May 4, 2026 • 38 mins
Gas prices are rising fast and the situation may be getting worse.
Chuck Zodda and Mike Armstrong break down a critical turning point in the global oil market as the Strait of Hormuz remains effectively closed and US inventories begin to draw down.
Also covered:
Chuck Zodda and Mike Armstrong break down a critical turning point in the global oil market as the Strait of Hormuz remains effectively closed and US inventories begin to draw down.
Also covered:
- Why US oil stockpiles are shrinking at a dangerous pace
- How close the system is to minimum operational capacity
- What happens when supply can no longer meet demand
- Why oil prices may need to rise sharply to rebalance the market
- The potential for extreme outcomes if disruptions continue into summer
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Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(00:42):
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a donation today. This is the Financial Exchange with Chuck
(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
It's Chuck, it's Mike, it's Tucker with you here on
the first Monday of May. It's not a special day,
you know. It's it's not like tomorrow, which is, by
the way, Cinco de Mayo. It's a date that we've
had circled on the calendar for basically the last two months,
(01:30):
where if you were to pull one of our shows
from the first week of March. You heard me at
some point saying, hey, if the straight Offoor Moves is
still closed on you know, by the time you get
to Cinco de Mayo, you've got some real problems that
you can't escape from. And where it stands right now
is that Despite and we'll talk about what this means
(01:52):
and what it doesn't mean in a little bit. Despite
announcement yesterday that the United States is going to try
to guide ships through the Strait of Horror Moves, the
strait is effectively closed to any kind of traffic resembling
normal operations. You're seeing a handful of ships a day
(02:13):
that are crossing. Some are still being shot at, including
a couple in the last day that we're attacked by
Iranian drones and other projectiles that have not yet been identified.
And so the issue that we have here and why
Sinco Demayo matters is because there are two reasons. The
(02:36):
first is that it inevitably takes the impact from just
being you know, okay, things were you know bad because
of the straight of horror moves in Q two and
being able to put a bow on that and move on.
It takes it from being that to now okay. The
timeline for this is clearly going to move into Q
three as well, when things can still be worsening. But
(02:58):
the more important one is the one that we talked
about last week, which is now that you are starting
Syncle demorrow this week is that was the week where
most of the people I talked to thought you would
start to see draws in US crude inventories because of
ships finally arriving in the US because they can't source
the oil or oil products that they need elsewhere. And
(03:23):
sure enough, last week we did indeed see a draw
of crude oil from the United States. And specifically I
want to give some context to this just because I
think it matters when we're trying to look at the
numbers here. So we get data every week from the EIA,
(03:47):
the Energy Information Administration, and what they do is they
put out a report telling you how much crude and
refined product moved around the United States, went in, went out,
how much is still in storage, so on and so forth.
And what we saw last week, between the commercial stocks
that were depleted and the strategic petroleum reserve release, we
(04:10):
saw around thirteen point three million barrels flow out of
US crewed stockpiles, which is the sixth largest flow on record. Now,
a lot of the other ones you can look at
and you're like, Okay, these dates don't particularly mean anything.
It didn't lead to anything the next week. But the
point I'll make is that the straight of hor moves
was not closed during any of those and so there
(04:32):
was not a clear reason for it to continue. In
this case where we are heading. And again we'll just
have to see what the draws look like in the
coming weeks. But you are going to get to operational
minimums in the US pipeline capacity, pipeline system and CREWE
transportation system somewhere between July fourth and Columbus Day, most
(04:58):
likely towards the end of July or early August's that's
where we're going in. And here's why this matters for
all of us. When you get to those levels, effectively,
you only have so much oil that you can move
within the system then in order to maintain operation. Otherwise
it just breaks down. And so I plain breakdown. Yeah,
(05:20):
I'm not sure I follow. So let's say that you
are if you're pumping anything, you need to have a
minimum amount of the liquid in the system that you
are pumping. Otherwise it doesn't work, It loses efficiency. You
can't like you need to have pressure in order to
actually move things through the system. When you get below
(05:43):
a certain capacity, a that stops working. And the other
piece that you run into is when it comes to storage.
And again, this is just how oil tanks are built.
I don't know why it's this way, but I'm sure
there's a very reasonable and actually I do know why
it's this way. The pipes that flow out of oil
tanks aren't at the bottom of them. And the reason
(06:04):
why is because you get all of this sediment and
everything that collects in there. And it's so basically you
have a minimum amount that can never be pumped from
the tank because the outflowing pipes aren't at the bottom
of the tanks. They're designed that way for a reason,
but it still is just how it is. And so
when you look at US commercial crude inventories and see
(06:25):
four hundred and sixty million barrels of oil sitting there,
you say, ah, it's fine, Like there's plenty of you know,
plenty of oil in the system. Part of this is
that the estimates now are anywhere from like one hundred
to one hundred and fifty million barrels is actually in
the pipelines flowing at any given time. So you can't
just use that because otherwise you don't have a pipeline
(06:45):
system that works. There's another two hundred million barrels or
so that needs to be in the tanks in order
to maintain proper again eventually you know, flow in and out.
And also there's some that you just can't pump because
it's below the line that is pumpable. I think that's
a new word that we just madeable pumpable. So where
(07:09):
this goes is it's not like you have a four
hundred and sixty million barrel buffer here. The actual buffer
that you have is somewhere in the ballpark of seventy
to ninety million barrels, and commercial stocks drew by six
million last week. You've got somewhere again, depending on how
fast the flow rate is, somewhere probably between like eight
and sixteen weeks before you get to operational minimums. And
(07:33):
the reason why that matters is when you get there,
it's not like oil just continues to stay at the
same price. Because ultimately, if you're a refinery saying, hey,
I want to buy oil, and oil sitting there at
a hundred barrel and you can't find it, and you
just say, okay, I'm just gonna keep bidding on one
hundred dollars.
Speaker 3 (07:48):
Barrels, so eventually it stops flowing outside of the United States,
it'll stay here.
Speaker 4 (07:54):
No, it's at a higher price.
Speaker 2 (07:55):
Because what will happen is, Okay, the suppliers can't deliver
that barrel of one hundred because there's just not enough,
and so in order for suppliers to not default on contracts,
the price moves up. It's not profiteering, it's not greed like,
don't get me wrong, I'm sure they're happy to make
the extra money. But the reason this happens is because
(08:17):
if you have two million barrels of oil that are demanded,
and both companies are willing to pay a hundred for it, Well,
then you've got to be able to sell two hundred.
You got to be able to sell two million barrels
of oil in order to clear that market. If you've
only got a million that you can deliver, you keep
raising the price until it gets to hey, there's only
(08:37):
a million barrels of demand, and now we're matched. And
so this is where we are going this summer. There
is no changing course on this. It is set in
stone right now as far as where we are going
to get to at some point later this summer that
you are going to get pretty close to. If things
(08:59):
stopped like right now, maybe you can avoid being at
minimum operational capacity for very long, but you're basically going
to hit there because you have this line of ships
that is coming to the US to fill up and
they've got nowhere else to go. They can't go anywhere
else to get this oil. And if you said, oh,
(09:19):
let's let's ban exports, great, now you are going to
have refineries getting all backed up in the US. You're
not gonna have the product that you need domestically. And
it's a whole different problem that is not solving the situation.
So we're at the point now where this is destiny.
There is nothing that can be done to change this.
The only question is how long does it last, and
(09:41):
that's dependent on when flow begins through Horror moves again.
Speaker 3 (09:44):
So oil price is today barely moving. On the Brent side,
they're moving up about two percent. West Texas crewed moving
about a quarter of a percent. But we're still sitting
over one hundred and two dollars per barrel when I
look out, you know, we've been talking about how oil
is actually priced, because we're looking at a May contra
right here, taking a look at a December contract for
a barrel of oil. We're now sitting at eighty one
(10:05):
dollars fifty four cents earlier, just over the last few weeks,
we were in the seventies.
