May 7, 2026 • 38 mins
The oil market may have changed for years to come.
Chuck Zodda and Mike Armstrong break down why energy analysts increasingly believe the world is entering a prolonged period of structurally higher oil prices as disruptions in the Strait of Hormuz continue to tighten global supply.
Also covered:
Chuck Zodda and Mike Armstrong break down why energy analysts increasingly believe the world is entering a prolonged period of structurally higher oil prices as disruptions in the Strait of Hormuz continue to tighten global supply.
Also covered:
- Why the world may never return to $60 oil
- How damaged Middle East infrastructure could impact supply for years
- The growing risk of jet fuel shortages and higher airfare prices
- Why strategic oil reserves are being depleted faster than expected
- How rising gas prices are hitting different states and consumers unevenly
- What strong AI demand means for long-term energy consumption
- Why fast food companies are sending mixed signals about the consumer economy
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Speaker 1 (00:00):
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(00:20):
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(00:42):
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(01:05):
Chuck Zadath, and Mike Armstrong.
Speaker 2 (01:11):
Chuck, Mike, and Ben with you today and as we
kick off our show, stocks again kind of awaiting next
word from the Middle East, I think in terms of
trying to make up their mind for whether to continue
the rally higher or maybe reverse a little bit. But
we're going to start today with further discussion of energy
(01:33):
prices and a couple different pieces. One from Baron's titled
one hundred dollars oil could be here to stay whatever
happens with the peace deal. The second one is from
the Wall Street Journal. It's an exclusive titled jet fuel
prices are spiking and Trump's advisors are worried. Mike, where
do you want to start in this broad conversation about energy.
Speaker 3 (01:55):
Well, let's start on the oil prices, since you just
saw a ten dollars drop in the price of oil
this week, and the argument being that it could stick
around one hundred dollars. In light of that most recent jump,
I recognize Brent is still over close to one hundred
bucks a barrel, But in light of that recent drop
(02:15):
in pricing, given the rumored news of a potential deal
with Iran, I have a tough time buying that it
sticks around one hundred. Now, I absolutely am convinced that
it stays elevated for a prolonged period of time. I'm
just I'm having a tough time picking a dollar amount.
Speaker 2 (02:37):
Well, look, let's let's be honest, because I don't want
to be stupid about this. Neither of us are energy analysts. Sure,
I don't have a specific price target for oil. I
can't tell you if ninety dollars oil is appropriate. I
can't tell you if a hundred is. I can't tell
(02:59):
you if a one hundred and ten is. What I
can tell you is that before this whole thing kicked off,
if we look at West Texas Intermediate and where we were,
you know, again, anytime from last June through this February,
(03:19):
I can tell you that fifty five to sixty five
dollars oil is not appropriate. Sure, we're not going back there.
If you think we are going back there, you've got
to show me the math. Because from the people I
know that are energy analysts, they've shown me their math,
(03:40):
and there is no path back to fifty five to
sixty five dollars oil in the next two to three years.
Speaker 3 (03:47):
Yeah, that's where I would agree I have no idea
if it's one hundred dollars to one hundred and twenty
or eighty to one hundred, but it's very sixtyl to
imagine that it's back to sixty. And maybe we should
talk about the why factor with all of that, I guess.
I guess first and foremost would be damaged infrastructure in
(04:10):
the Middle East. Right, Let's start there, because that's been
the front and center stuff in terms of the war,
and then we can kind of work our way back
through the supply chain. But first and foremost, there's been
an unknown amount of damage done to all sorts of production, storage,
and other facilities when it comes to oil, gas, and
(04:32):
other commodities coming out of the Middle East?
Speaker 4 (04:33):
Am I wrong?
Speaker 2 (04:35):
You're right? But even before that, let's look at the
situation before the war started, Okay, in general, and again
these are estimates because no one knows exactly like this is.
Again it's not like every single barrel is you know,
accurately tracked to the barrel. But the estimates are that
(04:56):
prior to the conflict, there was anywhere from a one
to three million barrel a day surplus in production, so
oil markets were not perfectly in balance to begin with. Okay,
that one to three million barrel surplus can end up
going into a number of different areas, but ultimately it
(05:18):
has to make its way into storage somewhere. And part
of the reason why to this point you've been able
to get by with a rise just to where we
are in gas and oil prices is because largely that
surplus existed in the form of on water tankers that
we're sitting around with cargoes that they couldn't deliver because
no one wanted them quite yet. And so what we
(05:42):
have here is a situation where that surplus was kind
of the entry into this situation. So then we get
to the point that you make, which is, hey, there's
been damaged infrastructure. Some of it is refineries, some of
it is production facilities. You've got a bunch of production
facilities that are stopped and are going to need to
(06:03):
take time to get flowing back to normal capacity again.
And there are some of those wells that do not
get one hundred percent back to full capacity. Ever, when
you shut in wells like that's one of the uncertainty.
In general, you can get pretty close, but occasionally you
run into cases where, hey, production topped out at you know,
ninety five percent of what we used to do, and
(06:24):
that's just you know, how it is. So I think ultimately,
when you look at, you know, the twelve million barrels
a day that are offline, I think it's a fair
assumption that you probably get at least like eleven and
a half of that back over time. But it probably
takes three to four months to get back up to
full speed once they start pumping again, which is not
right when Hormuze reopens because.
Speaker 4 (06:45):
The ships cant again move out.
Speaker 2 (06:46):
These are you've got to get ships in to unload
the cargoes that are filling up the land based storage
and then you can start pumping again. Like that's the
only way that you do it. So ultimately you're probably
looking at that normal production if everything goes well. Let's
say that there is a Horror Moves reopening today, it's
going to take another month or so to get ships
(07:09):
back in and actually you know, moving this stuff. So
now you're into mid June, then you got three to
four months from there. It's gonna be mid to mid
September to late October by the time you have full
production back if things start moving today.
Speaker 3 (07:24):
So that's the supply side of things, unless you have
other supply side points to make you want to shift
over the demand side of the equation for a moment here.
Speaker 2 (07:33):
A couple other small supply side things. Yeah, you do
have some additional production that is going to be coming
online from Venezuela over the next year or so, assuming
things start to go well there. The estimate's there maybe
half a million to three quarters of a million barrels,
so it probably makes up any gap in what you
lose from those well shut ins. The other piece, over
(07:56):
a longer time frame, you've got all kinds of countries
now talking about you know, hey, do we want to
change our drilling policies to become more energy and dependent. Mexico,
Australia like these are some of the ones that are
talking about it. They're talking now. It doesn't mean anything
actually happens right now, but there's the potential for increased
production as you get out like three to five years
(08:18):
from now, because of the conversations that are happening.
Speaker 3 (08:20):
Okay, So then moving over to the demand side of
the equation, you now, let's assume for a minute that
we do not get a big recession here in the
United States or China or or Europe some of the
you know, bigger oil consumers out there. Let's assume that
we're still dealing with a status quo economy that's being
(08:41):
driven by this AI trade and other factors. You have
demand that's you know, relatively stable. But I do wonder
about the energy independence point that you just made, or
if it's not energy and dependence, then it is you know,
multiple layers of security after countries like Vietnam, India, Australia
(09:05):
and most of Europe are learning some hard lessons right
now about energy storage and what it means to not
have the types of reserves that China, for instance has.
