Episode summary
Will High Oil Prices Kill Demand? Why JPMorgan Says Book Your Travel Now | WSJ’s Take On the Week
The Journal
· · 30 min · Hosts: Telis Demos, Miriam Gottfried · Guests: Natasha Kaneva
Summary
The hosts argued that the Fed’s decision to stay on hold, combined with higher oil prices, is keeping stagflation worries alive even if Jerome Powell said the current environment is still far from the 1970s. They said the market has shifted from expecting cuts to even assigning a small chance of a hike, and that rising gasoline prices could unanchor consumer inflation expectations, making the Michigan survey especially important.
They also discussed policy attempts to ease the oil shock, including the Jones Act waiver, but said such measures are unlikely to offset a supply loss as large as the one implied by a disruption in the Strait of Hormuz. Natasha Kaneva of JPMorgan said the market is pricing only a partial loss of supply and that a full 16 million barrels per day disruption could push Brent to about $125, while $90 is her red line for demand destruction.
Kaneva said the bigger investor lesson is that oil markets can move fast when inventory is tight, but the practical fix is reopening the strait. She added that summer travel costs are already rising, that China is pushing for self-sufficiency across energy systems, and that retail trading in oil is unlikely to move a market as large as crude.
Key takeaways
- The host said the Fed’s hold and rising market odds of a hike show how quickly the rate outlook has shifted.
- Jerome Powell rejected the stagflation label, but the host said higher energy prices could still feed inflation expectations.
- Natasha Kaneva said Brent could reach $125 if 16 million barrels per day of supply is lost through the Strait of Hormuz.
- Kaneva said $90 oil is the demand-destruction threshold, especially for Asia and other emerging importers.
- Kaneva said summer travelers should buy tickets now because jet fuel prices have already doubled since the start of the war.
- Kaneva said retail traders are unlikely to materially move oil prices because crude is too large a market.
Notable quotes
“My advice to everybody there guys, whoever is planning summer vacations, you have to buy your tickets today”
“calling that stagflation it's not you I would reserve the term stagflation for you know a much more serious set of circumstances”
“The market right now is pricing in that only 10 million barrels per day of production will be lost instead of 16”
“to us the red line is actually 90. So every time when we cross 90 we are noticing the demand softens very very rapidly”
“our target right now is 6,300 we're trading at 5,000”
How the episode opens
My advice to everybody there guys, whoever is planning summer vacations, you have to buy your tickets today. Please do not wait until May because the prices are already much much higher. So the jet fuel prices have doubled since the start of the war.
Hi Miriam. — Hi Telus. — Well, we had a Federal Reserve meeting this past week and the result was as expected nothing. The Federal Reserve did nothing. It stayed on hold. that did not cut rates following the meeting was sort of the news and that was that the market's expectations of cuts this year ratcheted back even further.
Now there are no expectations for cuts this year basically. — But get this uh the CME's Fed watch tool which uses futures pricing is now actually uh for for the near future uh putting a slightly higher likelihood on a hike rather than a cut.
Wow. — I mean it's low. It's like 6% chance of a hike and 3% — Cut reversal based on what people were thinking at the beginning of this year. — Hike would have been unthinkable in the market size a couple — Especially with uh the presumed Fed chair coming in Kevin Marsh who is expected by President Trump to cut rates. So that will be an interesting dynamic to see. But one word that reared its ugly head at the uh meeting this past week was stagflation. People may remember that that word means this kind of toxic combination of high inflation and low growth.
And let's hear what Jerome Powell had to say about it at the Fed press conference. — When we use the term stagflation, I always have to point out that that that was a 1970s term at a time when unemployment was in double figures and inflation was really high and the misery index was super high.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil prices
- fed rates
- stagflation
- energy demand destruction
- ceraweek energy outlook
Companies and tickers mentioned
- JPM
- JPMorgan
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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