JP Morgan just admitted they can't model oil anymore. That's the same commodity the Fed is trying to crush with rate hikes.
Warsh called out energy as the inflation driver. But here's the problem: rates kill demand. What we have is a supply shock. No interest rate fixes a bombed pipeline or reopens a strait.
What happened this week:
Saudi Arabia told European refineries: no oil next month. The East-West pipeline (7M barrels/day) has been offline since Sept 10. That was the backup route built in 1981 to avoid Hormuz. Now it's down too. Europe was importing 577k barrels/day of Saudi crude before the cut.
Physical market is screaming:
Brent near $110, up ~20% this month. But spot crude for immediate delivery in Europe? Over $130. That spread is pure panic.
Diesel in the US and Europe hit $220/barrel. That's the fuel that moves trucks, tractors, trains. That's inflation baked into every price.
US side is cooked:
Strategic Petroleum Reserve down to 285M barrels, lowest since Nov 1982. 25 straight weeks of draws. In 2020 it was 650M. Now less than half.
Here's the trade nobody's watching: if this war unwinds, oil crashes, inflation dies on its own, and the Fed is stuck with rates way too high. They'd have to cut fast.
That's the asymmetric setup. Downside is priced. Upside is ignored.
Warsh called out energy as the inflation driver. But here's the problem: rates kill demand. What we have is a supply shock. No interest rate fixes a bombed pipeline or reopens a strait.
What happened this week:
Saudi Arabia told European refineries: no oil next month. The East-West pipeline (7M barrels/day) has been offline since Sept 10. That was the backup route built in 1981 to avoid Hormuz. Now it's down too. Europe was importing 577k barrels/day of Saudi crude before the cut.
Physical market is screaming:
Brent near $110, up ~20% this month. But spot crude for immediate delivery in Europe? Over $130. That spread is pure panic.
Diesel in the US and Europe hit $220/barrel. That's the fuel that moves trucks, tractors, trains. That's inflation baked into every price.
US side is cooked:
Strategic Petroleum Reserve down to 285M barrels, lowest since Nov 1982. 25 straight weeks of draws. In 2020 it was 650M. Now less than half.
Here's the trade nobody's watching: if this war unwinds, oil crashes, inflation dies on its own, and the Fed is stuck with rates way too high. They'd have to cut fast.
That's the asymmetric setup. Downside is priced. Upside is ignored.