Speaker 2 (09:14):
Yeah, so number one, you got to believe that all
those countries that don't have significant strategic reserves are going
to be trying to build them up if they can
afford to, and if you can afford to is an
important piece. Sure, there are some countries that won't have
the capacity to build strategic reserves with oil priced at
ninety to one hundred a barrel. They just they don't
(09:37):
have the money to do so based on their budgets
and currencies. So that's gonna be one piece that plays
into this, but ultimately you've got a bunch of countries,
you know, you mentioned India in particular, you know Europe,
like you go through, you know, one by one, Australia
and you say, Okay, the countries that you know didn't
have meaningful strategic reserves, you better leave that on the
(10:00):
back end of this. They are going to be building
those up because they don't want to get stuck in
this situation if there's a flare up in the Middle
East five years from now. Again right number two. One
of the reasons, the one of the other reasons why
we've been able to navigate this with oil prices only
going up to where they are, is that the countries
(10:22):
that do have larger strategic reserves, Japan, the United States,
most notably, we are releasing those to the tune of
worldwide somewhere in the ballpark of two million barrels a day.
Those reserves are likely to be exhausted down to minimum
operational levels by the late fall, like that's that's where
(10:43):
you're going to be. So those also need to be
refilled because if you have another crisis like this that
does come up, you can't have that ballast offsetting it.
If you don't have the strategic petroleum reserve refilled at
least partially, you know, and Chartley is not gonna be like, hey,
three million barrels over five years, It's gonna have to be. No,
(11:05):
you probably need to start, you know, putting fifty to
one hundred million barrels a year into this thing, with
the idea that you can get it refilled within the
next five to ten years. Like that's that's the plan
that you need to have. So that's gonna be additional
demand as well that is potentially increasing. And so where
(11:25):
this ultimately goes then is between infrastructure that's going to
take some time to spool up, plus normal demand returning
because already, like again the prices that we're seeing are
happening with Asia and Europe and Africa curtailing demand significantly,
that's going to ramp back up. What is the path
(11:48):
to oil getting back into the sixties. Yeah, it's I again,
I don't know if eighty is the right price.
Speaker 3 (11:54):
Global recession is the answer, check right, But my point is, look,
I don't know if one hundred dollar.
Speaker 2 (12:00):
Oils here to stay, but I know that sixty dollars
is not. And if you know, if you want my
range well, against can depend on how long this lasts,
and so on and so forth. Anywhere from seventy five
to one hundred and twenty seems reasonable depending on exactly
how things play out. But I don't know exactly how
(12:21):
things are going to play out. So that's kind of
where we are right now. Let's take a quick break.
When we return, let's talk about this jet fuel piece.
Speaker 1 (12:29):
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Speaker 2 (13:21):
All right, let's talk a little bit about what we
are seeing with jet fuel right now. Sure as one
of the major refined products that is obviously in demand
because of the eighty thousand some odd commercial flights that
take place around the world on any given day. We've
got real concerns about jet fuel shortages that have led
(13:42):
to European airlines starting to cancel flights for the late
spring and summer period. And you've got a Wall Street
Journal piece out today titled jet fuel prices are spiking
and Trump's advisors are worried. And basically what we're seeing
here is that if you look at what's happening happening
to airline ticket pricing, that's the other side of reduced
(14:06):
supply that you see. Airlines cutting flights is one thing.
The other piece is that ticket prices have moved up.
And in March again not even April, the price of
a US domestic round trip economy ticket rose twenty one
percent from a year earlier to five hundred and seventy dollars,
and so you've got some real upward pressure on airfares.
The airlines that have reported earnings have indicated billions of
(14:28):
dollars in additional fuel related charges that they're needing to take,
and so this is something that is obviously front and
center when you look at trying to manage the economy here.
Speaker 4 (14:41):
Yeah, this is a.
Speaker 3 (14:44):
We're all hyper aware of gas prices. Most of us
are then looking at diesel prices on a regular basis. Two,
we don't really see jet fuel prices, but they have
roughly they roughly doubled in a matter of weeks following
the war. The concerns I would imagine for the Trump
administration or a fewfold.
Speaker 4 (15:02):
One.
Speaker 3 (15:03):
You generally don't want much higher prices leading into midterm elections,
especially around the summer travel season.
Speaker 2 (15:10):
Two.
Speaker 3 (15:12):
Spirit Airlines may have gone out of business regardless, but
higher jet fuel prices certainly exacerbated the issue. And if
you have another airline that goes belly optimestically, I think
there's going to be serious political pressure to do something
about it. So I think it's not just the ticket
prices that consumers are facing and the you know, higher
(15:33):
costs for taking that summer road trip that we're going
to face. I was talking to my clients who bought
an RV a couple of years ago, and they're like,
thank god we filled it up with diesel back in February.
But the airline piece of all of this is a
big question too. And you know, Spirit was in very
(15:54):
rough position going into this whole event. But it's not
as though other airlines are in perfect financial health right
now across the United States. And I do just openly
wonder what it would look like if you had another
one slip into bankruptcy.
Speaker 2 (16:09):
Yeah, and I think again to this point, it's the
higher prices are what you are seeing. But we've talked about,
you know again, kind of just the overall math when
you look at US domestic commercial crude oil inventories, and
ultimately you get to a place where, hey, it's part
(16:29):
of the reason why Europe is able to maintain the
level of flights they are right now is because they
are drawing on US either refined product or crude product
or crude stocks at the moment. Eventually, you get to
a point somewhere in the mid to late summer where
that becomes impossible and the problem is exacerbated and it
(16:52):
becomes just a question of hey, who can pay the
highest price for whatever is remaining on the markets. So
this is something that again, the only way this resolves
is through the strait of hormoves opening, and every day
that we go the problem is simply backbuilding and going
to reveal itself to be a larger problem once we
(17:12):
finally get to that point.
Speaker 3 (17:14):
Yep, I think that that really does it.
Speaker 4 (17:19):
I'll be interested to hear.
Speaker 3 (17:21):
You know, we don't really have a good sense of
what bookings look like yet. For I guess we do,
because you tend to book that summer travel pretty far
in advance. But I'll be interested to hear. You know,
we'll be hearing locally about all sorts of you know,
summer travel along the Capean Islands and all across New England.
(17:41):
And you know, does demand hold up in twenty twenty
six with fuel prices.
Speaker 4 (17:46):
Being where they are. It's, you know, an interesting question,
tou ponder.
Speaker 2 (17:51):
Sticking with energy markets, pieces and market watch traders point
to suspicious activity in the oil market on Wednesday. I
got to be honest, I don't know if there's anything
that's actually suspicious about this or not. I am not
an energy trader. Maybe it is, maybe there's a perfectly
good explanation, but someone just before the announcement of the
(18:14):
one page document, the memorandum of understanding being discussed, apparently
took a big short position in crude oil. I don't
know if there's any meat on the bone for that.
Actually being suspicious or if these things happen all the
time and it's just people are paying attention. Now.
Speaker 3 (18:30):
Yeah, I don't know either, Chuck, But clearly they're paying
attention because there's been reports of these types of actions
all over the course of the last year. We had
the big announcement of.
Speaker 4 (18:41):
It.
Speaker 3 (18:41):
Was it a Special Forces guy who was placing bets
on the Venezuela thing, And so I think clearly people's
hackles are up on all of this. And while the
sec you know when you're talking about manipulation of individual securities,
is involved in pretty darn good at detecting all this,
(19:02):
it seems to me from experts that the CFTC, which
regulates commodities and all of the new bets being placed
on Calshi for instance, do not have the same mechanisms
in place to be able to research and detect all
of this stuff and are playing a bit of catch up.
Speaker 2 (19:17):
Yeah. Yeah, it's it's one where I just I don't
have the market expertise in these niche markets to be
able to tell quick break. Here Wall Street watches Next.