Speaker 4 (10:11):
This has been steadily climbing up.
Speaker 3 (10:13):
Obviously, the longer this conflict, and you know, regardless of
whether it's terminated or not, regardless of all that, really
the conflict is whether or not traffic is flowing through
the strait. This contract for December oil has continued to
creep up and up and up, and.
Speaker 2 (10:29):
Quite honestly, I'll make the point, the December oil contract
doesn't matter. It's not predictive of where oil is going
to be. It's just hey, if you want to secure
barrels right now for delivery, then this is what you
can pay. That balances the market. Ultimately, the number that
matters is when you look at like brent, it is
what is the number four either prompt delivery of brent
(10:50):
meeting within the next three weeks or dated meeting three
to six weeks out. Like that, there is a date,
there's a date of delivery. That's where the term dated
brent comes from. And so what this what you see
when you look at the numbers, Prompt and dated are
trading like twenty to thirty dollars above the first futures contract.
Speaker 3 (11:08):
So if you're a refiner in India, that's what you're
paying delivered, you're paying.
Speaker 2 (11:12):
Like that's what you're paying actually in order to get
it right now. And so the problem that you have here,
like again the die is cast on this. There is
a ceiling as to how high gas prices can go
just based on supply and demand. But it's a lot
higher than where we are today. And again I know
(11:33):
this might sound kind of crazy, it's not unreasonable to
think that if the straight of Hoom Moves is closed
for the next month or two, still seven or eight
dollars a gallon gas in the United States is not
out of the question.
Speaker 3 (11:48):
What was our all time high back during seven five
oh one, and that wasn't twenty two, that was twenty
two two.
Speaker 2 (11:56):
Diesel right now is knocking on the door of all
time highs Diesel seventeen sense under. It might pass those
all time highs this week. We are still around fifty
five cents under on gasoline right now. But the question
for this summer is basically, can you have like a
very short lived peak somewhere in the low fives or
(12:19):
do you end up going higher? And the limit there's
probably in the seven to eight dollars a gallon range,
but that's where you could potentially get to if we're
still sitting here on the fourth of July with the
straight of horn Moos closed, which again I know sounds crazy,
and I hope my dream in this is that like
(12:39):
this all just you know, somehow gets resolved in the
next month and we sit here and we laugh at
me all summer, like, oh, chuck, that was so funny. Like,
I hope that's where we go. But I'll be honest,
I didn't think we would be here on Cinco de
Mayo Eve, which is my favorite Eve.
Speaker 4 (12:55):
Sinko to quatro, It's what we call today, Sinko to quatro.
I enjoyed the breast development.
Speaker 2 (13:01):
I knew I heard it somewhere.
Speaker 4 (13:02):
Yeah.
Speaker 2 (13:03):
But again, we're at the point now where, like the
die is cast, there is no escaping what's coming this summer.
It's just a matter of how long does it last
and how high is the peak. Let's take a quick break.
When we return, we'll talk about the latest plan for
the straight ofform Moves next.
Speaker 1 (13:21):
Remember, you can watch the show live every day on
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(13:41):
Exchange live on x face. He's the Financial Exchange all right.
Speaker 2 (13:57):
Yesterday I think it was somewhere around five pm or so,
the President put out a post on truth Social quote
her countries from all over the world of us if
the United States if we could help free their ships
which are locked in the Strait of Horror moves for
the good of Iran, the Middle East, and the United States.
We've told these countries that we will guide their ships
safely out of these restricted waterways so they can freely
(14:20):
be able to get on with their business. And the
President dubbed it Project Freedom. So I then this piece
in the Wall Street Journal came out last night a
bit after that, and I was I was reading through it,
and I was like, okay, like, you know, show me, like,
what's what's going on here? And I got to the
paragraph immediately afterwards. The new mechanism is effectively a coordination
(14:42):
cell to move traffic through the Strait, involving countries, insurance companies,
and shipping organizations. According to two senior US officials, it
doesn't currently involve US Navy warships escorting vehicles through the strait,
So basically it sounds like there it was the US
trying to say, hey, this is the path that you
can take, and we're not going to escort you through,
(15:05):
but we can provide information and so on and so forth.
Speaker 3 (15:09):
And to be clear, while there's a lot of fog,
going on in the first five hours of this morning
on Eastern time.
Speaker 4 (15:16):
It appears that.
Speaker 2 (15:18):
Guys, I want to tell you, like, no one knows
anything about what's happening right now, so I think what.
Speaker 3 (15:23):
We can say confidently, it doesn't appear that a bunch
of ships are now moving through the Straight of Hormos.
Speaker 2 (15:27):
So here's that much, here's the lay of the land
this morning. And again, like it's almost impossible to verify
any of this because we don't have access to real
time data surrounding the movement and damage status of various
ships throughout the Straight of Horn moves. So the United
(15:49):
States United States Central Command is indicating that two US
destroyers have passed through going inbound in order to provide
additional assistance to ships that are already in the Persian Gulf.
SENCOM also indicated that two US flagged commercial vessels have
exited the strait at this point. But we don't have
(16:11):
any tracking data on any of this, Like it's all
happening without what's called the AIS systems turned on in
these ships, so we don't know where they actually are.
Speaker 3 (16:18):
Other pieces of information, some Iranian media outlet claim to
have struck US Navy ships the USA Command denied as much.
Speaker 4 (16:27):
And then there's a.
Speaker 2 (16:28):
South Korean ship that has been struck. There's a UAE
one that's been struck that again we think no, the
UA is confirmed at the US the UA confirmed that,
and South Korea confirmed that their ship got hit. Yeah,
the other thing that happened this morning. And this is
wild in like forty three different ways. So Iran also
(16:48):
published pictures of the new of their new map for
their zone of control through the Strait of Hormus, and
the part that's really interesting and potentially escalatory is on
the eastern side, So outside of the strait, there's a
port in the in the UAE Fujaira, which is where
(17:11):
there's a one and a half million barrel a day
pipeline that's been running there that has been allowing you know,
exports from the UAE from a port outside the Strait
of Horror moves. The new Iranian maps that they published
today claim it are claiming that area as Iranian water,
and so basically any ship that's loading there may in
(17:32):
theory be targeted. So where we're heading right now is
a pretty dangerous spot this week because the United States
and what's probably like a pretty like strong tactical move
is saying, look, we're going to you know, basically, dare
you to start shooting at US if we're going through
the strait Iran may or may not have if these
(17:54):
ships actually pass through, Like we really don't know what's
happened yet. Iran likewise is saying, Hey, we're now claiming
a larger area, as you know, something under our control,
and we might start shooting at stuff in that larger area.
And so it does feel like things are kind of
coming to a head this week because you can only
(18:14):
escalate rhetorically for so long before you have to actually
do something in the physical.
Speaker 3 (18:19):
World been fairly quiet for now what about three weeks,
and so like, this is a dangerous week here, and
we're gonna have to see how this plays out.
Speaker 2 (18:27):
I have no idea what's going to happen. Maybe the
US is successful in being able to start moving things
because Iran doesn't want to actually start shooting at US ships.
Maybe that's not the case, Like, I don't know.
Speaker 4 (18:43):
I mean, it's pretty clear that it wasn't the case
of the UAE ship.
Speaker 2 (18:46):
But this is a pretty big week here, and I
think that it has the potential to evolve in a
number of ways that are unpredictable as we look at
what each side is pushing into, you know, the middle
of the table for a poker analogy. So again, we'll
see where this goes here. But the fog of war
(19:09):
is thick right now. It's very hard to know what's
actually going on. But we'll have to just see how
things evolve over the rest of the week because it's
messy at the moment. Quick break in Wall Street Watches Next, Like.
Speaker 1 (19:40):
Us on Facebook and follow us on Twitter at TFE show.
