kind of think is kind of the hidden thing that has occurred in the oil market over the past five years in particular, is that over the past five years we had a huge increase in efficiency in inventory use across the oil industry. And it's one of the most boring things to talk about. If you look at BP or Shell or Exxon's financials deep in there, they'll talk about working capital usage and that they've gotten 20, 30% more efficient in terms of their working capital usage, which is basically a lot of its inventory storage. They've reduced their need to store oil by 20, 30% over the last five years. A lot of that is due to they've now got sensors, electronic sensors on pipelines and tanks. So they get real time data on inventory levels. It used to be 10 years ago, 20 years ago, a guy sticking a stick into a big tank, it was literally that basic. Even as recent as 10, 20 years ago, that's all gone now it's all electronic. You've got much better demand forecasting models. So people can. The oil industry is a lot of really small local markets. It's a big global market. But at the end of the day, there's usually this airport, this tank terminal, this gas station. It's a very local market. And so the oil industry has become much better at forecasting local, hyper local level demand. It's kind of like almost like Amazon does delivery. The oil industry has applied that same big data technology to inventories such that the world has rounding the numbers here, 8 billion barrels of oil and storage globally in SPOs and commercial storage. Ten years ago had 8 billion. Today it has also 8 billion. But the world has kind of loosened up the need for that 8 billion by about 1 billion barrels. So there's a hidden kind of extra availability of oil in the market in these inventories that has been loosened up by just technology improvements over the past five years. And if the evidence for this is you have to just search for working capital of bp, they announced there last year they had, as I said, reduced their inventory levels by 25, 30%. And so that, I think, has been kind of a hidden reason for oil kind of being a little bit looser in terms of this not rallying to 200, $500. And then finally another reason is there was a lot of oil in floating tankers. I mean, everyone points to it. There was 150, 180 million barrels of Iranian oil. Because Iran, remember before this, the crisis, it was sanctioned and so via mostly US sanctions, but that meant that Chinese refineries and a lot of refineries around the world, they would buy the occasional cargo. But they were very reluctant to deal with Iranian oil. So Iran had to store all this. They kept producing oil and they just put it in tankers offshore Malaysia and offshore Singapore, near Singapore. And a lot of that oil now is being drawn down. So there was kind of, there was a little bit of excess. Well, not a little bit, a lot of excess supply in the market. And so all of that together combined, the big spr, that was like a first shot that really took the energy out of the rally. And the world has got probably another one or two slugs of SPR releases that could hit the market if governments decided over the next month or so. And then you had the inventory efficiencies, you had the floating storage that Iran and a few other countries had. And so you had all of these kind of combined to take the edge off the rally, the oil price rally. But the underlying crisis is still there. And one of the things when people talk about a crisis, everyone thinks about we're going to run out of oil. Like as in tanks will go to empty tanks. That doesn't happen. People make the analogy of it's a big floating bathtub in that. No one's going to run out of oil. The world is still producing before the crisis, 105 million barrels a day. Now it's 95 million barrels per day roughly. But the world is still producing 95 million barrels per day. It's still a lot of oil being produced and refined. All that's going to happen is that oil prices. Now we're in a situation where we kind of have to go up unless the crisis ends today. And even if it ends today, this may happen. Oil prices have to go up to kill more demand. Demand destruction and demand destruction. The oil industry started in 1859. Demand has only fallen four years in all that time. So over almost 160 years, oil has only fallen in demand year on year, even throughout Wars, World War I, World War II. It only fell in 1973, 1978, 2009, the housing crisis, and Covid four times over the last 160 years. And so prices are going to have to rally to cause that fifth year of demand destruction in the oil industry. Oil is very inelastic. People needed to drive to and from work, to and from school. It's one of those things. It's an essential of modern life. And it doesn't matter how good, quote unquote green people say they are. You buy anything, literally a pint of milk or gallon of milk in a shop, that everything is transported via oil. It's in everything that people touch. And so price has to go a lot higher to kill demand. As I said, jet fuel is the first thing to kind of the first cookie to crumble in the oil demand sequence. The next one tends to be gasoline for cars and then diesel for trucking and so on. But it's basically it's starting to happen, but it needs to happen much more severely. And so we're not going to hit A situation where tanks are empty. But we're going to have to hit a situation where if this goes on, we are going to go to 200 plus oil if this goes on. We're currently the middle of May or towards the end of May here, 2026 and we're two months, more than two months into the crisis. If this goes, this can't go on for another month when we can have a few slugs of SPR releases. But this is not sustainable with $100 oil. We need oil prices either. Two things have to happen. Oil prices have to go much higher, 200 plus probably to kill demand. Or the crisis ends today. And then even if the crisis ends today, there's going to be a wind up time. All this production in the Middle east has been shut in. It has to be restarted. Tankers have to start going in and out through the Strait of Hormuz. So there's going to be a recovery time longer term, five years Plus I think the Strait of Hormuz is going to be removed as a choke point for the world oil market. Within five years, every Gulf producer, Saudi, uae, all of them, Iraq, they're all going to start building these pipelines, overland pipelines, to avoid the Strait of Hormuz, regardless of cost. And the Strait of Hormuz is not going to be an issue in five years plus. So this is a five year issue. Iran played their cards, they choked the Strait of Hormuz like everyone worried about. For years they've played that card. Now you know all these pipelines are going to be built. It's going to cost 50, 75 billion dollars. And put this in context, is that a lot of money? Saudi Arabia on that NEOM project, that desert city that they were going to build was going to be $1 trillion. So 50 to 75 billion. Yes. It's a lot of money in the Saudi oil industry. No, it's not a lot of money. It'll add one or two dollars a barrel onto the cost. And for the Saudis and others to avoid using the Strait of Hormuz within five years, they're going to build these pipelines. So the Strait of Hormuz has got five years left as a choke point. Beyond that, it's going to be replaced by pipelines. These pipelines are already drawing boards have already been drafted to get these things built. So it's a certainty that strait is within five years will no longer be a choke point.
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Okay, so recapping what we've discussed so far, it is fairly easy to understand how we got to where we are today, which is we came into this crisis with a fairly significant supply surplus. Then as we got into the crisis, there was a whole bunch of SPR releases, there's a whole bunch of floating storage. For a while, Iran was exporting a lot of its own oil. China has a huge SPR and commercial storage. It all makes sense. But the question that's on my mind now is that explains how we got six weeks farther into this than I thought possible at these prices. How short is that fuse from here? Is this something where, oh well, we could still go on for three more months and you know, then it's gonna really start to get bad? Or are we down to just a matter of weeks or less before this really turns into a major big deal?
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We're down to weeks. Yeah, it's really become that.