Speaker 1 (19:41):
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Street watch trecking the stocks, the dato and the headlines
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Exchange Radio Network.
Speaker 5 (20:02):
Ten thirty four and markets are currently mixed right now.
The Dow Jones is off one hundred and thirty two points,
are just over a quarter of a percent. The s
TOB five hundred, however, is up seven point twenty four points,
or a tenth of a percent. The NASDAC is also
up up one hundred and forty two points are just
over half a percent. Meanwhile, gold is up a point
(20:22):
percent and a half, while silver is up over six percent.
Shakeshack shares are off thirty percent after the burger chain's
first quarter results fell short of expectations and it reported
an operating loss of two point six million dollars Shakeshack
shares Shakeshack's earnings per share broke even versus earnings of
twelve cents a share expected from analyst. Revenue came in
(20:45):
at three hundred and sixty six points seven million dollars
versus the three hundred and seventy two million dollar consentsus estimate.
McDonald's posted a beat on both the top and bottom line,
sending shares up over three tenths of a percent. Adjusted
earnings came in at two dollars and eighty three cents
per share, versus the two dollars and seventy four cents
a share expected by analysts. Revenue was six point five
(21:07):
to two billion dollars, compared to the six point four
to seven billion consensus. Door Dash shares up up a
percent and a half after the food delivery giant issued
rosy guidance for orders in the second quarter. Door Dash
sees marketplace gross order value ranging from thirty two point
four billion dollars to thirty three point four billion dollars.
(21:28):
And finally, I on Q shares are off over four percent.
The Quantum Computing Company said that adjusted losses before interest, taxes, depreciation,
and amortization came in at ninety six point eight million
dollars in the first quarter. That's wider than the loss
of eighty point four million dollars analysts polled had sought.
I am ben Kitchen and that is Wall Street Watch Mike.
Speaker 2 (21:51):
We got a pc here in the New York Times.
Why gas prices vary so much by state, county and
city and good piece. I think it gets it, you know,
a lot of the key things, and there's some other
things that I would add as well.
Speaker 3 (22:05):
Yeah, I think we've brought this up before, where it
turns out Pennsylvania has the highest state level gas taxes
in the country. But you know, we never talk about
Pennsylvania as having way higher gas prices, for example, than California.
And the reality is that there are some unique circumstances
in different parts of the country that lead to gas
(22:26):
prices being off the charts in places like the West
Coast and California in particular, and not so much in
other parts of the country.
Speaker 4 (22:34):
But one would just be.
Speaker 3 (22:36):
Yes, the state tax is very dramatically placed by place,
but in California in particular, they have a few weird
things going on. One notoriously bad pollution and small problems
over the decades caused them to require a different blend
of gasoline than pretty much anywhere in the country. And
then you know, follow that up with a lack of
(22:58):
refineries in the state, combined with just plain geography that
makes it difficult, for example, to ship gasoline from Texas
to California because of sprawling mountains and those issues, they
end up importing it all, oftentimes via foreign producers by
ship into California, leading to well combination of high taxes,
(23:21):
unique blend requirements, and just their plane geography driving gas
prices to where we're seeing now over six bucks a gallon.
Speaker 2 (23:28):
Other things that other things that matter, quite honestly, like
the town that you are buying the gas in matters,
not because like towns have their own gas tax, but
you see this when you drive around, if you are
driving through a wealthier part of the state that you
live in, do you see higher lower gas prices. Yeah,
(23:51):
it's it's it's just how it's just.
Speaker 3 (23:53):
Like they don't have market baskets in Weston, they tend
to charge higher gas prices.
Speaker 2 (23:58):
Too, Right, you can see I mean locally, I would
say normally you might see like a ten to fifteen
percent swing from wealthier to poorer areas of the state
in terms of gas prices.
Speaker 3 (24:12):
This comes up every week with me with Ed Lambert
down the Cape because whenever I talk to him, I'm
generally driving along Route one in Saugus, where you have,
like notoriously, some of the cheapest gas prices in the state,
and he's talking to me from Cape and probably filling
up his you know, his Mercedes with ninety three octane,
and we're looking at like a dollar difference in price
(24:32):
gas prices at pretty much any given point in time.
I'm sorry, Ed, I'm ripping on you a little bit,
but I think you have told me that you put
in the higher octane gas into your vehicle, whereas I'm
driving a Honda Civic and don't care what I put
into it.
Speaker 4 (24:45):
And yeah, that is a reality.
Speaker 3 (24:47):
If you try and buy gas on the Cape compared
to in Saugus, you're going to pay a heck of
a lot more.
Speaker 2 (24:51):
So I think ultimately this is a situation where some
of these differences in re you know, proximity to refinery
and the types of oil that are needed, the types
of gasoline that are needed in different areas, These are
going to become more apparent as we go through the
summer and supply of crude and product gets tighter. So
(25:14):
I think this is something to watch just because price
disparities are likely to widen more as a result of that.
And unfortunately to anyone who might be listening from California,
that probably means that you're gonna be feeling even more
pain than you already are. And this comes despite California
right now as always having the nation's highest gas prices
(25:36):
north of six dollars and sixteen cents a gallon. It's
not crazy to say that California could be seeing again
if the strait of hor moves does not reopen very
very quickly here. It's not crazy to think that California
could be seeing gas prices close to nine dollars a
(25:56):
gallon later in the summer if things move more rapidly,
maybe they only get up to like six fifty or seven,
but like you could very easily be heading towards higher
numbers there because of again, just how the overall network
of production and distribution works.
Speaker 3 (26:15):
I know that I sound like a smug little jerk,
but does that not make anybody else smile and giggle
just a little bit to hear about gas prices being
like two dollars more than anywhere else in this country
in California just a little bit?
Speaker 2 (26:27):
Why would it make me smile? Mike? Like what, I
don't really ever wish pain on anyway.
Speaker 3 (26:33):
Yeah, it's just one of those situations of your own
making that makes me laugh a little bit. But yeah,
I guess I do wish pain on some people a
little bit more than you do, Chuck. So I apologize
in the story of the year that did not need
to be printed because who didn't know this? The New
York Times tells us that higher gas prices are hitting
lower income Americans the hardest. Wait, to which I say,
(26:56):
who was unaware of that? It don't mean to be insensitive, No, but.
Speaker 2 (27:01):
You're telling me no, Mike. The the person you're being
insensitive to is the writer of the piece. True, because
quite honestly, like look of course, like when you have
a smaller income, gas takes up a disproportionately larger portion
of it if you happen to own or lease or
rent a vehicle, And so because of that, it's not
(27:23):
surprising that someone making thirty thousand dollars a year feels
the pain of gas going up by fifty percent more
than Jeff Bezos does.
Speaker 1 (27:31):
Yes.
Speaker 3 (27:32):
Do you remember when we were talking about nine percent
inflation in twenty twenty two, Yes, also happens to hit
the lowest income earners the hardest. During that period of time,
there was at least a bit of an offset there
where at the same time those same wage earners were
getting the biggest percentage increases in wages. But yeah, generally speaking,
goods inflation being higher than normal and I'm gonna include
(27:52):
gasoline in that category will hit the people that can
afford that increase the least the hardest. So thank you
New York Times for really breaking that brainbuster down for us.