Breaking business news is always first right here on the
Financial Exchange Radio Network. Time now for Wall Street Watch,
tracking the stocks, the data, and the headlines driving markets
so far today right here on the Financial Exchange Network.
Speaker 5 (20:01):
Markets at the beginning of the weekend mixed territory, with
oil prices jumping higher over ongoing uncertainty. With this strait
of horror moves, traders are also ready for the April
jobs report on Friday morning. Right now, the dows down
a tenth of a percent, SMP five hundred is up
a tenth of a percent, NASDAC up nearly two cents
of one percent, or forty two points RUSS two thousand
(20:24):
is up about a third of a percent, sen You're
Treasure reeled up three basis points at four point four
to one two percent, and oil is edging higher, trading
at one hundred and two dollars a barrel. Aside from Iran,
the big development over the weekend came from game Stop,
after CEO Ryan co made an unsolicited offer to buy
eBay for about fifty six billion dollars. In an interview
(20:47):
with The Wall Street Journal, Cohen said that putting his
video game retailer and eBay under one roof could create
opportunities to cut costs and improve earnings. eBay stock is
up four percent, while game Stop share they're down by
four percent. Meanwhile, shares a Norwegian cruise line dropping eight
percent after the company cut its outlook, citing higher fuel
(21:08):
prices and also said consumers are rethinking travel plans Elsewhere.
Tyson Foods posted better than expected quarterly results, but said
soaring cattle prices weighed on its results. That stock is
up over one percent and after today's closing bell, we'll
see earnings from paramounts, sky Dance and Pallanteer. I'm Tucker
(21:29):
Silva and that is Wallstree.
Speaker 4 (21:30):
Watch.
Speaker 2 (21:33):
Yeah, we do need we got to talk about cattle
prices at some point. The uh, the beef is.
Speaker 4 (21:39):
Too damned high. Cats not getting any better.
Speaker 3 (21:41):
The beef is too damn high. Well, I'm just looking
forward to some of that lab grown meat.
Speaker 2 (21:47):
I mean especially we're heading right into prime grilling season.
Speaker 4 (21:49):
Michael, lab grown t bone.
Speaker 2 (21:52):
How do you grow the bone?
Speaker 4 (21:53):
It's plastic. It's my favorite part though, very high melts point.
Speaker 2 (21:58):
Let's talk a little bit about out this piece from
the New York Times. It's titled Spirit Airlines demise could
help other.
Speaker 3 (22:06):
Airlines insofar as there won't be as much competition and
therefore prices will they will not need to compete with
them on price quite as much.
Speaker 2 (22:15):
Well, and here's the thing. So there are a bunch
of fixed assets that are going to be for sale now,
whether you're talking about airplanes that Spirit was leasing that
you know someone else could pick up and lease, whether
you're talking about gates and landing slots that are available
at airports now. And so it is something where hey is,
(22:35):
airlines are facing all kinds of cost pressures on the
fuel side of things. For the ones that are forward looking,
they might be able to pick up some assets that
they would want to add in the future at discount prices.
Speaker 3 (22:49):
One thing that so all these airlines did a few
years ago, Delta, American, United is who I'm talking about here.
They all rolled out new pricing models. And what I
mean by that is not an entirely new wave price
in the airplanes like Southwest did. But if you want
to on American right now, you can buy what I
think they called their basic fair.
Speaker 4 (23:11):
You won't get to choose a seat, you won't get yep.
I don't think you'll get a checked bag.
Speaker 3 (23:15):
You might even have to pay for a carry on bag,
just like Spirit was doing.
Speaker 4 (23:20):
They were forced to do that, or they felt forced.
Speaker 3 (23:22):
To do that because they wanted to have a price
point that was more similar to what Spirit was offering.
I'll be interested to see if they even hold on
to that right like this. This is a money loser
for them. They don't make money on that seat that
they are selling dramatically, or if they do, it's a
very slim profit margin. And they only really offered it
because hey, you know, we can't have consistently Spirit airlines
(23:45):
showing price tickets. You know, ticket prices that are thirty
percent cheaper than ours. They won't anymore.
Speaker 2 (23:51):
No, And the other piece is, I'll quote here from
the piece and may have twenty twenty four, the airline
operated three point four percent of all domestic flights. Yes,
before it shut down. Spirit schedule for me would have
mounted to just one point one percent of domestic flights.
But the thing that you have to focus on here is, Look,
if there is supply of seats that is coming off
(24:13):
as well, but you still have the same number of
flyers who want to fly, all else being equal, that
in and of itself is going to push ticket prices
up because you have the same number of passengers, but
you don't have the same number of planes flying right now.
So you've got a situation where this is coming again. Like,
I'm not saying that this is good because again the
(24:35):
seeds for this demise. Look back in twenty twenty two.
Was it when they were when Jet Blue times to
buy them? Yeah, started up, yep, And I think it
was it was shut down in twenty four. Look, the
DOJ did no favors to Spirit with rejecting that merger agreed.
There's also no guarantee that a combined Jet Blue Spirit
(24:59):
would have actually been able to survive.
Speaker 4 (25:01):
Can we talk about that right now?
Speaker 3 (25:02):
Because Jet Blue the company, by the way, who has
not made a profit since twenty nineteen, they're caring about
eight and a half to nine billion dollars worth of
debt right now. I mean, this is not a financially
healthy company. There's been this fascinating, like partisan debate that
I've been seeing who's to blame for the demise of Spear.
Speaker 2 (25:20):
Everyone wants to blame someone, right Here's the thing. Jet
Blue was losing money, still is, Spirit was losing money
still is. Their potential path to surviving was through a
merger that still might have resulted in the combined company
going out of business. Yeah, they would have had a
better chance to compete, absolutely, And it completely sucks that
(25:41):
the DOJ did not even give them a chance to
survive because again, as we've seen, like Spirit is this,
they tried to declare bankruptcy like three times in three years.
It just would not hit. Like that's not good, that's
not healthy. So it's clear that freak chance is better
than no chance at all. But it's unclear that the
combined company would have, you know, actually been able to
(26:03):
survive either These were two companies that were losing money
trying to live by merging and finding some efficiencies. You
can absolutely blame the Biden DOJ for not letting them merge, yep.
But even if they had, it might not have worked.
Speaker 3 (26:19):
Sure, And you can blame you know, high oil prices
on the Trump administration if you want. I don't think
the blame game is terribly useful in all of this context.
Here's another question. I don't have any there's no insinuation
whatsoever that Jet Blue has a you know, going concern
risk right now. If they do, they'll be required to
disclose it. But they haven't made any money on an
(26:40):
annual basis since twenty nineteen. That's not a sign of
a healthy company. Were they to go bankrupt. I know
there was this talk of a bailout for Spirit. How
big is the push for a bailout of Jet Blue
if Jet Blue starts going that direction, because there's not
a whole lot of competition left at that point. Like
(27:00):
if we're talking about full long, I don't mean bankruptcy,
because there's a lot of different types of bankruptcies.
Speaker 4 (27:04):
Spirit went through two of them over.
Speaker 3 (27:06):
The course of the last four years, and their plan
was to re emerge so Jet Blue can go through bankruptcy.
That's not what I'm talking about. But if Jet Blue
is pushed to liquidate, do you have to bail them?
Speaker 4 (27:17):
Ount? I don't.
Speaker 3 (27:18):
You don't have to bail one does not have to
do anything, right, but there there would certainly be immense
political pressure to do so.
Speaker 2 (27:26):
So here's the thing. This is potentially something that's closer
than you think. And what I mean by that is
they're free cash flow right now. Trailing twelve months is
negative one point one to six billion dollars. They're sitting
on two point twenty seven in cash and short term investments.