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Is it linear? Should we expect prices to gradually start creeping higher and higher and. Or is this something where one day an event happens where somebody says, oh my gosh, we're completely out at location X and that's a Bloomberg headline, and people panic and it all happens at once.
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I think when people say they're going to be out, I think that the only places that will be out of storage will be those places that set the local price below the international price. So oil will be still available. As I said, there's still 95 million barrels per day produced outside of, you know, that's available to the global market. There was 105 before this crisis. And so 10 million barrels a day of inventory, sorry, of daily production has to be killed. That demand has to be. And the only way to kill demand is higher prices. So $100, it reduces demand a little bit, but it doesn't reduce demand enough. We're going to have to see a lot higher prices before reduced demand by 10 million barrels per day. What I think is going to happen is that you're going to have a situation where there will be some sort of either stalemate or a kind of a ceasefire type situation. And the strait kind of opens, but it opens, I think slower than people anticipate because you're going to have to have tankers willing to transit that strait. And that's a lot of tankers. Every day it's 100 plus tankers, you know, that go through that, the Strait of Hormuz. And so you've got to have a situation where the process has to be restarted. These tankers from the Middle east to China and Middle east to Japan, they take a month to make that journey. So this process, it's like a flywheel. Once it stops, it takes a month or so to get back up and running, probably even longer, maybe two months. And even then, even if the tankers start moving, a lot of this production is shut in. And so that production, when it started shutting in, literally people have turned valves at the wellhead to stop oil coming out of these wells. And oil is a flow type process. Everything is always in movement. These liquids are always in movement. These things have to be restarted as well. And the hope is that not much damage has been done to these wells by shutting in production. But there's always some damage and always some unknown when that restarts. And so that whole process, like a flywheel, is going to take one or two months to get back up and running. So even if Today, end of May 2026, the process starts up and running, we're into end of July before we get a full even close to recovery. So this is going to take a while. And I think that what's going to happen is people are familiar with equity markets and foreign exchange markets where you can literally print paper or print equities, issue stocks. And it's immediate, just it's an electronic transaction. Oil is not like that. It takes, there's a, if it's a physical process, it takes a while to get started and stop. And I think that the markets have become. Have. Think that this is kind of like a Covid type situation where the government will print money to get the whole process started again. That doesn't help. I mean, it helps certain markets, but it won't help in oil because this is. Engineers have to get literally on the ground, start up production In Qatar, there's a lot of natural gas there, lng, liquefied natural gas that facilities have been damaged and might take three or four years to repair if they can even get the repairs done that time. Because parts are, you know, these turbines are very, are being demanded by a lot of industries, including data centers. But I think that the market has been less panicked. No one likes to panic in any situation. Panic is never helpful. But I think this is, we're in a crisis where this market is unusually calm. And as I said and you mentioned, there's a bunch of reasons why we've kind of haven't rallied fast. The SPR dump, the inventory overhang, all of these things have kind of happened. But I think that they've kind of lulled the market into this feeling of safety that is not reality. We're still in this crisis. And it's a, you know, it's like someone had a heart attack and they've made it to the hospital, the emergency room, they're still in the middle of a heart attack. You know, it's one of those where we even, to get the heart started and the blood flowing again, we need to get that there's still a risk in this whole situation. And so I would be shocked if we're not over $150 within a month. I think this is going to take a lot longer. As I said, even if peace is declared today, it's going to take a lot longer to restart than people think for confidence to restore in the oil market itself and for all those valves to be turned back on. And when I say turn the valves back on, I'm simplifying it grossly by saying that you've got to have a whole situation where a lot of these Saudi wells, these reservoirs are water flooded, where there's water pumped on underneath the oil to help keep the pressures in the reservoirs up so the oil comes out of the ground. And so these, you know, it's a, there's a, an engineering, very complex engineering process. It's not just turning a valve behind the scenes to produce all of this oil. And that process has never really been shut in to this extent ever. And there's a lot of, going to be a lot of unknowns that are going to be discovered over the next two, three months, four months that could really complicate the restart. So we're still in the middle of the crisis. That's one thing to think about in terms of we need to create demand destruction to deal with the current crisis. But then going forward, the restart process, I have this feeling it could take a lot longer than, than people anticipate. And so my personal view is I think we stay at $100 plus, people think we're going to collapse immediately following the straight reopening. In two or three months time, I think we stay at $100 plus for a year unless there's barring an economic, global economic recession or anything like that. I think that this risk premium is going to stay there because even if there's a peace declared today, there's going to be the risk that Iran falls back and the crisis restarts in another six months time or four months time. So I think that the current crisis, we need higher prices immediately to kill oil demand. Secondly, the restart process I think is going to take a lot longer, six months to one year, maybe even longer in some cases like The LNG in Qatar is going to take four or five years because engineering facilities were damaged by drones. I think it's going to take a lot longer than people think. And so I think that we may see $100 plus oil, barring a recession or anything like that, $100 plus oil for a year or two. That creates opportunities for other parts of the oil industry, the US oil industry. Permian producers are having a great time right at this moment.
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Let's talk a little bit farther out then about beyond just the immediate recovery, how the global energy markets evolve afterwards. Because it seems to me we've already seen some pretty strong signals. The United Arab Emirates was pro half of global spare capacity before this crisis. Pulling out of OPEC seems to me like a really clear signal that their intention is going to be to pedal as fast as they can and just produce as much oil as they possibly can as soon as this is over. I guess first of all, would you agree with that? And if it is, doesn't that kind of leave us in a place where, okay then Saudi Arabia would be the only remaining spare capacity. They're not going to just sit this one out and let everybody else make the profit. They're probably going to produce as fast as they can too. So doesn't mean that, although maybe that will help bring the prices down and the supply back online. Doesn't it mean that we end up with no spare capacity at the end of the day and then okay, well we'll just make more. Well, wait a minute. There's been underinvestment in the energy sector due to ESG for more than a decade now. It seems to me like maybe for the next decade or so we've got an investment driven energy crunch. Is that, is that realistic?