Speaker 2 (28:02):
Also, I was poking around on Shell's earning call earnings
call this morning, just because again, whenever you have an
energy company reporting earnings right now, what they say in
the earnings isn't really interesting. It's more hey, tell me, like,
give me the context of what you're talking about on
your call. Sure, And the CEO on the call basically
(28:23):
confirmed what we've been talking about for the last month
or so, which is the best case scenario right now
that is already pretty much come and gone. Is a
billion barrel production shortfall worldwide this year, and every month
that the straight remains closed, you're talking about adding another
three hundred and fifty to four hundred million barrels of
(28:45):
production shut in to that. So basically where you stand
right now is look, the best case for getting things
reopened there and production resuming is starting in mid June. Again,
like you could have things open today, but production still
doesn't restart till mid June. You're looking at somewhere in
(29:06):
the range of like one point six to one point
seven billion barrels in production capacity lost for this year,
and every day that you go, you can add another
twelve million to that.
Speaker 4 (29:17):
Like, this is a lot.
Speaker 2 (29:19):
This is the math. This is the math that is
just unavoidable, and like it's there's just no way, uh
to change it, and like to put this in perspective. Okay, Uh,
the moon again, this is just the best way that
I have to to frame this, Mike. Do you know
how far away the Moon is from the Earth on average? No? Uh,
(29:40):
it's about two hundred and fifty thousand miles, got it.
Do you know how many feet that is? No, it's
one point three two billion feet. That's how that's how
many feet away from Earth the moon typically is.
Speaker 4 (29:55):
Good?
Speaker 2 (29:56):
How hi, do you think of a barrel of oil?
I don't know, Chuck, Okay, just to sell I don't know, Okay,
I was I was just saying, a barrel of oil,
let's call it. It's it's four feet high, Okay. Yeah.
That means that every month you are losing effectively a
stack of oil barrels tall enough to go from the
(30:18):
Earth to the moon.
Speaker 3 (30:20):
Thank you for contextualizing that, because I was having a
tough time envisioning it until you put it in those terms.
Speaker 2 (30:25):
No, like, it's again, none of us are like, oh, like,
let's just go to the moon. It's easy. That's how
much oil you're losing each month in production is enough
to go to the moon, not like physically like go
to the moon, but enough to build a stack high
enough to reach the moon. Like it.
Speaker 4 (30:41):
I like the comparison.
Speaker 2 (30:43):
I thought that was useful. It's kind of a nice
way to like, No, no one knows what like twelve
million barrels a day for a month looks like. And
that's it. Let's let's take a quick break on that
and when we return.
Speaker 3 (30:56):
Do you want to talk China? Are fast foods your option?
Speaker 2 (31:00):
I want to talk Can we talk Chinese fast food? No? Wow,
let's talk fast food. It always gets me going.
Speaker 1 (31:08):
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Speaker 5 (31:33):
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Speaker 2 (32:08):
Mike, we landed on fast food as our topic for
the start of the segments. What do we want to
talk about? Favorite side dish, favorite burger? What are we doing?
Speaker 3 (32:19):
Where would we be talking about, like, what's the favorite
side dish for I guess like Boston Market.
Speaker 4 (32:25):
You could do that. That's kind of tough for me.
Speaker 2 (32:26):
For me, what do you mean it's not just Mike.
You gotta look at this, Mike, as Taco Bell says,
you got to think outside the bun it's not just
French fries that you have. You go to Wendy's and
get one of those lovely baked potatoes. You could go
to Taco Bell and get a nice little side of
nachos or something like that. There's all kinds of different
options out there, depending on what you're looking for.
Speaker 3 (32:44):
I'm gonna come out and say that if you're at Wendy's,
Burger K, McDonald's, or any of the traditional burger chains
and it's anything other than French fries, and there's something
wrong with you.
Speaker 2 (32:54):
And on your ring occasionally never heard anyone where do you.
Speaker 4 (32:57):
Even get on you? Okay, let's move on.
Speaker 2 (33:00):
Yeah, burger can get under rings.
Speaker 3 (33:02):
A bunch of the fast food companies reported earnings this week,
including McDonald's, and most of them pointed to a pretty
resilient consumer in the first quarter, and a bunch of
authors or journalists are writing about how, you know, basically
the consumers are showing up and buying in spite.
Speaker 4 (33:19):
Of the war in Iran.
Speaker 3 (33:20):
It doesn't it just feel a little bit early to
you to write that story. Yeah, I mean, they barely
experienced the war in Iran during the first quarter of
the year.
Speaker 2 (33:31):
The data is through March. It's not really convincing to me.
And the other thing that I will say so McDonald's,
just as an example, they reported that same store sales
were up three point nine percent from a year earlier. Mike,
do you know what the CPI is for food away.
Speaker 3 (33:45):
From home for the last twelve months. I don't know,
but it's probably pretty close.
Speaker 2 (33:50):
Three point eight percent. So you sased all the telling stuff.
It basically telling you there's like almost no organic sales growth,
and it's just through price increases that you're able to
see that. So I think that where I tend to
land is, Yes, the companies that are reporting earnings on
this stuff, these are the quarters that ended in March.
(34:10):
You know, the real gas price increases. Like if you
go and you take a look at the the charts
that you have for how gas prices have moved. Gas
prices didn't you know, get above four dollars a gallon
until April first, you know, so if you're looking at
(34:31):
you know, two thirds of Q one was not impacted
by this. The second third was you know, generally running
you know, somewhere around like a fifteen to twenty percent
gas price increase and it's only now as you've gotten
into May that you're looking at a fifty percent jump
in gas prices. So yeah, I think it's a little
bit early to be saying, you know, this is this
(34:52):
is fine. And the McDonald's CEO, by the way, pretty
much said the same thing on their conference call, and
I'm trying to find the quote here. It's certainly it's
getting it's certainly not improving and might be getting a
little worse. How this plays out is you know, I
think an open question, and our focus is on what
we can control.
Speaker 4 (35:11):
Yeah, that haven't been said.
Speaker 3 (35:12):
I mean I can see that being an issue for
Starbucks and maybe a few other of these fast food
restaurants out there. I don't McDonald's continues to maintain their
brand of a value option. I think, like Walmart, there
are a few companies out there that I look at
that have a better reputation for value and so I'm
(35:35):
just unconvinced that higher gas prices would lead to a
drop in sales for the likes of McDonald's and Walmart
and a few others. Yeah, Starbucks, Chipotle, Sure, McDonald's, I
don't know.
Speaker 2 (35:46):
Not buying Let's see here, I want to cover this
one story, also from the Wall Street Journal, Craft Time
CEO pushes value consumers are literally running out of money.
And again it's not to say that this is not
a really challenging environment for a lot of households right now.
But again it's tough to match that rhetoric with what
(36:09):
we're actually seeing as far as spending trends, which from
all of the major banks continue to run somewhere between
like five and seven percent year over year growth with
no change in trajectory.
Speaker 3 (36:22):
Yeah, look, we've heard this affordability story a few times before.
I also just I do have to comment on the
photo of the Craft Hid CEO, who is kind of
frighteningly standing in front of a giant.
Speaker 4 (36:34):
Kool Aid man Lloyd.
Speaker 3 (36:37):
Lloyd Man's going to get you know, he's got this
reputation for just you know, blowing through buildings and he
looks like he's about to tackle the Craft Time CEO.
So interesting photo choice, but but yeah, look I'm with you, Chuck,
insofar as affordability does matter, and there are several indications
that the giant benefits that were paid out during the
(37:01):
COVID era, combined with the pause on loan payments has
left consumers in a pretty strapped place. But I'm also
willing to say that that same exact narrative had been
playing out for four years and has not caused an
economic demise. So I'm kind of done reporting on it
until we actually see it. Like, tell me when consumer
(37:22):
spending decreases year over year, and then I'll buy that
we have a problem. But in the meantime, these stories
about mortgage defaults and student loan defaults climbing and oh,
we've heard hit the highest level of you know, mortgages
in it's not default, but you know, delinquency in the
last five years, Like those are only interesting stories in
(37:44):
the context of the last five years and doesn't really
indicate anything about the broader economy. And I'm not sure
anything about this moment does either.