Maybe they've got some credit lines outstanding that they haven't
(27:46):
tapped in anything yet. And to be clear, I've got
to imagine all of this disclosure happened prior to this
was the beginning of the year, right, I mean, do
we know anything about their financial states since they started
paying whatever they're paying now for jet fuel? Let me
see if I can find the most recent quarter. Hold on,
just give me one second. Let's see. When is there
(28:09):
that's an annual Tucker? Thank you for putting me on
the clock. Here we go, Q one free cash flow
was what the heck does that even mean? No, I
can't read this right now, it's too much pressure. In
(28:29):
any case, their free cash flow is not going to
improve as a result of fuel jet fuel prices moving up,
it's going to get worse. And so this is something
where again, like, depending on what happens on the demand
side of things, you could have a situation where Jet
Blue is facing bankruptcy questions in the next two years.
(28:53):
Like that's not crazy to say, sure. And by the way,
that's reflected in the stock price right now with which
is four dollars and ninety five cents a share. And
to compare that to where it's been, you know over
the last five years or so. From five years ago,
it's seventy five percent down. Yeah, from three years ago,
(29:15):
it's thirty one percent down. You know, it's it's again.
And by the way, you see this also in the
product that they're offering. I was one of the like,
I was very much team jet Blue for the longest time.
Speaker 4 (29:30):
Yeah, they've been bottom.
Speaker 3 (29:31):
Of the reliability rankings for a better part of a decade.
Speaker 2 (29:35):
You can see that, like there's a difference in product
quality that you get flying them now relative to again,
like I put Delta at the top of the list.
But look, you even go on like United or an
American flight or Southwest quite honestly, you fly on, you're like, oh, like, yeah,
product quality is like pretty solid Jet Blue. Like you
get on some of the planes and you're like, man,
(29:57):
the TVs don't work half the time now, oh, like
the seats are like kind of ripped in some of
the ones that haven't had the cabin's replaced yet.
Speaker 4 (30:05):
It's showing its age and they don't have the cash
flow to reimprove.
Speaker 2 (30:09):
So we'll see what happens. They're going forward, but uh
worth watching. Let's take a quick break. When we come back.
We're talking gas prices after this.
Speaker 1 (30:17):
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(30:41):
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Speaker 2 (30:53):
All right, let's talk a little bit about gas prices.
Triple A National afforts right now is sitting at four
forty five and seven tenths of a cent. And the
big thing, we use about three hundred and seventy five
million gallons of gasoline a day in the United States. Uh.
And so if you do the math just based on
(31:14):
how much gas price have gone up over the last week,
which is around thirty three cents, it means that you
are seeing Americans and the aggregate paying around one hundred
and twenty five million extra dollars a day for gas
compared to a week ago.
Speaker 3 (31:27):
Yeah, we had done the math on some of this,
you know, earlier this year, before tax refunds started going out. Yeah,
it seemed to me that should gas prices remain around
this high that you know, for the average person, they're
spending you know, around three quarters of that tax refund
on these elevated gas prices. Except I'm trying to get
to there is there is obviously some benefit to tax
(31:50):
cuts this year.
Speaker 4 (31:51):
Sure, the One Big Beautiful Bill Act is.
Speaker 3 (31:52):
Expected to increase the deficit by four trillion dollars over
the next decade.
Speaker 2 (31:56):
So you know, it doesn't do that by not doing
anything right.
Speaker 3 (32:00):
It's government spending On the other hand, this doesn't really
work exactly because it's not like gas prices are a
result of a new tax. But you know, if the
US consumes about seven point four billion barrels of oil
per year and you're talking about a price increase of
around forty dollars, that's like, you know, close to three
hundred billion dollars that's going to you know, some of
(32:24):
that's going to the bottom lines of Exon and you know,
executives there, but a lot of it's being sapped out
of Americans pockets through higher prices, and it's being partially
offset by things like, yeah, the One Big Beautiful Bill
Act investment from you know, previously heavy, heavily profitable companies
like Facebook and Google that are spending on AI and
(32:46):
that can last for a while, I guess, in the aggregate,
so long as we don't get to actual shortage problems.
Speaker 5 (32:53):
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Speaker 1 (33:55):
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Speaker 2 (34:06):
Piece in the Wall Street Journal, an aluminum crisis is
roiling the auto industry, and basically what you are seeing
here I'll quote the relevant part. The US cost of
primary aluminum from smelter is nearly ninety percent higher than
a year ago. The Warren Iran is driving up prices
by effectively choking off shipments from Persian Gulf countries, which
supply about one fifth of the aluminum consumed in the
(34:29):
United States.
Speaker 3 (34:30):
And don't forget that aluminum that's consumed from that area
also faces a fifty percent US terror Yes, but.
Speaker 2 (34:36):
To be fair, you can't tear if something if you
can't import it, true, so it doesn't compound that way.
But what you are seeing right now is that effectively
a metric ton of aluminum in the United States, it's
costing sixty one hundred dollars right now compared with thirty
two twenty a year.
Speaker 4 (34:54):
Ago, actually doubled.
Speaker 2 (34:55):
Yeah, okay, And so the problem that you have here
is biggest actually for Ford, which is again it feels
like Ford is just like running in This is not
a problem that they like could have foreseen, so like,
I don't blame them. But basically, what what happened here
is that Ford was trying to improve the fuel efficiency
(35:16):
of its F one fifty and went to a more
aluminum construction in it. And so because of how big
the F one fifty is, like just from a vehicle
size and weight standpoint, this is something that is disproportionately
affecting Ford because not only is the F one fifty big,
but it's the biggest car, truck whatever that they sell.
(35:37):
And so so.
Speaker 3 (35:39):
What you're telling me is pretty much the only product
line that makes Ford any money.
Speaker 2 (35:42):
Is Yes, it's just it's it's brutal here, and so
they're trying to deal with it the best that they can,
but ultimately it's, uh, it's something that is just uh
again really impacting Ford because they expect their commodity costs
to go from a billion dollars to two billion dollars
(36:02):
this year due to illuminum prices. Moving on.
Speaker 3 (36:06):
To be fair, I can't imagine that any I recognize
why Ford's F one fifty and specifically, you know, Ford
only really makes money on giant vehicles these days, so
they're going to have a bigger illuminum problem than just
about anybody else. But it can't be that, you know,
Toyota is having a really easy time acquiring aluminum at
(36:26):
good prices right now, Like this is a global problem
that every auto manufacturer is facing. Ford arguably because of
changes to their design as well as just the fact
that every one of their cars tends to have a
lot of metal in.
Speaker 4 (36:40):
It must be just the hardest hit with all of.
Speaker 2 (36:42):
This, you would think. So, yeah, it's it's not like
Toyota is sitting there going, oh, we're making all of
our cars with jeans, like you know, like no, like
good thing.
Speaker 3 (36:52):
We switched to bamboo six years Yeah, yeah, No, that's
not really how it works.
Speaker 2 (36:56):
The denim Corolla really took off, you know. It's no,
they're all kind of in the same boat. It's just
the product mix and sourcing is clearly impacting Ford in
ways that other companies are not being impacted as heavily.
Speaker 3 (37:10):
There was also, you know, domestically here, there was that
fire that took off an aluminum what do we call
an aluminum factories It a smelt smelter smelt that took offline.
Was that in New York or Ohio somewhere around there
over the course of the last few months, so that
is still offline. Ford's obviously, you know, pushing the Trump
administration asking for a you know, relief valve on the
(37:32):
tariff piece of it, at least if they can finally
get some of that aluminum into the United States, which.
Speaker 4 (37:38):
I don't know.
Speaker 3 (37:39):
But again, the war in Iran and changes to supply.
There was not the intent. The tariffs were right that
that was part of the plan. Here is we want
more of this stuff done domestically, and certainly Ford is
going to be trying to push for more of that
to be done domestically over the course the next few months.