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I think it is realistic. I think you've got going back to the uae, them leaving opec. UAE was always. Everyone in OPEC except for OPEC is Saudi Arabia. It always has been Saudi Arabia. They've been the big, big boy on the, on the block in terms of cutting production to maintain prices at a higher level than otherwise would be. So Saudi has always been the real opec. All of these other countries, UAE and everyone else, they've been kind of COVID to make it seem like there's a global consensus. It's kind of, you know, one of these, it sells much better when there's a group involved. Even you know, it's a cartel. That's what they're price setting cartel to try and keep prices high. So it's, it's it doesn't sell well to the consumer that they're trying to keep prices high. That's why OPEC exists. So Saudi has been hiding behind all these other countries, including UAE and UAE itself they've been, they've had, you know, they're politically, they've had issues with Saudi Arabia over the last, you know, for a long time. They're a much more focused entity, you know, with Dubai, the success of Dubai and tourism and all of that. So they've been much more, you know, they're probably 10, 20 years ahead of Saudi in terms of diversify, trying to diversify their economy away from oil. And so I think that them leaving opec, it was always something, I think that the oil markets suspected that they would do. But now that they have done it, yeah, they're going to produce this flat out just like anyone else they're going to do. They have no OPEC constraint. So it's going to be, Saudi is going to be the only player left with major spare capacity in opec. So the dynamics of OPEC in terms of oil prices and that I think that at a grand level I don't think it's going to change the long term outlook for oil in terms of Saudi was always the big brother, big brother in opec. It's going to continue to be the big brother, yes, UAE left but I don't think it's as big a deal as the market kind of, it's not going to be a big deal long term. Going to the thing you mentioned about longer term and ESG and investment in oil and gas, three months ago we were at $60, give or take WTI the marginal producer in the world was the US Permian producers, all these fracking wells in West Texas, they were the marginal production that came grew over the last 10 years. When I wrote Oil 101 that was published in 2009, since 2009, what's called conventional oil production as in you drill hole straight down. I mean I'm simplifying grossly here, but you drill a hole straight down and you hit a reservoir and the oil comes up by itself, that production has kind of stagnated. It's gone sideways over the last 15, 20 years. All of the growth in oil supply over the last 15 years has been from fracking, which is a US phenomenon because it's more kind of a manufacturing type process. You drill, you move the well on a pad drilling rig 50 meters, you drill again, you frack, you drill sideways. All of these kind of technologies have only been developed in the last 15, 20 years. So since 2009, oil production has come from this fracking and horizontal drilling as well as heavy oil out of Canada. Those have been the two major supply areas over the past 15 years. Both of those things are high cost. They're very capital intensive. They're kind of. People make the analogy that they're akin to manufacturing because, you know, as I said, you used to drill a well and it would be the only well you would drill within 40 acres. Now you drill a well, you move to 100 meters, you drill another well, or 50 meters, you drill another well. So it's become much more capital intensive. But what that means is that the marginal cost of production over time is now 60, $70 per barrel for crude oil. So as long as we stay above $70, give or take WTI crude oil, the oil industry can fund itself at $100. The oil industry is actually a little bit decently profitable at 70. Some marginal producers start kind of shutting in production. In terms of the ESG and the investment against energy growth, a lot of that ESG initiatives, those initiatives were to kind of stall oil production, stall NAT gas production. Those ESG kind of initiatives have kind of fallen out of favor. And the oil industry has kind of just moved on beyond them. It's at $100. Oil as we are today are give or take. And the oil industry doesn't really. I mean, the oil industry is still very conscientious about pollution and making sure the environment is taken care of. It's not a careless industry. But those kind of ESG where people were trying to reduce energy production, those kind of initiatives I think have kind of stalled. There's still a remnant of the philosophical objections out there. You know, you've got now a big push. You may have seen in social media all these people complaining about AI data centers and everyone's kind of couching it in. Oh, they're too noisy. Oh, they consume water. They don't consume water. They actually have closed systems. Or they don't. They don't. They recycle their usage. People say they're burning NAT gas and other fuels. Yes, they do. Yeah, I mean, they do. That's a reality. I mean, the world economy does need energy and AI data centers are 4 or 5% or will be in the next year or two of global oil consumption or global NAT gas and power consumption. But that kind of ESG anti energy underpinning is still there. It morphs into different forms. It's currently morphing into an ANTI DATA center initiative. I think that what happens is that people forget because people are disconnected from where their energy comes from. Oil, nat gas and coal are still 80% of the world's energy usage. And for good or bad? For good. Here we are talking on the Internet on other sides of the world and listeners are listening in from all over the world. The energy from oil, nat gas and coal enables this situation where we are living in a safe, much safer, more knowledge is available type environment. If you cut energy supply, cut nat gas, cut oil, cut coal, you're trying to stall a lot of the global economy and people can be disconnected from where basic things come from. Even their food. You know, a lot of food we've discovered from the closing of the Strait of Hormuz. Fertilizer also comes from NAT gas. You know, it is the famous nitrogen creation process and it relies on cheap natural gas. So a lot of fertilizer, a lot of plastics, a lot of the energy to move things around the world, food and tractors and everything like that comes from energy from oil, natural gas and coal. And if you restrict those energy sources and if you try and go for just wind and just solar, they're good, wind and solar, there's nothing wrong with them and they have their place, but they don't meet all of the flexibility and the use cases. You can't make fertilizer from solar yet. Maybe one day someone will discover something. But the oil and that gas and coal, they are essential to, you know, hydrocarbons are essential to modern life and you know, things like nuclear, they're also very useful and should be, I think, myself personally, I think should, they should be expanded as a part of the renewables ecosystem and but I think that the oil industry at $100 oil I think is going to be okay. I think at 70 and 60, which it was a few months ago, it was kind of not struggling, but it wasn't thriving. So I think at $100 oil, the world in the next few years will get enough oil out of the ground and nat gas to enable and enable growth to continue. And an interesting kind of side note is that Saudi Arabia, their famously cost of oil production is five, ten dollars a barrel. And here we are at $100. Unfortunately for Saudi, it's their only industry pretty much. And so if you factor in all of their government welfare and costs like that military, their cost of production goes up to $95. So Saudi is at $100. Oil is kind of break even. So I think here it's kind of interesting that we got to $100 oil. I think this is kind of a spot where consumers can tolerate, producers can make a decent profit and bring additional barrels onto the market. But In a crisis, $100 oil is not enough. We need to get much higher, quicker. If this continues, if this crisis continues, I think it looks like even if it's resolved, this is a crisis that' to restart. I think we're going to see $150 plus oil over the next month or two, regardless of what happens. Even if there's peace today, I think that we're going to. We need to slow down demand, oil demand a little bit by 10 million barrels per day, 10% roughly over the next few months or weeks at least.
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A
I agree with you, but at the same time, I'm very concerned because from a macro perspective, the world could easily tolerate a spike to $150 oil that lasts for a couple of days. But. But if we're talking about months and months and months of $150 oil, I think that's a global recession to depression kind of outlook.
- [35:28]
D
Oh my gosh. The analogy of that or the comparison of that is the housing crisis 2008. People forget in the run up to the 2008 housing crisis, one of the things that pushed the market, the macro economy, over the edge was we were at $150 wti. We were at from 2005 to 2008, the oil market moved up $100 a barrel. And just right before the crisis in the summer of 2008, we were at 150 plus per barrel oil. And that was the final straw that pushed the market over the edge. And right up to the middle of 2008, everyone knew the housing crisis was kind of highly leveraged. Even though people say, oh, they didn't know it was coming and whatever, everyone kind of knew that the market was very leveraged. But the market still hummed along right up until oil got to 150 and then that was it. That money has to come from somewhere. People, you know, only have so much spending money or disposable income. If they have to choose between going on vacation or buying a new computer or a new phone or driving to work, they're going to. If it's $150 oil, which is, you know, $5 plus $6 plus per gallon gasoline, they're going to choose to drive to work. Because it's an essential, so unfortunate thing. About $150 oil will kill the economy. There's no doubt about that. Even if it's over for a few months, it's going to really hurt.