Speaker 2 (37:51):
If you want to tell me increasingly that lower income
consumers are becoming, you know, such a small part of
our economy that it's not showing up, I can believe that,
and that is not a good thing either. Let's take
a quick break here. We've got our two coming up
in just a little bit.
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(01:05):
Chuck Zadath, and Mike Armstrong.
Speaker 2 (01:11):
Chuck, Mike, and Ben with you today and as we
kick off our show, stocks again kind of awaiting next
word from the Middle East, I think in terms of
trying to make up their mind for whether to continue
the rally higher or maybe reverse a little bit. But
we're going to start today with further discussion of energy
(01:33):
prices and a couple different pieces. One from Baron's titled
one hundred dollars oil could be here to stay whatever
happens with the peace deal. The second one is from
the Wall Street Journal. It's an exclusive titled jet fuel
prices are spiking and Trump's advisors are worried. Mike, where
do you want to start in this broad conversation about energy.
Speaker 3 (01:55):
Well, let's start on the oil prices, since you just
saw a ten dollars drop in the price of oil
this week, and the argument being that it could stick
around one hundred dollars. In light of that most recent jump,
I recognize Brent is still over close to one hundred
bucks a barrel, But in light of that recent drop
(02:15):
in pricing, given the rumored news of a potential deal
with Iran, I have a tough time buying that it
sticks around one hundred. Now, I absolutely am convinced that
it stays elevated for a prolonged period of time. I'm
just I'm having a tough time picking a dollar amount.
Speaker 2 (02:37):
Well, look, let's let's be honest, because I don't want
to be stupid about this. Neither of us are energy analysts. Sure,
I don't have a specific price target for oil. I
can't tell you if ninety dollars oil is appropriate. I
can't tell you if a hundred is. I can't tell
(02:59):
you if a one hundred and ten is. What I
can tell you is that before this whole thing kicked off,
if we look at West Texas Intermediate and where we were,
you know, again, anytime from last June through this February,
(03:19):
I can tell you that fifty five to sixty five
dollars oil is not appropriate. Sure, we're not going back there.
If you think we are going back there, you've got
to show me the math. Because from the people I
know that are energy analysts, they've shown me their math,
(03:40):
and there is no path back to fifty five to
sixty five dollars oil in the next two to three years.
Speaker 3 (03:47):
Yeah, that's where I would agree I have no idea
if it's one hundred dollars to one hundred and twenty
or eighty to one hundred, but it's very sixtyl to
imagine that it's back to sixty. And maybe we should
talk about the why factor with all of that, I guess.
I guess first and foremost would be damaged infrastructure in
(04:10):
the Middle East. Right, Let's start there, because that's been
the front and center stuff in terms of the war,
and then we can kind of work our way back
through the supply chain. But first and foremost, there's been
an unknown amount of damage done to all sorts of production, storage,
and other facilities when it comes to oil, gas, and
(04:32):
other commodities coming out of the Middle East?
Speaker 4 (04:33):
Am I wrong?
Speaker 2 (04:35):
You're right? But even before that, let's look at the
situation before the war started, Okay, in general, and again
these are estimates because no one knows exactly like this is.
Again it's not like every single barrel is you know,
accurately tracked to the barrel. But the estimates are that
(04:56):
prior to the conflict, there was anywhere from a one
to three million barrel a day surplus in production, so
oil markets were not perfectly in balance to begin with. Okay,
that one to three million barrel surplus can end up
going into a number of different areas, but ultimately it
(05:18):
has to make its way into storage somewhere. And part
of the reason why to this point you've been able
to get by with a rise just to where we
are in gas and oil prices is because largely that
surplus existed in the form of on water tankers that
we're sitting around with cargoes that they couldn't deliver because
no one wanted them quite yet. And so what we
(05:42):
have here is a situation where that surplus was kind
of the entry into this situation. So then we get
to the point that you make, which is, hey, there's
been damaged infrastructure. Some of it is refineries, some of
it is production facilities. You've got a bunch of production
facilities that are stopped and are going to need to
(06:03):
take time to get flowing back to normal capacity again.
And there are some of those wells that do not
get one hundred percent back to full capacity. Ever, when
you shut in wells like that's one of the uncertainty.
In general, you can get pretty close, but occasionally you
run into cases where, hey, production topped out at you know,
ninety five percent of what we used to do, and
(06:24):
that's just you know, how it is. So I think ultimately,
when you look at, you know, the twelve million barrels
a day that are offline, I think it's a fair
assumption that you probably get at least like eleven and
a half of that back over time. But it probably
takes three to four months to get back up to
full speed once they start pumping again, which is not
right when Hormuze reopens because.
Speaker 4 (06:45):
The ships cant again move out.
Speaker 2 (06:46):
These are you've got to get ships in to unload
the cargoes that are filling up the land based storage
and then you can start pumping again. Like that's the
only way that you do it. So ultimately you're probably
looking at that normal production if everything goes well. Let's
say that there is a Horror Moves reopening today, it's
going to take another month or so to get ships
(07:09):
back in and actually you know, moving this stuff. So
now you're into mid June, then you got three to
four months from there. It's gonna be mid to mid
September to late October by the time you have full
production back if things start moving today.
Speaker 3 (07:24):
So that's the supply side of things, unless you have
other supply side points to make you want to shift
over the demand side of the equation for a moment here.
Speaker 2 (07:33):
A couple other small supply side things. Yeah, you do
have some additional production that is going to be coming
online from Venezuela over the next year or so, assuming
things start to go well there. The estimate's there maybe
half a million to three quarters of a million barrels,
so it probably makes up any gap in what you
lose from those well shut ins. The other piece, over
(07:56):
a longer time frame, you've got all kinds of countries
now talking about you know, hey, do we want to
change our drilling policies to become more energy and dependent. Mexico,
Australia like these are some of the ones that are
talking about it. They're talking now. It doesn't mean anything
actually happens right now, but there's the potential for increased
production as you get out like three to five years
(08:18):
from now, because of the conversations that are happening.
Speaker 3 (08:20):
Okay, So then moving over to the demand side of
the equation, you now, let's assume for a minute that
we do not get a big recession here in the
United States or China or or Europe some of the
you know, bigger oil consumers out there. Let's assume that
we're still dealing with a status quo economy that's being
(08:41):
driven by this AI trade and other factors. You have
demand that's you know, relatively stable. But I do wonder
about the energy independence point that you just made, or
if it's not energy and dependence, then it is you know,
multiple layers of security after countries like Vietnam, India, Australia
(09:05):
and most of Europe are learning some hard lessons right
now about energy storage and what it means to not
have the types of reserves that China, for instance has.
Speaker 2 (09:14):
Yeah, so number one, you got to believe that all
those countries that don't have significant strategic reserves are going
to be trying to build them up if they can
afford to, and if you can afford to is an
important piece. Sure, there are some countries that won't have
the capacity to build strategic reserves with oil priced at
ninety to one hundred a barrel. They just they don't
(09:37):
have the money to do so based on their budgets
and currencies. So that's gonna be one piece that plays
into this, but ultimately you've got a bunch of countries,
you know, you mentioned India in particular, you know Europe,
like you go through, you know, one by one, Australia
and you say, Okay, the countries that you know didn't
have meaningful strategic reserves, you better leave that on the
(10:00):
back end of this. They are going to be building
those up because they don't want to get stuck in
this situation if there's a flare up in the Middle
East five years from now. Again right number two. One
of the reasons, the one of the other reasons why
we've been able to navigate this with oil prices only
going up to where they are, is that the countries
(10:22):
that do have larger strategic reserves, Japan, the United States,
most notably, we are releasing those to the tune of
worldwide somewhere in the ballpark of two million barrels a day.