Speaker 2 (37:57):
The word smelt has like two of the most divergent
meetings out of any word in the world in my opinion,
where it's like, depending on the context, it's either yeah,
I'm talking about using a bunch of heat to turn
one metal into a refined product, or I'm talking about
a really small fish. Let's take a quick break and
(38:18):
you can decide what we talk about next. On the
Financial Exchange
The Financial Exchange is produced by Money Matters Radio and
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(00:20):
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(01:05):
Zada and Mike Armstrong.
Speaker 2 (01:10):
It's Chuck, it's Mike, it's Tucker with you here on
the first Monday of May. It's not a special day,
you know. It's it's not like tomorrow, which is, by
the way, Cinco de Mayo. It's a date that we've
had circled on the calendar for basically the last two months,
(01:30):
where if you were to pull one of our shows
from the first week of March. You heard me at
some point saying, hey, if the straight Offoor Moves is
still closed on you know, by the time you get
to Cinco de Mayo, you've got some real problems that
you can't escape from. And where it stands right now
is that Despite and we'll talk about what this means
(01:52):
and what it doesn't mean in a little bit. Despite
announcement yesterday that the United States is going to try
to guide ships through the Strait of Horror Moves, the
strait is effectively closed to any kind of traffic resembling
normal operations. You're seeing a handful of ships a day
(02:13):
that are crossing. Some are still being shot at, including
a couple in the last day that we're attacked by
Iranian drones and other projectiles that have not yet been identified.
And so the issue that we have here and why
Sinco Demayo matters is because there are two reasons. The
(02:36):
first is that it inevitably takes the impact from just
being you know, okay, things were you know bad because
of the straight of horror moves in Q two and
being able to put a bow on that and move on.
It takes it from being that to now okay. The
timeline for this is clearly going to move into Q
three as well, when things can still be worsening. But
(02:58):
the more important one is the one that we talked
about last week, which is now that you are starting
Syncle demorrow this week is that was the week where
most of the people I talked to thought you would
start to see draws in US crude inventories because of
ships finally arriving in the US because they can't source
the oil or oil products that they need elsewhere. And
(03:23):
sure enough, last week we did indeed see a draw
of crude oil from the United States. And specifically I
want to give some context to this just because I
think it matters when we're trying to look at the
numbers here. So we get data every week from the EIA,
(03:47):
the Energy Information Administration, and what they do is they
put out a report telling you how much crude and
refined product moved around the United States, went in, went out,
how much is still in storage, so on and so forth.
And what we saw last week, between the commercial stocks
that were depleted and the strategic petroleum reserve release, we
(04:10):
saw around thirteen point three million barrels flow out of
US crewed stockpiles, which is the sixth largest flow on record. Now,
a lot of the other ones you can look at
and you're like, Okay, these dates don't particularly mean anything.
It didn't lead to anything the next week. But the
point I'll make is that the straight of hor moves
was not closed during any of those and so there
(04:32):
was not a clear reason for it to continue. In
this case where we are heading. And again we'll just
have to see what the draws look like in the
coming weeks. But you are going to get to operational
minimums in the US pipeline capacity, pipeline system and CREWE
transportation system somewhere between July fourth and Columbus Day, most
(04:58):
likely towards the end of July or early August's that's
where we're going in. And here's why this matters for
all of us. When you get to those levels, effectively,
you only have so much oil that you can move
within the system then in order to maintain operation. Otherwise
it just breaks down. And so I plain breakdown. Yeah,
(05:20):
I'm not sure I follow. So let's say that you
are if you're pumping anything, you need to have a
minimum amount of the liquid in the system that you
are pumping. Otherwise it doesn't work, It loses efficiency. You
can't like you need to have pressure in order to
actually move things through the system. When you get below
(05:43):
a certain capacity, a that stops working. And the other
piece that you run into is when it comes to storage.
And again, this is just how oil tanks are built.
I don't know why it's this way, but I'm sure
there's a very reasonable and actually I do know why
it's this way. The pipes that flow out of oil
tanks aren't at the bottom of them. And the reason
(06:04):
why is because you get all of this sediment and
everything that collects in there. And it's so basically you
have a minimum amount that can never be pumped from
the tank because the outflowing pipes aren't at the bottom
of the tanks. They're designed that way for a reason,
but it still is just how it is. And so
when you look at US commercial crude inventories and see
(06:25):
four hundred and sixty million barrels of oil sitting there,
you say, ah, it's fine, Like there's plenty of you know,
plenty of oil in the system. Part of this is
that the estimates now are anywhere from like one hundred
to one hundred and fifty million barrels is actually in
the pipelines flowing at any given time. So you can't
just use that because otherwise you don't have a pipeline
(06:45):
system that works. There's another two hundred million barrels or
so that needs to be in the tanks in order
to maintain proper again eventually you know, flow in and out.
And also there's some that you just can't pump because
it's below the line that is pumpable. I think that's
a new word that we just madeable pumpable. So where
(07:09):
this goes is it's not like you have a four
hundred and sixty million barrel buffer here. The actual buffer
that you have is somewhere in the ballpark of seventy
to ninety million barrels, and commercial stocks drew by six
million last week. You've got somewhere again, depending on how
fast the flow rate is, somewhere probably between like eight
and sixteen weeks before you get to operational minimums. And
(07:33):
the reason why that matters is when you get there,
it's not like oil just continues to stay at the
same price. Because ultimately, if you're a refinery saying, hey,
I want to buy oil, and oil sitting there at
a hundred barrel and you can't find it, and you
just say, okay, I'm just gonna keep bidding on one
hundred dollars.
Speaker 3 (07:48):
Barrels, so eventually it stops flowing outside of the United States,
it'll stay here.
Speaker 4 (07:54):
No, it's at a higher price.
Speaker 2 (07:55):
Because what will happen is, Okay, the suppliers can't deliver
that barrel of one hundred because there's just not enough,
and so in order for suppliers to not default on contracts,
the price moves up. It's not profiteering, it's not greed like,
don't get me wrong, I'm sure they're happy to make
the extra money. But the reason this happens is because
(08:17):
if you have two million barrels of oil that are demanded,
and both companies are willing to pay a hundred for it, Well,
then you've got to be able to sell two hundred.
You got to be able to sell two million barrels
of oil in order to clear that market. If you've
only got a million that you can deliver, you keep
raising the price until it gets to hey, there's only
(08:37):
a million barrels of demand, and now we're matched. And
so this is where we are going this summer. There
is no changing course on this. It is set in
stone right now as far as where we are going
to get to at some point later this summer that
you are going to get pretty close to. If things
(08:59):
stopped like right now, maybe you can avoid being at
minimum operational capacity for very long, but you're basically going
to hit there because you have this line of ships
that is coming to the US to fill up and
they've got nowhere else to go. They can't go anywhere
else to get this oil. And if you said, oh,
(09:19):
let's let's ban exports, great, now you are going to
have refineries getting all backed up in the US. You're
not gonna have the product that you need domestically. And
it's a whole different problem that is not solving the situation.
So we're at the point now where this is destiny.
There is nothing that can be done to change this.
The only question is how long does it last, and
(09:41):
that's dependent on when flow begins through Horror moves again.
Speaker 3 (09:44):
So oil price is today barely moving. On the Brent side,
they're moving up about two percent. West Texas crewed moving
about a quarter of a percent. But we're still sitting
over one hundred and two dollars per barrel when I
look out, you know, we've been talking about how oil
is actually priced, because we're looking at a May contra
right here, taking a look at a December contract for
a barrel of oil. We're now sitting at eighty one
(10:05):
dollars fifty four cents earlier, just over the last few weeks,
we were in the seventies.
Speaker 4 (10:11):
This has been steadily climbing up.
Speaker 3 (10:13):
Obviously, the longer this conflict, and you know, regardless of
whether it's terminated or not, regardless of all that, really
the conflict is whether or not traffic is flowing through
the strait. This contract for December oil has continued to
creep up and up and up, and.