- [36:51]
A
It seems to me the critical question to ask then is if what you've said so far basically leads me to conclude that the prices only have to stay super high for long enough to cause about 15 million barrels per day of demand destruction. Okay, can the global economy tolerate 15 million barrels a day of demand destruction? Because, okay, we'll just carpool or is that enough of a hit? It's about 7 or 8% of global energy consumption. Can you just cut that back and everybody carpools to work and it's okay? Or is that just a shutdown kind of event for the global economy?
- [37:31]
D
I think it's going to be a shutdown type event. I mean, I don't think it's going to shut down, but it's going to be an event where marginal businesses that rely on low oil prices, tourism, even delivery, everything is delivered. You buy anything on the Internet these days, it comes by oil. You know, people forget it's a diesel truck. I mean maybe the last mile is electric, but the big long haul trucks that drive on highways, they're all diesel. Trains are diesel, aircraft are jet fuel. And so getting that 10 million barrels per day cut in demand destruction, it's going to be very painful because as I said, oil is inelastic. It's an essential of daily life. It's one of the last things people cut. And so the only reason they cut consumption is because prices get too high. And it's going to be, I think it's going to, it'll be a little bit painful. It's a terrible thing to say, but it doesn't happen that often in the oil industry. As I said, it's only happened four times in 160 years where oil demand has fallen year on year. And those four times oil prices had to rally a lot. Going back to 1973, oil prices went up fourfold, 400% in the space of six months. So we went from back then, these are pre inflation adjusted dollar prices, but we went up 400% within six months. That was the first kind of recent times oil crisis. And that was a, you know, it caused demand destruction. And the one thing I would always mention to people is that when they think about the 1970s, because they're the kind of classic oil demand destruction, 1973 and 1978, it was the OPEC and the Iran situations in the 1970s. And people also have this image, you know, these grainy images of lines at gas stations. And the interesting Thing to always note is that the only one of the few places in the world that had lines at gas stations was the US and the reason it had those lines is that the US government, as a reaction to the oil Crisis in the 1970s, the US set the price, the domestic price of oil in the US below the international price. And so it created a shortage. Because if you're an oil producer in Saudi Arabia, you wouldn't send your oil to the US because the price was capped. And so the lines were all artificial. They were government created lines in the 1970s. So there will be no shortage of oil in this crisis. There will be no lines or shortage of oil if you have no price caps. The flip side of that is that you might have $200 per barrel oil with no lines. And so for a lot, a lot of governments will feel like they need to intervene. The problem is oil is a global market. If you put a local price cap, you're just going to cause lines in your local country. So if Germany puts a price cap or England, UK puts a price cap, there's going to be lines in that country alone. Everyone else will be fine. They'll be paying $200 per barrel, but they'll be, they'll have supply. There's kind of that interesting dynamic of comparing because in this situation, every oil analyst, including myself, we look back at history and say, what happened in the past, this time is different. I mean, there's a whole bunch of different dynamics that are happening right now. But a few lessons to be learned from the 1970s was one big lesson is if you are a government, do not cap your local price of oil. You are going to cause a local shortage in your market. That's the one big lesson that I would encourage. If you're a government influencing person, do not set a price cap on your local market. It backfires big time.
- [41:01]
A
I would counter that with, I can't remember if it was Warren Buffett or Charlie Munger who said the biggest lesson that history teaches us is that people don't learn from history. And I don't think governments have learned their lesson or are going to learn their lesson. I predict that there will be price controls and they will cause all of the adverse consequences that you're predicting. But that doesn't mean they're not going to do it.
- [41:25]
D
Yeah, yeah, there are price controls out there for certain goods. India has famously price controls and they're already finding shortages of oil. Allowing the free market to operate. It feels sometimes it gives people a sense of you're losing control because the price has been set out there in the market sometimes, well, not sometimes, it's almost always the best thing to do is just let the market do its thing. Prices will, yes, they will have to go higher to kill some demand, to create some demand destruction. But at least if your local population wants to buy oil, it's going to be available, it's going to be a little bit higher price. Yes, but there's no, apart from Saudi Arabia, I mean they really are with their spare capacity trying to control the price of oil, the marginal price of oil. And all these governments with their dumping of the SPR into the market in a very short period of time, they're trying to keep, keep the price down. So there is quote unquote manipulation of markets going on, but there's no nefarious secret group or country or company trying to do. I think everything's kind of pretty relatively transparent. So it's just a matter of look at history, look what happened in the 1970s. Don't put a local price cap, you're just going to kill your local economy. It's basic common sense. And yeah, unfortunately as you said, some governments fail at basic common sense and history.
- [42:43]
A
Now let's come at this from another angle because if I think about the consequences of everything that you're saying, what you're really saying here Morgan, is it's not a question of prices might rise, prices might not rise. It's a question of prices must rise enough to cause 10 million barrels or about 10% of global energy demand. We have to see demand destruction on the tune of approximately 10% gross of total global energy production or energy demand. When's the last time the world went through a 10% reduction in energy demand or came anywhere close to it? And what happened economically then?