Those reserves are likely to be exhausted down to minimum
operational levels by the late fall, like that's that's where
(10:43):
you're going to be. So those also need to be
refilled because if you have another crisis like this that
does come up, you can't have that ballast offsetting it.
If you don't have the strategic petroleum reserve refilled at
least partially, you know, and Chartley is not gonna be like, hey,
three million barrels over five years, It's gonna have to be. No,
(11:05):
you probably need to start, you know, putting fifty to
one hundred million barrels a year into this thing, with
the idea that you can get it refilled within the
next five to ten years. Like that's that's the plan
that you need to have. So that's gonna be additional
demand as well that is potentially increasing. And so where
(11:25):
this ultimately goes then is between infrastructure that's going to
take some time to spool up, plus normal demand returning
because already, like again the prices that we're seeing are
happening with Asia and Europe and Africa curtailing demand significantly,
that's going to ramp back up. What is the path
(11:48):
to oil getting back into the sixties. Yeah, it's I again,
I don't know if eighty is the right price.
Speaker 3 (11:54):
Global recession is the answer, check right, But my point is, look,
I don't know if one hundred dollar.
Speaker 2 (12:00):
Oils here to stay, but I know that sixty dollars
is not. And if you know, if you want my
range well, against can depend on how long this lasts,
and so on and so forth. Anywhere from seventy five
to one hundred and twenty seems reasonable depending on exactly
how things play out. But I don't know exactly how
(12:21):
things are going to play out. So that's kind of
where we are right now. Let's take a quick break.
When we return, let's talk about this jet fuel piece.
Speaker 1 (12:29):
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Speaker 2 (13:21):
All right, let's talk a little bit about what we
are seeing with jet fuel right now. Sure as one
of the major refined products that is obviously in demand
because of the eighty thousand some odd commercial flights that
take place around the world on any given day. We've
got real concerns about jet fuel shortages that have led
(13:42):
to European airlines starting to cancel flights for the late
spring and summer period. And you've got a Wall Street
Journal piece out today titled jet fuel prices are spiking
and Trump's advisors are worried. And basically what we're seeing
here is that if you look at what's happening happening
to airline ticket pricing, that's the other side of reduced
(14:06):
supply that you see. Airlines cutting flights is one thing.
The other piece is that ticket prices have moved up.
And in March again not even April, the price of
a US domestic round trip economy ticket rose twenty one
percent from a year earlier to five hundred and seventy dollars,
and so you've got some real upward pressure on airfares.
The airlines that have reported earnings have indicated billions of
(14:28):
dollars in additional fuel related charges that they're needing to take,
and so this is something that is obviously front and
center when you look at trying to manage the economy here.
Speaker 4 (14:41):
Yeah, this is a.
Speaker 3 (14:44):
We're all hyper aware of gas prices. Most of us
are then looking at diesel prices on a regular basis. Two,
we don't really see jet fuel prices, but they have
roughly they roughly doubled in a matter of weeks following
the war. The concerns I would imagine for the Trump
administration or a fewfold.
Speaker 4 (15:02):
One.
Speaker 3 (15:03):
You generally don't want much higher prices leading into midterm elections,
especially around the summer travel season.
Speaker 2 (15:10):
Two.
Speaker 3 (15:12):
Spirit Airlines may have gone out of business regardless, but
higher jet fuel prices certainly exacerbated the issue. And if
you have another airline that goes belly optimestically, I think
there's going to be serious political pressure to do something
about it. So I think it's not just the ticket
prices that consumers are facing and the you know, higher
(15:33):
costs for taking that summer road trip that we're going
to face. I was talking to my clients who bought
an RV a couple of years ago, and they're like,
thank god we filled it up with diesel back in February.
But the airline piece of all of this is a
big question too. And you know, Spirit was in very
(15:54):
rough position going into this whole event. But it's not
as though other airlines are in perfect financial health right
now across the United States. And I do just openly
wonder what it would look like if you had another
one slip into bankruptcy.
Speaker 2 (16:09):
Yeah, and I think again to this point, it's the
higher prices are what you are seeing. But we've talked about,
you know again, kind of just the overall math when
you look at US domestic commercial crude oil inventories, and
ultimately you get to a place where, hey, it's part
(16:29):
of the reason why Europe is able to maintain the
level of flights they are right now is because they
are drawing on US either refined product or crude product
or crude stocks at the moment. Eventually, you get to
a point somewhere in the mid to late summer where
that becomes impossible and the problem is exacerbated and it
(16:52):
becomes just a question of hey, who can pay the
highest price for whatever is remaining on the markets. So
this is something that again, the only way this resolves
is through the strait of hormoves opening, and every day
that we go the problem is simply backbuilding and going
to reveal itself to be a larger problem once we
(17:12):
finally get to that point.
Speaker 3 (17:14):
Yep, I think that that really does it.
Speaker 4 (17:19):
I'll be interested to hear.
Speaker 3 (17:21):
You know, we don't really have a good sense of
what bookings look like yet. For I guess we do,
because you tend to book that summer travel pretty far
in advance. But I'll be interested to hear. You know,
we'll be hearing locally about all sorts of you know,
summer travel along the Capean Islands and all across New England.
(17:41):
And you know, does demand hold up in twenty twenty
six with fuel prices.
Speaker 4 (17:46):
Being where they are. It's, you know, an interesting question,
tou ponder.
Speaker 2 (17:51):
Sticking with energy markets, pieces and market watch traders point
to suspicious activity in the oil market on Wednesday. I
got to be honest, I don't know if there's anything
that's actually suspicious about this or not. I am not
an energy trader. Maybe it is, maybe there's a perfectly
good explanation, but someone just before the announcement of the
(18:14):
one page document, the memorandum of understanding being discussed, apparently
took a big short position in crude oil. I don't
know if there's any meat on the bone for that.
Actually being suspicious or if these things happen all the
time and it's just people are paying attention. Now.
Speaker 3 (18:30):
Yeah, I don't know either, Chuck, But clearly they're paying
attention because there's been reports of these types of actions
all over the course of the last year. We had
the big announcement of.
Speaker 4 (18:41):
It.
Speaker 3 (18:41):
Was it a Special Forces guy who was placing bets
on the Venezuela thing, And so I think clearly people's
hackles are up on all of this. And while the
sec you know when you're talking about manipulation of individual securities,
is involved in pretty darn good at detecting all this,
(19:02):
it seems to me from experts that the CFTC, which
regulates commodities and all of the new bets being placed
on Calshi for instance, do not have the same mechanisms
in place to be able to research and detect all
of this stuff and are playing a bit of catch up.
Speaker 2 (19:17):
Yeah. Yeah, it's it's one where I just I don't
have the market expertise in these niche markets to be
able to tell quick break. Here Wall Street watches Next.
Speaker 1 (19:41):
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Speaker 5 (20:02):
Ten thirty four and markets are currently mixed right now.
The Dow Jones is off one hundred and thirty two points,
are just over a quarter of a percent. The s
TOB five hundred, however, is up seven point twenty four points,
or a tenth of a percent. The NASDAC is also
up up one hundred and forty two points are just
over half a percent. Meanwhile, gold is up a point
(20:22):
percent and a half, while silver is up over six percent.