Speaker 2 (10:29):
Quite honestly, I'll make the point, the December oil contract
doesn't matter. It's not predictive of where oil is going
to be. It's just hey, if you want to secure
barrels right now for delivery, then this is what you
can pay. That balances the market. Ultimately, the number that
matters is when you look at like brent, it is
what is the number four either prompt delivery of brent
(10:50):
meeting within the next three weeks or dated meeting three
to six weeks out. Like that, there is a date,
there's a date of delivery. That's where the term dated
brent comes from. And so what this what you see
when you look at the numbers, Prompt and dated are
trading like twenty to thirty dollars above the first futures contract.
Speaker 3 (11:08):
So if you're a refiner in India, that's what you're
paying delivered, you're paying.
Speaker 2 (11:12):
Like that's what you're paying actually in order to get
it right now. And so the problem that you have here,
like again the die is cast on this. There is
a ceiling as to how high gas prices can go
just based on supply and demand. But it's a lot
higher than where we are today. And again I know
(11:33):
this might sound kind of crazy, it's not unreasonable to
think that if the straight of Hoom Moves is closed
for the next month or two, still seven or eight
dollars a gallon gas in the United States is not
out of the question.
Speaker 3 (11:48):
What was our all time high back during seven five
oh one, and that wasn't twenty two, that was twenty
two two.
Speaker 2 (11:56):
Diesel right now is knocking on the door of all
time highs Diesel seventeen sense under. It might pass those
all time highs this week. We are still around fifty
five cents under on gasoline right now. But the question
for this summer is basically, can you have like a
very short lived peak somewhere in the low fives or
(12:19):
do you end up going higher? And the limit there's
probably in the seven to eight dollars a gallon range,
but that's where you could potentially get to if we're
still sitting here on the fourth of July with the
straight of horn Moos closed, which again I know sounds crazy,
and I hope my dream in this is that like
(12:39):
this all just you know, somehow gets resolved in the
next month and we sit here and we laugh at
me all summer, like, oh, chuck, that was so funny. Like,
I hope that's where we go. But I'll be honest,
I didn't think we would be here on Cinco de
Mayo Eve, which is my favorite Eve.
Speaker 4 (12:55):
Sinko to quatro, It's what we call today, Sinko to quatro.
I enjoyed the breast development.
Speaker 2 (13:01):
I knew I heard it somewhere.
Speaker 4 (13:02):
Yeah.
Speaker 2 (13:03):
But again, we're at the point now where, like the
die is cast, there is no escaping what's coming this summer.
It's just a matter of how long does it last
and how high is the peak. Let's take a quick break.
When we return, we'll talk about the latest plan for
the straight ofform Moves next.
Speaker 1 (13:21):
Remember, you can watch the show live every day on
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a button at YouTube dot com. Slash the Financial Exchange
show from FED Decisions to Market Moves. Watch the Financial
(13:41):
Exchange live on x face. He's the Financial Exchange all right.
Speaker 2 (13:57):
Yesterday I think it was somewhere around five pm or so,
the President put out a post on truth Social quote
her countries from all over the world of us if
the United States if we could help free their ships
which are locked in the Strait of Horror moves for
the good of Iran, the Middle East, and the United States.
We've told these countries that we will guide their ships
safely out of these restricted waterways so they can freely
(14:20):
be able to get on with their business. And the
President dubbed it Project Freedom. So I then this piece
in the Wall Street Journal came out last night a
bit after that, and I was I was reading through it,
and I was like, okay, like, you know, show me, like,
what's what's going on here? And I got to the
paragraph immediately afterwards. The new mechanism is effectively a coordination
(14:42):
cell to move traffic through the Strait, involving countries, insurance companies,
and shipping organizations. According to two senior US officials, it
doesn't currently involve US Navy warships escorting vehicles through the strait,
So basically it sounds like there it was the US
trying to say, hey, this is the path that you
can take, and we're not going to escort you through,
(15:05):
but we can provide information and so on and so forth.
Speaker 3 (15:09):
And to be clear, while there's a lot of fog,
going on in the first five hours of this morning
on Eastern time.
Speaker 4 (15:16):
It appears that.
Speaker 2 (15:18):
Guys, I want to tell you, like, no one knows
anything about what's happening right now, so I think what.
Speaker 3 (15:23):
We can say confidently, it doesn't appear that a bunch
of ships are now moving through the Straight of Hormos.
Speaker 2 (15:27):
So here's that much, here's the lay of the land
this morning. And again, like it's almost impossible to verify
any of this because we don't have access to real
time data surrounding the movement and damage status of various
ships throughout the Straight of Horn moves. So the United
(15:49):
States United States Central Command is indicating that two US
destroyers have passed through going inbound in order to provide
additional assistance to ships that are already in the Persian Gulf.
SENCOM also indicated that two US flagged commercial vessels have
exited the strait at this point. But we don't have
(16:11):
any tracking data on any of this, Like it's all
happening without what's called the AIS systems turned on in
these ships, so we don't know where they actually are.
Speaker 3 (16:18):
Other pieces of information, some Iranian media outlet claim to
have struck US Navy ships the USA Command denied as much.
Speaker 4 (16:27):
And then there's a.
Speaker 2 (16:28):
South Korean ship that has been struck. There's a UAE
one that's been struck that again we think no, the
UA is confirmed at the US the UA confirmed that,
and South Korea confirmed that their ship got hit. Yeah,
the other thing that happened this morning. And this is
wild in like forty three different ways. So Iran also
(16:48):
published pictures of the new of their new map for
their zone of control through the Strait of Hormus, and
the part that's really interesting and potentially escalatory is on
the eastern side, So outside of the strait, there's a
port in the in the UAE Fujaira, which is where
(17:11):
there's a one and a half million barrel a day
pipeline that's been running there that has been allowing you know,
exports from the UAE from a port outside the Strait
of Horror moves. The new Iranian maps that they published
today claim it are claiming that area as Iranian water,
and so basically any ship that's loading there may in
(17:32):
theory be targeted. So where we're heading right now is
a pretty dangerous spot this week because the United States
and what's probably like a pretty like strong tactical move
is saying, look, we're going to you know, basically, dare
you to start shooting at US if we're going through
the strait Iran may or may not have if these
(17:54):
ships actually pass through, Like we really don't know what's
happened yet. Iran likewise is saying, Hey, we're now claiming
a larger area, as you know, something under our control,
and we might start shooting at stuff in that larger area.
And so it does feel like things are kind of
coming to a head this week because you can only
(18:14):
escalate rhetorically for so long before you have to actually
do something in the physical.
Speaker 3 (18:19):
World been fairly quiet for now what about three weeks,
and so like, this is a dangerous week here, and
we're gonna have to see how this plays out.
Speaker 2 (18:27):
I have no idea what's going to happen. Maybe the
US is successful in being able to start moving things
because Iran doesn't want to actually start shooting at US ships.
Maybe that's not the case, Like, I don't know.
Speaker 4 (18:43):
I mean, it's pretty clear that it wasn't the case
of the UAE ship.
Speaker 2 (18:46):
But this is a pretty big week here, and I
think that it has the potential to evolve in a
number of ways that are unpredictable as we look at
what each side is pushing into, you know, the middle
of the table for a poker analogy. So again, we'll
see where this goes here. But the fog of war
(19:09):
is thick right now. It's very hard to know what's
actually going on. But we'll have to just see how
things evolve over the rest of the week because it's
messy at the moment. Quick break in Wall Street Watches Next, Like.
Speaker 1 (19:40):
Us on Facebook and follow us on Twitter at TFE show.
Breaking business news is always first right here on the
Financial Exchange Radio Network. Time now for Wall Street Watch,
tracking the stocks, the data, and the headlines driving markets
so far today right here on the Financial Exchange Network.
