This post’s title sketches out a formula that ends with the world’s governments panic-printing their currencies. To flesh out the thesis, let’s start with energy’s impact on our cost of living:
Energy Is In Everything
Pretty much all of life’s necessities have an energy component. A car, for instance, requires electricity and petrochemicals to build and gasoline to run. Food requires power to produce and transport. Survival in winter requires heat. At every step in every supply chain, energy is a significant cost. So, the higher the cost of oil, gas, and electricity, the higher the cost of living.
And vice versa. When the price of oil falls, so do energy costs across the economy. Inflation, as a result, moderates.
(CNBC) - U.S. oil prices have dropped to their lowest level since 2021 this week, sparked in part by concerns that the massive tariffs announced by the United States will hurt economic growth.
Futures for U.S. West Texas intermediate crude fell more than 6% on Friday, bringing the price per barrel to $62.72. At one point, it fell below the $61 level. The latest slide comes after a 6.6% decline on Thursday.
The swift drop for oil prices comes as the supply-demand dynamic for the energy market is getting hit on both sides.
The tariffs announced by U.S. President Donald Trump this week have raised the chances of a global recession, according to Wall Street economists.
And on Thursday, eight members of OPEC+ agreed to raise their combined daily output of crude oil by 411,000 barrels per day. The increased production was larger and quicker than markets had been anticipating.
Helima Croft, global head of commodity strategy at RBC Capital Markets, said Thursday on CNBC’s “Power Lunch” that the decision stemmed from internal disagreements among OPEC+ members.
“The countries that are driving this decision are saying, ‘Look, everyone thinks we need $90 oil. We want to show you we don’t need higher prices. We’re prepared to endure lower prices for a period,’” Croft said.
Meanwhile, longer-term trends point to even lower oil prices. From a recent Doomberg post:
While many ever-hopeful energy analysts with perpetually bullish outlooks are ascribing coincidence to the timing of the announcements—or insisting that OPEC believes crude oil demand will strengthen in the second half of 2025, or that the group is merely front-running anticipated supply cuts from beleaguered countries like Venezuela or Iran—we suspect something more significant transpired. After a decade of assault by US shale producers, the global market for hydrocarbons has fundamentally shifted. If we’re right, a new stasis may be at hand, and investors would do well to take note.
To summarize Doomberg’s thesis, the world is producing a lot more oil — especially if you define natural gas that can be refined into common petro-products as “oil” — so market dynamics now favor rising supplies and lower prices.
Lower Inflation and Maybe Deflation
Combine structurally lower oil prices with tapped-out consumers and wildly overindebted governments, and a recession now seems imminent — if we’re not already there.
The resulting deflation will threaten overleveraged economies by making debt harder to manage. That’s why central banks have overreacted so enthusiastically to the past few downturns. Expect the same thing this time, but on steroids.
Lower, possibly negative interest rates will benefit commodities as capital flees unstable fiat currencies in favor of real assets. Even oil companies can thrive in this scenario — but only the best of them. The Exxons and Oxys, with their low-cost reserves, will be fine while weaker players suffer.
So the investment thesis remains intact: Continue to cautiously add high-quality names in precious metals, uranium, copper, and, yes, oil, through lowball bids, dollar-cost averaging, and put writing. This is an opportunity, not a crisis.
If the closing of 15,000 plus retail stores over the last year and a half doesn't imply recession then we wont have one. Repeat after me, there is no recession, there is no recession. See, no recession. All that needs to be done is repeat after me....and there will NEVER be a recession.
Unemployment works much the same. Even if in reality NO ONE had a job in this country you can bet the unemployment rate would maybe breach 10%! Thank you BLS, Big Load of Sh*t.
"Crisis/Opportunity".
Perhaps best to be extraordinarily selective and wait until Summer to determine whether or not "blood is running in the streets".
If the closing of 15,000 plus retail stores over the last year and a half doesn't imply recession then we wont have one. Repeat after me, there is no recession, there is no recession. See, no recession. All that needs to be done is repeat after me....and there will NEVER be a recession.
Unemployment works much the same. Even if in reality NO ONE had a job in this country you can bet the unemployment rate would maybe breach 10%! Thank you BLS, Big Load of Sh*t.
Remember comrades, the economy is STRONG!