- [43:29]
D
So here's where, you know, on trading floors and hedge funds and research firms, they always try and back test when something like this happened before what happened in the market then. The challenge with that is that sometimes the situation is very different. So this is a supply side shock. Production has stopped oil coming to the market. The consumer still is out there doing okay. The most recent comparison was Covid. Unfortunately it was 2020 when demand, because of the shutdowns and lock ins, demand collapsed by a lot 20% at one stage over the month to month in early 2020. And so that was the last time oil that was a consumption side shock, one of the very few consumption side shocks that happened to the oil market ever. And in that situation we had the oil market Became discombobulated. I hate to use that word because it's kind of a strange word, but we had WTI priced at negative prices because storage tanks became full. It was like the opposite of the current situation in that we had demand collapsed because everyone stopped flying, stopped traveling. The world kind of, of transport kind of shut down for a month or more than a few months and oil inventories filled because the oil is like a flow, it's like a human body. As I said, the oil industry doesn't like to store oil. It likes to keep everything flowing through the pipes, get it to the consumer, drill more, get it to the consumer. And so when Covid happened, demand stopped. The oil industry is still pumping. And because the oil industry hates to shut in wells because it causes all these problems. So that was the last time we had kind of a 10% or greater than 10% fall off in demand. Demand recovered very quickly in Covid even. But the prior situation was the financial crisis, 2008, 2009, that was the prior situation where so 2020 Covid, 10% drop. 2008, 2009, 10% drop in oil demand. And then before that it was the two 1970s shocks, the 1978 Iran, the Iranian revolution, when the shah, which was he was a US style king kind of installed there in the 1950s. But the overthrow of the Shah and the installation of the Islamic regime, and then 1973 was the Arab oil embargo. So those four situations, Covid, 2020, 2008, the financial crisis, and then the 270 shocks, those over the last 60 years, those are the four data points. As an oil analyst or a hedge fund, you've got to try and back test and see, okay, when these things happened in the past 60 years, what happened to the rest of the economy. In every situation, equities took a huge dive immediately. So 2008, obviously the 1970s, but also equities struggled. In the 1970s. The only situation where equities rallied was Covid. And we all know what happened in Covid. There was the money printing and the stimulus checks went out. And so. So I think one of the big reasons behind equities being so strong into this crisis is that that Covid stimulus is still fresh in people's minds. And everyone thinks that if this thing gets bad enough, as in this crisis goes on for another month, oil goes to 150, we may have another stimulus. It could be just turn on the printing presses, it's inflationary and it comes out in the wash. In the end, this money Printing doesn't come out of nowhere. Everyone has to pay for it in the long term, but short term, that will have a big boost to equity prices. If you put 10, 20 grand into each family in the US or in Europe or everywhere around the world because of an oil crisis, I think that there's a little bit of kind of thinking that equities, we're going to see a big bailout in terms of a stimulus if this gets worse, and if it gets worse fast, we may see. I think the equity markets are kind of looking forward saying, you know, we're going to have a Covid style bailout if this thing gets really bad. And it's sad that the world kind of has that kind of view now that the printing press is going to save us or save equity markets. But it did during COVID and people have got that fresh in their memory. That was only five years ago. I think that people think that if this oil crisis gets bad enough, equity markets will be bailed out by the printing press and a stimulus that's. I think a lot of what's. In addition to the SPR dumping and all this kind of inventories, in terms of a lot of the oil market itself is kind of the sting has been taken out by shoving so much inventory into the supply chain over a period of weeks that the oil industry is kind of struggling to manage these SPO releases. I think that similarly, I think people are looking at equities and saying, hey, if the situation gets bad, we'll just do a Covid style print and give everyone 10 grand and 20 grand and they can go off and buy tech
- [48:23]
A
stocks or fill up their tank once,
- [48:25]
D
or fill up the tanks once, buy some cryptocurrency and make it 2020 rain again.
- [48:32]
A
Let's go back to the two most recent major data points, which was the 2020 Covid crisis and the 2008 into 2009 great financial crisis. How long, how many months did demand destruction stay above 10% during each of those events? And how many months do you anticipate? Even if we were to open the Strait of Hormuz next week, how many months do we have to have that 10 million barrels of demand destruction in order to balance this market? In other words, put those two on a scale. Is this half as big as 2008? Is it just as big as 2008 in terms of how many months of more than 10% demand destruction it's going to involve?
- [49:20]
D
That's a very good question. And the interesting answer is it doesn't take very long at all it takes. Oil gets to 150 and oil will move there fast. I mean, people think we're going to stay at $100 for a long period of time. It gives the market a three or four weeks from now. If we're still here in the middle of June, that's we're going to get to 150. If we're in the same situation, Strait is closed. As I said, I think that even if peace is declared today, I think this is going to be the restart time is going to force oil to get to 150 plus even with the restart today. And so it doesn't. And then going back to comparing it to 2008 and 2020, oil didn't have to. If you have inflation adjusts the price level back to, to today's money, oil prices only have to stay above 150 for a few months. And you get that destruction. People stop a lot of discretionary consumption just falls out of the market immediately. Because when you think about it, people start canceling vacations. They don't book long trips, they stay local. They will cut back on other things. I mean, people will still buy oil, but they will buy less of it and they'll be more conscious of consumption that involves oil spending. And so it doesn't take that long. I think in 2008, I think we only stayed above $150 for a few months. I think it literally was two or three months. And in 2020, oil demand fell below 10%. And again, it was only a few months. And that 2020 is a complicated one because there were so many. It was in a very unusual situation with the stimulus checks and the whole obviously situation. 2008 is the better comparison. And it only took about two months of $150 plus oil in the middle of 2008 for consumption to fall and stall. And then obviously we had an equity crisis immediately around, you know, after that. So it basically this happens fast. And so I would encourage your listeners to be prepared for, you know, if you're one of those things. Even oil companies are famous for the fact of, you know, they do stress testing of their portfolios. Banks do that now since the financial crisis also. But they basically I would, if you have, you should be stress testing your portfolio not just in a negative way, in a positive way because some things will actually become very cheap when you have $150 plus oil. I would be stress testing your portfolio for 150 to $200 oil happening over the next month. What will you do when that happens? Because that is a more than 50% chance of probability of happening over the next two months. $150 to $200 oil. The economy's going to take a moment, as in it's going to react negatively, the macro economy, and it's going to look bad. It's going to look people will be starting to say really bad things about the economy. We're in a doom type situation. Equities might do okay in this because I said people are going to think we're going to money print our way out of it. It doesn't help the oil industry, unfortunately, the money printing, but it might help equity valuations and multiples might expand because of that. But as of today, the end of May 2006, I would be stress testing my portfolio for $150 to $200 oil within the next 30 days. And what will you do when that happens? Some things. Airlines, a lot of the US Airlines are not hedged. Some of the European airlines are hedged. A lot of them actually are Ryanair and Lufthansa, a lot of these guys. But so you're going to see a lot of these interesting dynamics are going to start to appear. Oil and gas producers in the US Are going to have a really good summer. They're normal people like you and I. They're not kind of gloating over higher oil prices. They would like prices to be $100 or $4 per MBtu for nat gas people would like those prices to be their producers. But those producers are going to look could be looking cheap today versus if we get to $150 to $200 oil. $150, $200 oil is not sustainable over a longer period of time, at least today. But I would be stress testing my portfolio today in anticipation of this happening over the next 30 days.
- [53:32]
A
Well, on that uplifting note, we're going to have to call time on this interview. I can't thank you enough, Morgan, for a terrific interview. But you go, there's another piece of news in the oil market, maybe not quite as big as the Hormuz crisis, but close. And that is a new edition of Oil 101, the book that almost all of us read in the beginning, back when it came out in 2009. Why now, almost 20 years later? I don't think this was brought on by this crisis. You were writing the new book before the crisis hit. So why the new edition? What's new in it? And for those listeners who haven't read Oil 101. Tell little bit about just the structure of the book and what it's about because it's definitely the Bible that everyone goes by.