Speaker 5 (20:01):
Markets at the beginning of the weekend mixed territory, with
oil prices jumping higher over ongoing uncertainty. With this strait
of horror moves, traders are also ready for the April
jobs report on Friday morning. Right now, the dows down
a tenth of a percent, SMP five hundred is up
a tenth of a percent, NASDAC up nearly two cents
of one percent, or forty two points RUSS two thousand
(20:24):
is up about a third of a percent, sen You're
Treasure reeled up three basis points at four point four
to one two percent, and oil is edging higher, trading
at one hundred and two dollars a barrel. Aside from Iran,
the big development over the weekend came from game Stop,
after CEO Ryan co made an unsolicited offer to buy
eBay for about fifty six billion dollars. In an interview
(20:47):
with The Wall Street Journal, Cohen said that putting his
video game retailer and eBay under one roof could create
opportunities to cut costs and improve earnings. eBay stock is
up four percent, while game Stop share they're down by
four percent. Meanwhile, shares a Norwegian cruise line dropping eight
percent after the company cut its outlook, citing higher fuel
(21:08):
prices and also said consumers are rethinking travel plans Elsewhere.
Tyson Foods posted better than expected quarterly results, but said
soaring cattle prices weighed on its results. That stock is
up over one percent and after today's closing bell, we'll
see earnings from paramounts, sky Dance and Pallanteer. I'm Tucker
(21:29):
Silva and that is Wallstree.
Speaker 4 (21:30):
Watch.
Speaker 2 (21:33):
Yeah, we do need we got to talk about cattle
prices at some point. The uh, the beef is.
Speaker 4 (21:39):
Too damned high. Cats not getting any better.
Speaker 3 (21:41):
The beef is too damn high. Well, I'm just looking
forward to some of that lab grown meat.
Speaker 2 (21:47):
I mean especially we're heading right into prime grilling season.
Speaker 4 (21:49):
Michael, lab grown t bone.
Speaker 2 (21:52):
How do you grow the bone?
Speaker 4 (21:53):
It's plastic. It's my favorite part though, very high melts point.
Speaker 2 (21:58):
Let's talk a little bit about out this piece from
the New York Times. It's titled Spirit Airlines demise could
help other.
Speaker 3 (22:06):
Airlines insofar as there won't be as much competition and
therefore prices will they will not need to compete with
them on price quite as much.
Speaker 2 (22:15):
Well, and here's the thing. So there are a bunch
of fixed assets that are going to be for sale now,
whether you're talking about airplanes that Spirit was leasing that
you know someone else could pick up and lease, whether
you're talking about gates and landing slots that are available
at airports now. And so it is something where hey is,
(22:35):
airlines are facing all kinds of cost pressures on the
fuel side of things. For the ones that are forward looking,
they might be able to pick up some assets that
they would want to add in the future at discount prices.
Speaker 3 (22:49):
One thing that so all these airlines did a few
years ago, Delta, American, United is who I'm talking about here.
They all rolled out new pricing models. And what I
mean by that is not an entirely new wave price
in the airplanes like Southwest did. But if you want
to on American right now, you can buy what I
think they called their basic fair.
Speaker 4 (23:11):
You won't get to choose a seat, you won't get yep.
I don't think you'll get a checked bag.
Speaker 3 (23:15):
You might even have to pay for a carry on bag,
just like Spirit was doing.
Speaker 4 (23:20):
They were forced to do that, or they felt forced.
Speaker 3 (23:22):
To do that because they wanted to have a price
point that was more similar to what Spirit was offering.
I'll be interested to see if they even hold on
to that right like this. This is a money loser
for them. They don't make money on that seat that
they are selling dramatically, or if they do, it's a
very slim profit margin. And they only really offered it
because hey, you know, we can't have consistently Spirit airlines
(23:45):
showing price tickets. You know, ticket prices that are thirty
percent cheaper than ours. They won't anymore.
Speaker 2 (23:51):
No, And the other piece is, I'll quote here from
the piece and may have twenty twenty four, the airline
operated three point four percent of all domestic flights. Yes,
before it shut down. Spirit schedule for me would have
mounted to just one point one percent of domestic flights.
But the thing that you have to focus on here is, Look,
if there is supply of seats that is coming off
(24:13):
as well, but you still have the same number of
flyers who want to fly, all else being equal, that
in and of itself is going to push ticket prices
up because you have the same number of passengers, but
you don't have the same number of planes flying right now.
So you've got a situation where this is coming again. Like,
I'm not saying that this is good because again the
(24:35):
seeds for this demise. Look back in twenty twenty two.
Was it when they were when Jet Blue times to
buy them? Yeah, started up, yep, And I think it
was it was shut down in twenty four. Look, the
DOJ did no favors to Spirit with rejecting that merger agreed.
There's also no guarantee that a combined Jet Blue Spirit
(24:59):
would have actually been able to survive.
Speaker 4 (25:01):
Can we talk about that right now?
Speaker 3 (25:02):
Because Jet Blue the company, by the way, who has
not made a profit since twenty nineteen, they're caring about
eight and a half to nine billion dollars worth of
debt right now. I mean, this is not a financially
healthy company. There's been this fascinating, like partisan debate that
I've been seeing who's to blame for the demise of Spear.
Speaker 2 (25:20):
Everyone wants to blame someone, right Here's the thing. Jet
Blue was losing money, still is, Spirit was losing money
still is. Their potential path to surviving was through a
merger that still might have resulted in the combined company
going out of business. Yeah, they would have had a
better chance to compete, absolutely, And it completely sucks that
(25:41):
the DOJ did not even give them a chance to
survive because again, as we've seen, like Spirit is this,
they tried to declare bankruptcy like three times in three years.
It just would not hit. Like that's not good, that's
not healthy. So it's clear that freak chance is better
than no chance at all. But it's unclear that the
combined company would have, you know, actually been able to
(26:03):
survive either These were two companies that were losing money
trying to live by merging and finding some efficiencies. You
can absolutely blame the Biden DOJ for not letting them merge, yep.
But even if they had, it might not have worked.
Speaker 3 (26:19):
Sure, And you can blame you know, high oil prices
on the Trump administration if you want. I don't think
the blame game is terribly useful in all of this context.
Here's another question. I don't have any there's no insinuation
whatsoever that Jet Blue has a you know, going concern
risk right now. If they do, they'll be required to
disclose it. But they haven't made any money on an
(26:40):
annual basis since twenty nineteen. That's not a sign of
a healthy company. Were they to go bankrupt. I know
there was this talk of a bailout for Spirit. How
big is the push for a bailout of Jet Blue
if Jet Blue starts going that direction, because there's not
a whole lot of competition left at that point. Like
(27:00):
if we're talking about full long, I don't mean bankruptcy,
because there's a lot of different types of bankruptcies.
Speaker 4 (27:04):
Spirit went through two of them over.
Speaker 3 (27:06):
The course of the last four years, and their plan
was to re emerge so Jet Blue can go through bankruptcy.
That's not what I'm talking about. But if Jet Blue
is pushed to liquidate, do you have to bail them?
Speaker 4 (27:17):
Ount? I don't.
Speaker 3 (27:18):
You don't have to bail one does not have to
do anything, right, but there there would certainly be immense
political pressure to do so.
Speaker 2 (27:26):
So here's the thing. This is potentially something that's closer
than you think. And what I mean by that is
they're free cash flow right now. Trailing twelve months is
negative one point one to six billion dollars. They're sitting
on two point twenty seven in cash and short term investments.
