Why Oil Prices Could Hit a Breaking Point by Year End
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What is the main topic discussed in this episode?
Hey, everybody. I'm Telus Demos. Welcome to another episode of WSJ's Take on the Week. This week we've got a conversation about oil, but really I think it's a conversation about inflation because I don't know about my guest host here today. I don't buy barrels of oil. I buy gasoline. But I don't know, Dave Uberti, WSJ markets reporter, maybe you do buy barrels of oil. You've been writing about this stuff forever.
It's a constant urge that I have to suppress for sure.
Well, tell us about exactly what you do here at The Journal.
It's all over the map. I first started covering oil and gas in 2022 during the last energy shock during the war with Ukraine. Last year, I moved toward more of the macro-econ nexus. And then this year with Venezuela, with Iran, it's kind of like that scene from Godfather 3 where Pacino says, every time I get out, they pull me back in. That's where I am now.
Well, that's unsurprising that energy markets have not let you go quite yet. It seems like they're the big story, at least for now. Another big story, we had the Federal Reserve meet this past week. They did not do anything on paper. They held rates steady. But there was so much action in the commentary. You had three dissenters who said that they thought that the Fed should be hiking rates. And then you had the reaction. to new chair Kevin Warsh's press conference, which was to see short-term interest rates fall. That is like two-year treasuries. Their yields went down. Longer-term treasuries, 10 years and especially 30 years, went up. That's a move that suggests that people think that the Fed is behind the curve, that they should have hiked rates, and now they're going to have to do it more aggressively in the future.
What did you take away from the Warsh press conference that everyone's talking about?
I mean, the interesting thing about this has been sort of a communications question from the outset. Warsh said he wanted to pull back on communications, issue less, if not no, forward guidance in some of these meetings or pressers following them. And I've been talking to investors for weeks about this. Do you think that's going to inspire more or less volatility from markets? I think on balance, investors thought it was going to inspire more volatility in markets. And the weird line Warsh was trying to walk in that presser, he was basically saying, we want markets to speak. If you take that to a step further, you could sort of see the implication of we will take a signal from markets, which obviously raises the question if rates are going up while the Fed is remaining silent, what does that tell the Fed to do?
Well, I've seen commentary from people who are trying to get in the Fed's head a little bit on this or get in Warsh's head in particular. And I've said that all this bond issuance and CapEx from hyperscalers is part of what is pushing up those long-term interest rates. And so in a sense, maybe it is the market speaking, saying there's a lot of bonds coming. A lot of people want to raise money. That's going to naturally start to raise interest rates. And then the Fed can – then the Fed will have to make a decision at some point about whether or not they think that that will be inflationary, whether all this capex will just push prices up, or whether, as Kevin Warsh and others have posited, that there will be a productivity boost out of this in the long run and that the Fed should just sort of let things play out as they will.
But the fact that Warsh doesn't say anything, to your point, leaves the market to its own devices.
Right. I spoke to some investors after Warsh spoke They said maybe having a more opaque Fed is a good thing. I mean, the day after war spoke, of course, we're seeing a big rip in markets, especially tech stocks as well. Sort of a risk-on move, which is counterintuitive.
Tech stocks had initially fallen on the day of the meeting. Totally.
So it's hard to read that any which way. I mean, one experience that I have from the oil markets, you know, we have analysts who are using satellite imagery of oil terminals to try to gauge the height of shadows to understand –
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:02–4:11
2
How did the Fed's latest meeting and Kevin Warsh's press conference move markets?
4:11–8:14
3
Why might a less communicative Fed increase market volatility?
8:14–13:45
4
How has recent U.S. bond issuance and capex affected long‑term interest rates?
13:45–26:35
5
What recent oil price volatility has been driven by the U.S.‑Iran conflict?
26:35–34:53
Speakers
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