Shakeshack shares are off thirty percent after the burger chain's
first quarter results fell short of expectations and it reported
an operating loss of two point six million dollars Shakeshack
shares Shakeshack's earnings per share broke even versus earnings of
twelve cents a share expected from analyst. Revenue came in
(20:45):
at three hundred and sixty six points seven million dollars
versus the three hundred and seventy two million dollar consentsus estimate.
McDonald's posted a beat on both the top and bottom line,
sending shares up over three tenths of a percent. Adjusted
earnings came in at two dollars and eighty three cents
per share, versus the two dollars and seventy four cents
a share expected by analysts. Revenue was six point five
(21:07):
to two billion dollars, compared to the six point four
to seven billion consensus. Door Dash shares up up a
percent and a half after the food delivery giant issued
rosy guidance for orders in the second quarter. Door Dash
sees marketplace gross order value ranging from thirty two point
four billion dollars to thirty three point four billion dollars.
(21:28):
And finally, I on Q shares are off over four percent.
The Quantum Computing Company said that adjusted losses before interest, taxes, depreciation,
and amortization came in at ninety six point eight million
dollars in the first quarter. That's wider than the loss
of eighty point four million dollars analysts polled had sought.
I am ben Kitchen and that is Wall Street Watch Mike.
Speaker 2 (21:51):
We got a pc here in the New York Times.
Why gas prices vary so much by state, county and
city and good piece. I think it gets it, you know,
a lot of the key things, and there's some other
things that I would add as well.
Speaker 3 (22:05):
Yeah, I think we've brought this up before, where it
turns out Pennsylvania has the highest state level gas taxes
in the country. But you know, we never talk about
Pennsylvania as having way higher gas prices, for example, than California.
And the reality is that there are some unique circumstances
in different parts of the country that lead to gas
(22:26):
prices being off the charts in places like the West
Coast and California in particular, and not so much in
other parts of the country.
Speaker 4 (22:34):
But one would just be.
Speaker 3 (22:36):
Yes, the state tax is very dramatically placed by place,
but in California in particular, they have a few weird
things going on. One notoriously bad pollution and small problems
over the decades caused them to require a different blend
of gasoline than pretty much anywhere in the country. And
then you know, follow that up with a lack of
(22:58):
refineries in the state, combined with just plain geography that
makes it difficult, for example, to ship gasoline from Texas
to California because of sprawling mountains and those issues, they
end up importing it all, oftentimes via foreign producers by
ship into California, leading to well combination of high taxes,
(23:21):
unique blend requirements, and just their plane geography driving gas
prices to where we're seeing now over six bucks a gallon.
Speaker 2 (23:28):
Other things that other things that matter, quite honestly, like
the town that you are buying the gas in matters,
not because like towns have their own gas tax, but
you see this when you drive around, if you are
driving through a wealthier part of the state that you
live in, do you see higher lower gas prices. Yeah,
(23:51):
it's it's it's just how it's just.
Speaker 3 (23:53):
Like they don't have market baskets in Weston, they tend
to charge higher gas prices.
Speaker 2 (23:58):
Too, Right, you can see I mean locally, I would
say normally you might see like a ten to fifteen
percent swing from wealthier to poorer areas of the state
in terms of gas prices.
Speaker 3 (24:12):
This comes up every week with me with Ed Lambert
down the Cape because whenever I talk to him, I'm
generally driving along Route one in Saugus, where you have,
like notoriously, some of the cheapest gas prices in the state,
and he's talking to me from Cape and probably filling
up his you know, his Mercedes with ninety three octane,
and we're looking at like a dollar difference in price
(24:32):
gas prices at pretty much any given point in time.
I'm sorry, Ed, I'm ripping on you a little bit,
but I think you have told me that you put
in the higher octane gas into your vehicle, whereas I'm
driving a Honda Civic and don't care what I put
into it.
Speaker 4 (24:45):
And yeah, that is a reality.
Speaker 3 (24:47):
If you try and buy gas on the Cape compared
to in Saugus, you're going to pay a heck of
a lot more.
Speaker 2 (24:51):
So I think ultimately this is a situation where some
of these differences in re you know, proximity to refinery
and the types of oil that are needed, the types
of gasoline that are needed in different areas, These are
going to become more apparent as we go through the
summer and supply of crude and product gets tighter. So
(25:14):
I think this is something to watch just because price
disparities are likely to widen more as a result of that.
And unfortunately to anyone who might be listening from California,
that probably means that you're gonna be feeling even more
pain than you already are. And this comes despite California
right now as always having the nation's highest gas prices
(25:36):
north of six dollars and sixteen cents a gallon. It's
not crazy to say that California could be seeing again
if the strait of hor moves does not reopen very
very quickly here. It's not crazy to think that California
could be seeing gas prices close to nine dollars a
(25:56):
gallon later in the summer if things move more rapidly,
maybe they only get up to like six fifty or seven,
but like you could very easily be heading towards higher
numbers there because of again, just how the overall network
of production and distribution works.
Speaker 3 (26:15):
I know that I sound like a smug little jerk,
but does that not make anybody else smile and giggle
just a little bit to hear about gas prices being
like two dollars more than anywhere else in this country
in California just a little bit?
Speaker 2 (26:27):
Why would it make me smile? Mike? Like what, I
don't really ever wish pain on anyway.
Speaker 3 (26:33):
Yeah, it's just one of those situations of your own
making that makes me laugh a little bit. But yeah,
I guess I do wish pain on some people a
little bit more than you do, Chuck. So I apologize
in the story of the year that did not need
to be printed because who didn't know this? The New
York Times tells us that higher gas prices are hitting
lower income Americans the hardest. Wait, to which I say,
(26:56):
who was unaware of that? It don't mean to be insensitive, No, but.
Speaker 2 (27:01):
You're telling me no, Mike. The the person you're being
insensitive to is the writer of the piece. True, because
quite honestly, like look of course, like when you have
a smaller income, gas takes up a disproportionately larger portion
of it if you happen to own or lease or
rent a vehicle, And so because of that, it's not
(27:23):
surprising that someone making thirty thousand dollars a year feels
the pain of gas going up by fifty percent more
than Jeff Bezos does.
Speaker 1 (27:31):
Yes.
Speaker 3 (27:32):
Do you remember when we were talking about nine percent
inflation in twenty twenty two, Yes, also happens to hit
the lowest income earners the hardest. During that period of time,
there was at least a bit of an offset there
where at the same time those same wage earners were
getting the biggest percentage increases in wages. But yeah, generally speaking,
goods inflation being higher than normal and I'm gonna include
(27:52):
gasoline in that category will hit the people that can
afford that increase the least the hardest. So thank you
New York Times for really breaking that brainbuster down for us.
Speaker 2 (28:02):
Also, I was poking around on Shell's earning call earnings
call this morning, just because again, whenever you have an
energy company reporting earnings right now, what they say in
the earnings isn't really interesting. It's more hey, tell me, like,
give me the context of what you're talking about on
your call. Sure, And the CEO on the call basically
(28:23):
confirmed what we've been talking about for the last month
or so, which is the best case scenario right now
that is already pretty much come and gone. Is a
billion barrel production shortfall worldwide this year, and every month
that the straight remains closed, you're talking about adding another
three hundred and fifty to four hundred million barrels of
(28:45):
production shut in to that. So basically where you stand
right now is look, the best case for getting things
reopened there and production resuming is starting in mid June. Again,
like you could have things open today, but production still
doesn't restart till mid June. You're looking at somewhere in
(29:06):
the range of like one point six to one point
seven billion barrels in production capacity lost for this year,
and every day that you go, you can add another
twelve million to that.