Maybe they've got some credit lines outstanding that they haven't
(27:46):
tapped in anything yet. And to be clear, I've got
to imagine all of this disclosure happened prior to this
was the beginning of the year, right, I mean, do
we know anything about their financial states since they started
paying whatever they're paying now for jet fuel? Let me
see if I can find the most recent quarter. Hold on,
just give me one second. Let's see. When is there
(28:09):
that's an annual Tucker? Thank you for putting me on
the clock. Here we go, Q one free cash flow
was what the heck does that even mean? No, I
can't read this right now, it's too much pressure. In
(28:29):
any case, their free cash flow is not going to
improve as a result of fuel jet fuel prices moving up,
it's going to get worse. And so this is something
where again, like, depending on what happens on the demand
side of things, you could have a situation where Jet
Blue is facing bankruptcy questions in the next two years.
(28:53):
Like that's not crazy to say, sure. And by the way,
that's reflected in the stock price right now with which
is four dollars and ninety five cents a share. And
to compare that to where it's been, you know over
the last five years or so. From five years ago,
it's seventy five percent down. Yeah, from three years ago,
(29:15):
it's thirty one percent down. You know, it's it's again.
And by the way, you see this also in the
product that they're offering. I was one of the like,
I was very much team jet Blue for the longest time.
Speaker 4 (29:30):
Yeah, they've been bottom.
Speaker 3 (29:31):
Of the reliability rankings for a better part of a decade.
Speaker 2 (29:35):
You can see that, like there's a difference in product
quality that you get flying them now relative to again,
like I put Delta at the top of the list.
But look, you even go on like United or an
American flight or Southwest quite honestly, you fly on, you're like, oh, like, yeah,
product quality is like pretty solid Jet Blue. Like you
get on some of the planes and you're like, man,
(29:57):
the TVs don't work half the time now, oh, like
the seats are like kind of ripped in some of
the ones that haven't had the cabin's replaced yet.
Speaker 4 (30:05):
It's showing its age and they don't have the cash
flow to reimprove.
Speaker 2 (30:09):
So we'll see what happens. They're going forward, but uh
worth watching. Let's take a quick break. When we come back.
We're talking gas prices after this.
Speaker 1 (30:17):
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(30:41):
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Speaker 2 (30:53):
All right, let's talk a little bit about gas prices.
Triple A National afforts right now is sitting at four
forty five and seven tenths of a cent. And the
big thing, we use about three hundred and seventy five
million gallons of gasoline a day in the United States. Uh.
And so if you do the math just based on
(31:14):
how much gas price have gone up over the last week,
which is around thirty three cents, it means that you
are seeing Americans and the aggregate paying around one hundred
and twenty five million extra dollars a day for gas
compared to a week ago.
Speaker 3 (31:27):
Yeah, we had done the math on some of this,
you know, earlier this year, before tax refunds started going out. Yeah,
it seemed to me that should gas prices remain around
this high that you know, for the average person, they're
spending you know, around three quarters of that tax refund
on these elevated gas prices. Except I'm trying to get
to there is there is obviously some benefit to tax
(31:50):
cuts this year.
Speaker 4 (31:51):
Sure, the One Big Beautiful Bill Act is.
Speaker 3 (31:52):
Expected to increase the deficit by four trillion dollars over
the next decade.
Speaker 2 (31:56):
So you know, it doesn't do that by not doing
anything right.
Speaker 3 (32:00):
It's government spending On the other hand, this doesn't really
work exactly because it's not like gas prices are a
result of a new tax. But you know, if the
US consumes about seven point four billion barrels of oil
per year and you're talking about a price increase of
around forty dollars, that's like, you know, close to three
hundred billion dollars that's going to you know, some of
(32:24):
that's going to the bottom lines of Exon and you know,
executives there, but a lot of it's being sapped out
of Americans pockets through higher prices, and it's being partially
offset by things like, yeah, the One Big Beautiful Bill
Act investment from you know, previously heavy, heavily profitable companies
like Facebook and Google that are spending on AI and
(32:46):
that can last for a while, I guess, in the aggregate,
so long as we don't get to actual shortage problems.
Speaker 5 (32:53):
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Speaker 2 (34:06):
Piece in the Wall Street Journal, an aluminum crisis is
roiling the auto industry, and basically what you are seeing
here I'll quote the relevant part. The US cost of
primary aluminum from smelter is nearly ninety percent higher than
a year ago. The Warren Iran is driving up prices
by effectively choking off shipments from Persian Gulf countries, which
supply about one fifth of the aluminum consumed in the
(34:29):
United States.
Speaker 3 (34:30):
And don't forget that aluminum that's consumed from that area
also faces a fifty percent US terror Yes, but.
Speaker 2 (34:36):
To be fair, you can't tear if something if you
can't import it, true, so it doesn't compound that way.
But what you are seeing right now is that effectively
a metric ton of aluminum in the United States, it's
costing sixty one hundred dollars right now compared with thirty
two twenty a year.
Speaker 4 (34:54):
Ago, actually doubled.
Speaker 2 (34:55):
Yeah, okay, And so the problem that you have here
is biggest actually for Ford, which is again it feels
like Ford is just like running in This is not
a problem that they like could have foreseen, so like,
I don't blame them. But basically, what what happened here
is that Ford was trying to improve the fuel efficiency
(35:16):
of its F one fifty and went to a more
aluminum construction in it. And so because of how big
the F one fifty is, like just from a vehicle
size and weight standpoint, this is something that is disproportionately
affecting Ford because not only is the F one fifty big,
but it's the biggest car, truck whatever that they sell.
(35:37):
And so so.
Speaker 3 (35:39):
What you're telling me is pretty much the only product
line that makes Ford any money.
Speaker 2 (35:42):
Is Yes, it's just it's it's brutal here, and so
they're trying to deal with it the best that they can,
but ultimately it's, uh, it's something that is just uh
again really impacting Ford because they expect their commodity costs
to go from a billion dollars to two billion dollars
(36:02):
this year due to illuminum prices. Moving on.
Speaker 3 (36:06):
To be fair, I can't imagine that any I recognize
why Ford's F one fifty and specifically, you know, Ford
only really makes money on giant vehicles these days, so
they're going to have a bigger illuminum problem than just
about anybody else. But it can't be that, you know,
Toyota is having a really easy time acquiring aluminum at
(36:26):
good prices right now, Like this is a global problem
that every auto manufacturer is facing. Ford arguably because of
changes to their design as well as just the fact
that every one of their cars tends to have a
lot of metal in.
Speaker 4 (36:40):
It must be just the hardest hit with all of.
Speaker 2 (36:42):
This, you would think. So, yeah, it's it's not like
Toyota is sitting there going, oh, we're making all of
our cars with jeans, like you know, like no, like
good thing.
Speaker 3 (36:52):
We switched to bamboo six years Yeah, yeah, No, that's
not really how it works.
Speaker 2 (36:56):
The denim Corolla really took off, you know. It's no,
they're all kind of in the same boat. It's just
the product mix and sourcing is clearly impacting Ford in
ways that other companies are not being impacted as heavily.
Speaker 3 (37:10):
There was also, you know, domestically here, there was that
fire that took off an aluminum what do we call
an aluminum factories It a smelt smelter smelt that took offline.
Was that in New York or Ohio somewhere around there
over the course of the last few months, so that
is still offline. Ford's obviously, you know, pushing the Trump
administration asking for a you know, relief valve on the
(37:32):
tariff piece of it, at least if they can finally
get some of that aluminum into the United States, which.
Speaker 4 (37:38):
I don't know.
Speaker 3 (37:39):
But again, the war in Iran and changes to supply.
There was not the intent. The tariffs were right that
that was part of the plan. Here is we want
more of this stuff done domestically, and certainly Ford is
going to be trying to push for more of that
to be done domestically over the course the next few months.
Speaker 2 (37:57):
The word smelt has like two of the most divergent
meetings out of any word in the world in my opinion,
where it's like, depending on the context, it's either yeah,
I'm talking about using a bunch of heat to turn
one metal into a refined product, or I'm talking about
a really small fish. Let's take a quick break and
(38:18):
you can decide what we talk about next. On the
Financial Exchange
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