00:00 Speaker A

All right, Jake, so, so Jared given us the the wrap on the stock market. Let me get your take on the oil market. because we had some big headlines there as well. Iran’s new Supreme leader, uh, per Bloomberg, making a rare statement here, vowing not to give up the country’s nuclear or missile technologies, signaling the regime would keep control of the straight of Hormuz. What do you make of it? What do you make of those headlines? and why is oil down?

00:20 Jake

Yeah, a few things going on here. So you saw the statement from Mojtaba Khamenei, was appointed Supreme Leader after his father Ali Khamenei was killed early in the strikes. Mojtaba was reportedly wounded, but this is still a statement coming from him saying we’re doubling down here. We’re not giving up our nuclear technology. We’re not giving up our sovereignty. We’re going to expel foreign invaders from what we see as our national territory in the straight of Hormuz.

00:46 Jake

Iran has repeatedly throughout this conflict tried to push that the straight of Hormuz is their territory, their area. You saw the tolls, you see military damage, strikes on vessels. They’re gaining for control, while the US is saying, look,

01:05 Jake

we’re not going to let up on this blockade until you guys sign a deal. Iran is on the other side of that saying, well, we’re not going to sign a deal until you get out of the water. So we’re at an impass right now. Now, why is oil down today? The fundamentals have not changed. Axios even reporting this morning that the US is considering further military action. What happened here,

01:21 Speaker A

I saw that, yeah.

01:34 Jake

the futures contract for June, the data we’ve been looking at for the last month, that contract expired. The contract rolls forward every month. We’re now looking at July prices. Now, July is a little further out, that’s going to be a little bit cheaper. So that was the 9, 10% drop you saw at midnight as that contract rolled. A lot of people looking at that saying, well, what changed to drive that? Nothing changed in the market.

02:00 Jake

That’s just the mechanics of how the commodities market rolls forward. I will not be surprised if we see that price regain in the coming days, especially if we do get military action from the White House.

02:11 Speaker A

Well, to that point, uh, Jake, I was texting with a buddy of mine who’s a a well-respected geostrategist, and I was asking him what he made of this sort of impass that you’re talking about between the US and Iran. And he said, listen, that that impass cannot persist. It will break. And so his base case, he was telling clients, was re-escalation of fighting. One, I’m just curious what you make of that, and two, let’s say that’s right. Let’s say that’s how it plays out. What what does oil do then?

02:18 Jake

It can’t hold.

02:37 Jake

Yeah, well, he’s 100% right, this can’t hold. Goldman Sachs, JP Morgan, all the big banks on the street coming out in the last few days, talking about the fact that global inventories of oil, how much oil do we actually have available around the world, that is getting dangerously close to all-time lows. And the only way to address that is either demand really comes down and you destroy a ton of demand. Flights stop, people stop filling up their cars, there are mandated shortages, or the price goes so high that people stop buying.

02:59 Speaker A

Mhm.

03:08 Jake

Now, the Trump administration seems to be saying, we need to break this impass. Iran doesn’t seem to be bending. This is a costly, unpopular war. So let’s return to military action and see if we can force them to the table. If you see that happen, you can’t predict the future, but I do think you’re going to see oil going back up, if only because people are going to read that as escalation and the fact that this war is not over. The, you know, the market really wants to see this come to an end.

03:32 Jake

Every time there is a hopeful timeline and oil backs off, you see equities re-rally, bonds doing well, the VIX coming down. The market wants this to end. If there is further escalation, that will be a signal that we’re just not there yet.