- [54:17]
D
Prior to the first edition of Oil101, I was an oil trader. I traded, I still do futures, physical oil swaps, OTC swaps, but I had to assemble all of my knowledge and as did everyone in the industry from dribs and drabs. There was no single source where you could say, okay, I want to learn about shipping oil and pipelines as well as refining, as well as a bit of history and context, like a bigger picture, like zoom up a little bit. But still not in a dumbed down way, in a relatively information intense way. And so I wrote the book. I wish someone else had written. I kind of had to write the book. I felt obliged to do it. And that was in 2009 and the oil industry in 2009 and we're now obviously in 2026, 2009, fracking and hydraulic fracking as well as. So back in the big recovery in US oil production as well as a whole bunch of other kind of developments like electric cars didn't really exist. It sounds like a long time ago now. 15 years. And so I wrote the first edition in 2009. People bought paper books back then, people don't do that now. But it became a global bestseller. It was basically you get a new trader on a desk or you're starting a job in an oil refinery or a nat gas producer in the us you get handed this book and it stood the test of time. A lot of it was, you know, has been evergreen. But a few things did really need to be addressed in a second edition. One was the huge growth in US oil production. So that in itself was an interesting tale of how did that happen? And it is actually a very interesting story. It's a whole backstory of how US oil recovery that had been a long term oil production had been long term decline, how that turned around. And the US is now the largest oil producer in the world, is a net exporter. That was 15 years ago. That was not the case. It was not looking good. And so a lot of this was turned around by technology. The oil industry is highly innovative. People think of like Nvidia and companies like that when they think of technology. The oil industry is an extremely technology intensive industry, which is the reason why the US has become one of the largest oil producers, if not the largest oil producer, depending on the month at the moment. And so that was kind of One reason, just to cover the changing supply, including especially the US oil production growth. And the second thing was I wanted to make it fully electronic. So it's now it's on. If you go to morgandowney.com, it's there on the Internet, it's much more interactive, the charts, it's no longer just a book because things change so quickly obviously these days that it needed to be delivered in a different format. So the second edition, which is produced in 2026, it has much more interaction. Everything is interactive about it as well as it enables me. I have a chapter on the Strait of Hormuz crisis. And so and I update it every day or two. It allows me to talk about, you know, how much inventory is in spo, how much has been drawn down. So it's basically a modern delivery mechanism for the same book. So you can still buy the physical book off Amazon and things like that. And it's still worth getting because some people like the tactile nature of being able to flip to the index and look for a particular obscure word like what does API mean? Or some acronym. And so that physical book is still useful, but you can just go to morgandowney.com or just look up Oil101, just Google it and you'll find the book. And it's just a modern version. It just needed to be more interactive, which is great. It enables the book to keep up with current evolving situations like this, the Hormuz crisis.
- [58:07]
A
Okay, Morgan, and just briefly, tell me, what is Boxwood? You're now a software guy.
- [58:12]
D
Yeah. So as mentioned, the oil industry is a very technology industry and Boxwood is a piece of software that oil and gas producers, so the people that get oil and gas out of the ground, primarily in the US they use it to manage their hedging. So if you're a natural producer and you need to lock in $4 per MMBTU gas, you can use this software called Boxwood to help you get that overview and as well as detailed level analysis. So it's kind of like air traffic control for financial markets for oil and gas companies. So that allows them to make really fast moving decisions and very smart decisions using the Boxwood software. So it's like a tool used by the cfo, the CEO, the treasurer of oil and gas companies, primarily in the US but all around the world. And it's called Boxwood B O X W O O D. And again listeners,
- [59:03]
A
the book is Oil 101. Your research roundup email contains a link where you can find both the Amazon link as well as a link to Morgan's website, which is morgan downey.com Patrick Suresna and I will be back as Macro Voices continues right here@macrovoices.com.
- [59:25]
B
Now back to your hosts Eric Townsend and Patrick Ceresna.
- [59:29]
C
Eric, it was great to have Morgan on the show. Now listeners, you're going to find the download link for this week's Trade of the Week in your Research Roundup email. If you don't have a Research Roundup email, it means you have not yet registered@macrovoices.com just go to our homepage and look for that red button over Morgan's picture saying looking for the download.
- [59:50]
A
Patrick for this week's Trade of the Week, Morgan Downey argues that this oil shock may have consequences well beyond the next headline. So how do you position for the bigger aftermath story?
- [60:02]
C
Morgan Downey's core point was that the market may be too focused on the next headline around a potential peace deal while missing the much larger aftermath story. The next short term move in crude may very well hinge on whether the Strato Hormuz crisis de escalates or flares back up. But the bigger investment theme is that the global energy infrastructure has just been exposed as more fragile than markets assumed. If the shooting stops tomorrow, Morgan emphasized that restarting flows, rebuilding confidence, turning wells back on, restoring tanker traffic and hardening the system against future disruptions could take months and in some cases years. So rather than trying to trade the next tick in crude oil, this week's Trade of the Week is about positioning for the energy resilience rebuild through oil field services. From a trade construction standpoint, the challenge is that the oil field services trade has already moved aggressively. The Spider S&P Oil and Gas Equipment and Services ETF Ticker XES is trading around $132.15, but it has already rallied roughly 72% year to date, leaving it vulnerable to a sharp pullback if short term peace headlines may take pressure off crude. So rather than taking Delta 1 exposure on the ETF, I want to use the longer dated call option to stay involved in the broader energy resilience thesis while defining the capital at risk. Specifically, the structure buys the December 18, 2026 $135 strike call trading around $14.25 with roughly 211 days to expiration and a delta near 53 cents. That gives the trade meaning participation. If the oilfield services thesis continues to develop while limiting downside exposure during a correction, and if we do get a sharp pullback the option structure provides flexibility to roll down strikes and reposition into the weakness rather than absorbing the full drawdown of the ETF itself. From a payoff perspective, the maximum risk is Limited to $14.25 premium paid while the upside remains open above the $1 strike. The goal is to use the call as a defined risk way of maintaining exposure to oilfield services upside while preserving flexibility to adjust, roll down and or add exposure if a short Term peace headline created A Tactical Correction Patrick Every
- [62:49]
A
Monday at Big Picture Trading, your webinar explains how retail investors can put on our most recent trade of the week. For those listeners that want to explore how to put on these trades in greater detail, don't miss out on a 14 day trial@bigpicturetrading.com now let's dive into the postgame chart.
- [63:06]
C
Dick all right, Eric, let's dive into these equity markets.