Speaker 4 (29:17):
Like, this is a lot.
Speaker 2 (29:19):
This is the math. This is the math that is
just unavoidable, and like it's there's just no way, uh
to change it, and like to put this in perspective. Okay, Uh,
the moon again, this is just the best way that
I have to to frame this, Mike. Do you know
how far away the Moon is from the Earth on average? No? Uh,
(29:40):
it's about two hundred and fifty thousand miles, got it.
Do you know how many feet that is? No, it's
one point three two billion feet. That's how that's how
many feet away from Earth the moon typically is.
Speaker 4 (29:55):
Good?
Speaker 2 (29:56):
How hi, do you think of a barrel of oil?
I don't know, Chuck, Okay, just to sell I don't know, Okay,
I was I was just saying, a barrel of oil,
let's call it. It's it's four feet high, Okay. Yeah.
That means that every month you are losing effectively a
stack of oil barrels tall enough to go from the
(30:18):
Earth to the moon.
Speaker 3 (30:20):
Thank you for contextualizing that, because I was having a
tough time envisioning it until you put it in those terms.
Speaker 2 (30:25):
No, like, it's again, none of us are like, oh, like,
let's just go to the moon. It's easy. That's how
much oil you're losing each month in production is enough
to go to the moon, not like physically like go
to the moon, but enough to build a stack high
enough to reach the moon. Like it.
Speaker 4 (30:41):
I like the comparison.
Speaker 2 (30:43):
I thought that was useful. It's kind of a nice
way to like, No, no one knows what like twelve
million barrels a day for a month looks like. And
that's it. Let's let's take a quick break on that
and when we return.
Speaker 3 (30:56):
Do you want to talk China? Are fast foods your option?
Speaker 2 (31:00):
I want to talk Can we talk Chinese fast food? No? Wow,
let's talk fast food. It always gets me going.
Speaker 1 (31:08):
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Speaker 2 (32:08):
Mike, we landed on fast food as our topic for
the start of the segments. What do we want to
talk about? Favorite side dish, favorite burger? What are we doing?
Speaker 3 (32:19):
Where would we be talking about, like, what's the favorite
side dish for I guess like Boston Market.
Speaker 4 (32:25):
You could do that. That's kind of tough for me.
Speaker 2 (32:26):
For me, what do you mean it's not just Mike.
You gotta look at this, Mike, as Taco Bell says,
you got to think outside the bun it's not just
French fries that you have. You go to Wendy's and
get one of those lovely baked potatoes. You could go
to Taco Bell and get a nice little side of
nachos or something like that. There's all kinds of different
options out there, depending on what you're looking for.
Speaker 3 (32:44):
I'm gonna come out and say that if you're at Wendy's,
Burger K, McDonald's, or any of the traditional burger chains
and it's anything other than French fries, and there's something
wrong with you.
Speaker 2 (32:54):
And on your ring occasionally never heard anyone where do you.
Speaker 4 (32:57):
Even get on you? Okay, let's move on.
Speaker 2 (33:00):
Yeah, burger can get under rings.
Speaker 3 (33:02):
A bunch of the fast food companies reported earnings this week,
including McDonald's, and most of them pointed to a pretty
resilient consumer in the first quarter, and a bunch of
authors or journalists are writing about how, you know, basically
the consumers are showing up and buying in spite.
Speaker 4 (33:19):
Of the war in Iran.
Speaker 3 (33:20):
It doesn't it just feel a little bit early to
you to write that story. Yeah, I mean, they barely
experienced the war in Iran during the first quarter of
the year.
Speaker 2 (33:31):
The data is through March. It's not really convincing to me.
And the other thing that I will say so McDonald's,
just as an example, they reported that same store sales
were up three point nine percent from a year earlier. Mike,
do you know what the CPI is for food away.
Speaker 3 (33:45):
From home for the last twelve months. I don't know,
but it's probably pretty close.
Speaker 2 (33:50):
Three point eight percent. So you sased all the telling stuff.
It basically telling you there's like almost no organic sales growth,
and it's just through price increases that you're able to
see that. So I think that where I tend to
land is, Yes, the companies that are reporting earnings on
this stuff, these are the quarters that ended in March.
(34:10):
You know, the real gas price increases. Like if you
go and you take a look at the the charts
that you have for how gas prices have moved. Gas
prices didn't you know, get above four dollars a gallon
until April first, you know, so if you're looking at
(34:31):
you know, two thirds of Q one was not impacted
by this. The second third was you know, generally running
you know, somewhere around like a fifteen to twenty percent
gas price increase and it's only now as you've gotten
into May that you're looking at a fifty percent jump
in gas prices. So yeah, I think it's a little
bit early to be saying, you know, this is this
(34:52):
is fine. And the McDonald's CEO, by the way, pretty
much said the same thing on their conference call, and
I'm trying to find the quote here. It's certainly it's
getting it's certainly not improving and might be getting a
little worse. How this plays out is you know, I
think an open question, and our focus is on what
we can control.
Speaker 4 (35:11):
Yeah, that haven't been said.
Speaker 3 (35:12):
I mean I can see that being an issue for
Starbucks and maybe a few other of these fast food
restaurants out there. I don't McDonald's continues to maintain their
brand of a value option. I think, like Walmart, there
are a few companies out there that I look at
that have a better reputation for value and so I'm
(35:35):
just unconvinced that higher gas prices would lead to a
drop in sales for the likes of McDonald's and Walmart
and a few others. Yeah, Starbucks, Chipotle, Sure, McDonald's, I
don't know.
Speaker 2 (35:46):
Not buying Let's see here, I want to cover this
one story, also from the Wall Street Journal, Craft Time
CEO pushes value consumers are literally running out of money.
And again it's not to say that this is not
a really challenging environment for a lot of households right now.
But again it's tough to match that rhetoric with what
(36:09):
we're actually seeing as far as spending trends, which from
all of the major banks continue to run somewhere between
like five and seven percent year over year growth with
no change in trajectory.
Speaker 3 (36:22):
Yeah, look, we've heard this affordability story a few times before.
I also just I do have to comment on the
photo of the Craft Hid CEO, who is kind of
frighteningly standing in front of a giant.
Speaker 4 (36:34):
Kool Aid man Lloyd.
Speaker 3 (36:37):
Lloyd Man's going to get you know, he's got this
reputation for just you know, blowing through buildings and he
looks like he's about to tackle the Craft Time CEO.
So interesting photo choice, but but yeah, look I'm with you, Chuck,
insofar as affordability does matter, and there are several indications
that the giant benefits that were paid out during the
(37:01):
COVID era, combined with the pause on loan payments has
left consumers in a pretty strapped place. But I'm also
willing to say that that same exact narrative had been
playing out for four years and has not caused an
economic demise. So I'm kind of done reporting on it
until we actually see it. Like, tell me when consumer
(37:22):
spending decreases year over year, and then I'll buy that
we have a problem. But in the meantime, these stories
about mortgage defaults and student loan defaults climbing and oh,
we've heard hit the highest level of you know, mortgages
in it's not default, but you know, delinquency in the
last five years, Like those are only interesting stories in
(37:44):
the context of the last five years and doesn't really
indicate anything about the broader economy. And I'm not sure
anything about this moment does either.
Speaker 2 (37:51):
If you want to tell me increasingly that lower income
consumers are becoming, you know, such a small part of
our economy that it's not showing up, I can believe that,
and that is not a good thing either. Let's take
a quick break here. We've got our two coming up
in just a little bit.
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