All hell broke loose in the financial markets yesterday – in what had to be one of the most interesting weekends ever.
First of all, WTI (oil prices) spiked to almost $120 per barrel – nearly double the $65 price we saw before the war (and $30 higher than the $90 price we saw Friday).
Needless to say, interest rates spiked too in response – and the world (especially mortgage guys, the Trump administration, and Asian countries dependent on oil imports) panicked.
Oil spiked because of direct attacks on Iran’s oil facilities, because the Strait of Hormuz remained closed (choking off oil shipments), and because countries near Iran shut down their oil and liquid natural gas production.
Very interesting factoid: THIS is the largest oil shock the world has ever seen – with 20 million barrels per day getting shut down. In contrast, the Iranian revolution in 1979 threatened 5.5mm barrels per day (BPD); the 1973 Yom Kippur war threatened 4.5mm BPD; and the Russia/Ukraine war threatened 2mm BPD.
Thankfully, oil prices and rates plummeted back to reality this morning for several reasons, including:
- Numerous western countries offered to release their oil reserves to add supply to the markets;
- The Navy offered to escort tankers through the Strait of Hormuz; and
- Saudi Arabia offered alternative oil transport routes.
Oil (WTI) still remains at $95 per barrel – a clear inflation risk – so why aren’t rates higher?
- Overall inflation remains cool.
- Recession concerns (slower growth) remain because of the war, weak labor markets, and AI and credit bubble concerns (see Ed Dowd and Chris Whalen).
- Increased demand for mortgages/tightening spreads between mortgage rates and 10 Year Yields. Logan Mohtashami devoted an entire podcast to this, explaining that “we’re being saved by spread tightening” (from over 3% to under 2%).
- Market adjusted to what was an overreaction (something we often see in finance).
We Now Know When the War Will End – Whew!
I’ve been waiting for the markets to tell us when the war will end – and now we know! Whew!
Peter St. Onge posted this yesterday: In case you’re curious how long the war lasts. Oil futures think the war will start winding down in May…
I will readily stipulate that I give too much credence to market signals, but the markets consistently prove to be the most accurate predictors of… everything (see Kalshi and Polymarket).
Thousands of oil traders with entire careers and billions of dollars on the line are far more accurate than analysts on CNN and/or Fox News telling us that WW3 and $300 oil prices will be here soon, or that the war will be over by Thursday and oil will be down to $22 a barrel.
When the latter are wrong…they lose nothing and still get “clicks.” When the former are wrong, their kids starve to death (or at least have to drive Toyotas instead of BMWs – and no kid should have to endure that).
@memes_eV X