- [63:09]
A
Well Patrick, this semiconductor driven rally in the S and P seems to be stalling or at least pausing here. I'm not sure what comes next if we're going to rally even more from here, but we're certainly overdue just for a cyclical pullback and not even necessarily a reversal or a crash or anything like that. But this has gone too far too fast in a straight line. So we ought to have at least some Fibonacci retracement taken out 38.2 to 50% of this rally, maybe back down to 7,000 or so or 7,200 someplace well below the current 7,440 that I'm looking at at recording time. A couple hundred points down would be entirely normal here, even if the bull market remains intact. And I think there's plenty of arguments to say that it doesn't necessarily need to stay intact. So I think we're overdue for a pullback. I would say, however, that I'm reframing my big picture view of this market. I think a lot of our listeners know I've been just scratching my head trying to figure out how we're rallying to new all time highs when it's so clear that we're in the middle of the biggest shock to the oil market that's ever happened. I think the answer is really pretty simple. It's because the market is anticipating that no matter how bad it gets, it's just going to bring that much more stimulus. Now I know what many of you are thinking no, no, no, wait. It works differently. If it's an oil price driven shock, that means that we're going to be dealing with a big inflation risk and they won't be able to stimulate. Well, look, if it's as big as Morgan Downey says it is, then it's not going to stay in inflation shock. It's going to become deflationary as we start to cripple the global economy. And in an election year, you better believe that the Trump administration is going to do everything they can to pressure the Fed, which they, they've pretty much ceded with the people that will be loyal to them to cut, cut, cut rates, even if they're doing so, into increasing long term yields at the back end of the curve. Yeah, I don't think that's smart or responsible either, but I do think that's what they're likely to do. And I suspect that the reason this market hasn't been that afraid of the oil shock is because traders correctly anticipate that if we get the big really bad economic dislocation on the hor and it'll probably last a couple of weeks, a brief down in the stock market and just like Covid, it won't last that long and while the crisis is still ongoing, will break to new all time highs once again. So I think that may be the reason the market is not so afraid of this. That's the only explanation I can come up with.
- [65:58]
C
Eric, you're certainly right that the semiconductors are overdue for a pullback of some sort. But the bigger question here was Nvidia's earnings yesterday a catalyst. This now, at least in the pre markets when we're looking at the outcome, there's very little change in Nvidia and that in itself is a letdown because what a semiconductor melt up like this needs is momentum and FOMO and things to feed on itself. When you have the single biggest component in the ETF report a stunning earnings and it's already been baked into the cake in many cases because of all the crowding in that space. If we see that Nvidia is actually fading on its own earnings, which is not something we're seeing yet, but if that became the reality, that would start to give indications that that crowding has gotten a little overdone and then in fact we may see fading into the weeks to come. Overall though, the S and P has fulfilled a lot of the upside targets towards 7,500 and we have such overextended markets and the breadth of the market remains stuck around 50%. So you have a lack of participation, a very overextended leadership group that may be petering momentum and many Upside targets already being achieved at minimum. Whether or not this is the reversal point, we can start to conclude that the asymmetry of being long is diminishing. All right, Eric, let's touch on this dollar.
- [67:27]
A
Well, Patrick, we finally closed the gap at 99, spot 39 on the Dixie chart. As we've been predicting would happen here on Macro Voices for the last several weeks. I think we could easily see a retest of the top of this trading range up 101, whatever it is is entirely possible. But ultimately I think we're gonna see much lower Dixie numbers after the straight is finally opened. So I think the trade here, if you want to trade the dollar, is to maybe give it a little more room to run and then it's a short after we get to the top of the trading range.
- [67:59]
C
Well, Eric, when I look at that chart on the dollar index, this entire pullback over the last month has more or less been contained to retracement zones and the euro has structurally remained weak. With the fact that we're seeing a real catal the European economy potentially running into recession risks due to rising oil prices and food prices and other things that could certainly create tightness, maybe the euro may very well have a weakening cycle here. If that's the case with the waiting in the dollar index, that could be all the tailwind that the dollar index needs for a potential retest of its previous high. At this stage, whether the breakout happens or not is the puzzle to solve. But at minimum, the range bound dollar looks to have very limited downside on the interim. All right, Eric, let's touch on oil.
- [68:50]
A
Well, another week, another peace deal supposedly on the table just hours away as of Wednesday afternoon, the market sitting with bated breath waiting for that final peace announcement to send prices much lower. Okay, as of what is it about just about 4am on Thursday morning as I'm recording no peace deal yet. And I for one took advantage of Wednesday afternoon's dip. I bought that dip actually, by covering my short calls. Our regular listeners will remember that I've got a 101-30-vertical bull call spread on the September and also I've got some on the December contract as well. Those have already tripled in value since I put them on for less than $2 a spread on those September contracts. So I used some of those built up to just cover the 130 short calls because I want to leave room for Morgan's prediction to come true that we could go well above 130 in the next couple of months if this Thing really gets out of hand now. That's not a prediction that it will. What should happen here is the White House should be smart enough to recognize, as Morgan said, we're out of buffers and safety margins. It's time to cut a deal, back off, declare victory, do something and get the strait reopened. But if this continues, if we spend another month, I think Morgan's right, we're headed to 150 plus. And I wanted to leave that upside in so I bought that dip. I probably should have added to my long futures position at the same time, but for now I'm just covering short calls and I'll continue to buy these supposed peace deal dips. Each time they happen. Eventually I'll be wrong. But you know, you only have to get a couple of them right before for one wrong one, it all just gets washed out. In the end. When the straight does finally reopen and reopen for real, it's going to be a really big dip. It's going to be down and down hard. And I say that's another great big buy the dip opportunity because it's then going to take much longer than everyone assumes before we get back to normal. And just as Morgan predicted, energy prices, oil prices are going to go up again after that initial relief sell off as people realize, oh wait, it takes months to clear out the mess that was made in the system. So I think there's a really big buy the dip opportunity coming. I don't know when that comes, but at some point we will see the strait really and truly reopen. That big dip that happens after that, I say is another big buy the dip opportunity.
- [71:25]
C
Well, Eric, when I'm specifically looking at the crude oil July contract, the front month one, it's convenient that the headline of a peace deal came literally the day after the crude oil market printed a higher high on that contract and we were seeing a potential breakout and they talked it back down. And that certainly seems to have been the theme over the last couple months, which is as crude oil is rising, we're continuously seeing stories to try to keep things under control. Whether or not we get a peace deal or not is we're about to find out. But if this was again going to prove to being a non starter for a peace deal, the crude oil breakout back above the 105 level on that July contract really could set in motion a move back towards that 115 to 120 area. At this stage, of course, if we do get a big headline that the resolution has come, it would Cause a correction. But I'm at least at this moment remain also skeptical that this is the one. And the vulnerability here that oil goes ripping right back up is relatively high. High. All right, Eric, what are your thoughts here on gold?
- [72:40]
A
Well, we're back to every up move in oil is a down move in gold again. For a little while there it was looking like gold wanted to find a way to recover. But you know, at this point I think it's really going to continue to operate opposite oil. And if you believe Morgan's predictions, it's probably time to get out of your longs in gold and wait to get back in at a much lower price price. The next obvious Support level is 4400, the 200 day moving average. But if we get Morgan's expected outcome, that number's not going to hold. And we've got still lower to come if we're going to go to oil 150 plus. If that happens as oil is topping out, it's going to be time to go long gold and long gold in a big way. But I think we're quite a ways from being there yet. On the other hand, the weekly RSI which hasn't been looking at my chart here hasn't been this oversold since the around September of 2023 is the last time we dipped below the 30 line on the RSI was back in September of 23. And we're just right on the hairy edge of it now. So I don't think we've bottomed yet. There's still a little ways to go but boy, it's setting up a fantastic buying opportunity in gold when this market bottoms. And I don't think it's bottomed yet and there could be qu to go down before it does.
- [74:04]
C
Well Eric, I'm just going to read the tape on the price action of gold. And when you really look back at the last four or five weeks, it has to be getting a failing grade overall. Every rally has failed. Distribution is dominant. And while the you can continuously make a great macro bull case for gold which I actually long term and bullish gold right now, at least the price action remains to be very clearly distributive in its nature. Where in in the midst of some sort of a correction and there's no reason at this moment to believe that that correction is over. So I'm on the short term concern that we're gonna still go testing some lower levels. But again I would view that as one enormous buying opportunity. Cause when this correction is over, there will Be all of the conditions for gold to have another extraordinary rip higher. All right, Eric, let's touch on uranium here.
- [74:57]
A
As our regular listeners know, I remain super duper, uber bullish long term on uranium, but last week I said, okay, I'm getting pre darn nervous here short term. Well, that played out exactly as expected. We're down what, 10 bucks on URA since last week. It's just been a very, very soft uranium market. Quite a few of the individual issues. I'm just looking at my various charts between NextGen and Denison, it looks like Denison is right on its 200 day moving average. URA is below it, NextGen is a little bit above it, but we're getting the big 200 day test. In the past 200 day moving average tests on the uranium issues have been great buying opportunities. So there's definitely an argument that we're already bottoming and this is your buy the dip moment. But frankly, given seasonality patterns in this market, I'm not rushing to buy this dip. At this point we're into the soft season in uranium miners. It's normally as we're just coming up on the WNA conference in London in early September. So around the end of August is when the the market usually is ready to really start to rip higher. If that's what it's going to do through buying season. I think sitting this one out maybe until I'm not selling my positions, but I'm not rushing to buy the dip either. If I'm gonna buy something, I'll probably wait until August to do any more buying in this sector unless we get some serious movement in the spot price. And there's a reason to think that momentum is starting to build. But based on what I'm seeing right now, I'm probably not gonna r to buy this 200 day test.
- [76:40]
C
Well, Eric, when I look at the uranium charts of the equities, the fact that they failed to hold a breakout and quickly redistributed back down below their moving averages and basically reclaimed previous lows, we have a situation where overall there's no sign that uranium stocks are being accumulated here. And again, while we can anchor off these great fundamental stories of uranium, as of this moment we're not seeing investors voting with their money demonstrating that they're ready to take uranium to the next level higher. Overall, it seems like a very quiet market and I would anticipate more of the same until a bigger catalyst actually regains the attention of uranium by investors.
- [77:27]
A
Patrick, before we wrap up this week's show. Let's hit that 10 year treasury note chart Eric.
- [77:32]
C
Like we have clearly a huge breakout. I mean it's not crazy because we haven't cleared the 2025 highs in that kind of 465 to 480 level above. But this has been the first time in a year that we have seen serious stress on interest rates. And while we've not broken to fresh new highs when you go to the 30 year yields, we have cleared some very key hurdles which is certainly creating some overall nervousness about where are the next levels for interest rates and bonds. The one thing that I think is also telling is the fact that the rip is not just in the US 30 year yield. In that case, when you look at the Euro 30 year bonds, the yield was pressing fresh new highs. The United Kingdom 30 year government bonds were ripping to fresh new highs and obviously a huge rip higher in the Japanese 30 year yield. So we are seeing the structural interest rate market around the world all rising obviously starting to price some inflation fears into them. And the question really becomes when do the breaking bond market markets start to impact equity prices? Up until now the equity markets have been brushing it off and I guess the puzzle to solve is will we see a point where interest rates and bonds will matter?
- [78:57]
A
Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of big picture trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com Patrick, tell them what they can expect to find in this week's Research Roundup.
- [79:11]
C
Well, in this week's Research Roundup you're going to find the transcript for today's interview as well as the Trade of the Week chart book we just discussed here in the game, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's Research Roundup. That does it. For this week's episode. We appreciate all the feedback and support we get from our listeners and we're always looking for suggestions on how we can make the program even better. Now for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email@researchroundupacrovoices.com and we will contact Consider it for our weekly distributions. If you have not already, follow our main account on X Acro Voices for all the most recent updates and releases. You can also follow Eric on xericstownsen that's Eric Spelt with a K. You can also follow me at Patrick Ceresna on behalf of Eric Townsend and myself, thanks for listening and we'll see you all next week.
- [80:21]
B
That concludes this edition of Macro Voices. Be sure to tune in each week to hear feature interviews with the brightest minds in finance and macroeconomics. Macro Voices is made possible by sponsorship from BigPicture Trading.com the Internet's premier source of online education for traders. Please visit bigpicturetrading.com for more information. Please register your free account@macrovoices.com Once registered, you'll receive our free weekly Research Roundup email containing links to supporting documents from our featured guests and the very best free financial content our volunteer research team could find on the Internet each week. You'll also gain access to our free listener discussion forums and research library. And the more registered users we have, the more we'll be able to recruit high profile feature interview guests for future programs. So please register your free account today@macrovoices.com if you haven't already. You can subscribe to Macro Voices on itunes to have Macro Voices automatically delivered to your mobile device each week, free of charge. You can email questions for the program to mailbagrov and we'll answer your questions on the air from time to time in our Mailbag segment. Macro Voices is presented for informational and entertainment purposes only. The information presented on Macro Voices should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions. The views and opinions expressed on Macro Voices are those of the participants participants and do not necessarily reflect those of the show's hosts or sponsors. Macro Voices, its producers, sponsors and hosts Eric Townsend and Patrick Ceresna, shall not be liable for losses resulting from investment decisions based on information or viewpoints presented on Macro Voices. Macro Voices is made possible by sponsorship from BigPicture Trading.com and by funding from Fourth Turning Capital Management, LLC. For more information, visit macrovoices.com.