The Truth About Gas Prices
The Truth About Gas Prices
With no progress tamping down U.S.-Iran tensions, U.S. oil futures are up over 3.5% today to $103.57 — the highest since April 13.
Gasoline prices are following in tandem: The national average this morning is $4.23 a gallon, the highest since July 2022.
And it’s tracking toward $4.30 soon according to GasBuddy’s chief analyst Patrick De Haan. Big jumps are coming by midday today, he says, in the four states surrounding Lake Michigan thanks to ongoing production glitches at BP’s big refinery in northwest Indiana.
"If the U.S. is energy independent, why are prices higher HERE in the wake of the Iran war?" is a common question these days.
Yesterday on the Paradigm Press mobile app, our hedge fund veteran and jack-of-all-trades analyst Zach Scheidt served up an answer.
“Even though the U.S. produces plenty of its own oil, crude is a GLOBAL market. And since prices are higher overseas, there is an incentive for U.S. producers to ship oil and collect higher prices from international markets.
“More GLOBAL demand drives LOCAL prices higher.”
With that in mind, Zach shared a chart showing the number of empty supertankers headed to the United States to load up and then head back overseas.
Or as petroleum engineer Christine Guerrero puts it on her X account, “You don’t pay less for a T-shirt at Walmart just because you live in a different neighborhood. More reality checks coming as U.S. exports soar.”
Much of that traffic will be headed to Europe — where most of the refineries are set up to handle the “light, sweet” crude that comes from America’s shale patch. (Most American refineries were set up decades ago to handle the thick, sulfurous stuff that comes from Canada’s tar sands and from Venezuela.)
We’ll give the final word to GasBuddy’s De Haan before we move on: Policymakers have a “narrow window,” he says, in which to bring about a full reopening of the Strait of Hormuz.
“If that doesn’t happen soon, Americans will start changing their summer travel plans — and they will NOT forget why when they head to the polls in November.”
[Update: As we get closer to virtual “press” time WTI futures are now up 6.75% to $106.69. That’s the highest since the U.S.-Iran ceasefire took effect on April 8.]
Markets Today: Suspended Animation
The stock market is in a state of suspended animation — awaiting a decision from the Federal Reserve and earnings numbers from the biggest AI “hyperscalers.”
After the closing bell today, Amazon, Meta, Google and Microsoft all report their numbers — the first time it’s happened in one fell swoop, if memory serves.
All four have been rallying in recent weeks “despite still spending at historic levels,” says Davis Wilson of our sister e-letter The Million Mission. “This week, we find out if spending is still accelerating — or quietly slowing.”
But before those earnings figures drop, the Federal Reserve makes its next call on interest rates — presumably the final call under the chairmanship of Jerome Powell.
As usual, the decision is not in doubt: The Fed will hold its benchmark fed funds rate steady at 3.75%, where it’s stood for over four months.
We await Powell’s press conference — but it’s likely he’ll say that with the official inflation rate rising since the start of the Iran war, any rate cuts now would be like pouring gasoline on a fire.
The April figures don’t come out for a couple more weeks, but is there any doubt about the trajectory?
“Inflation is well above the Fed’s 2.0% target and is moving in the wrong direction,” says Paradigm macro maven Jim Rickards.
“Even 3.3% inflation will cut the purchasing power of $1.00 in half in just 21 years and half again in another 21 years.
“In a typical working career of 42 years from age 23 to age 65, the dollar will lose 75% of its purchasing power with 3.3% inflation.
“There’s nothing benign about that rate and the Fed knows it. Lowering the inflation rate by keeping interest rates unchanged will be the sole focus of this FOMC meeting.”
From here, who knows? Of course, Donald Trump wants lower rates — really, does any real-estate guy not want lower rates? — and he’s made that stance clear to Kevin Warsh, his nominee to replace Powell.
Still, even if Warsh agrees with the president and pushes for lower rates, he has to persuade a majority of the 12-member Fed Open Market Committee to go along.
The next meeting with Warsh in charge is set for June 16–17.
Ahead of the Fed announcement and the big earnings reports, the S&P 500 is adding slightly to yesterday’s losses — down less than a quarter percent at 7,127. The Nasdaq is in similar shape; the Dow’s losses are a bit steeper.
We’re watching rising bond yields closely today: The yield on a 10-year Treasury note is bumping up against 4.4% for the first time all month. Last month, every time the 10-year touched this level there was some sort of conciliatory announcement from the White House aimed at lowering the temperature of the war — and lowering rates. Something to watch for especially with the oil spike today…
Precious metals are losing more ground, gold at $4,559 and silver at $71.56. Crypto can’t get any traction — Bitcoin just over $76,000 and Ethereum at $2,276.
The big economic number of the day is durable goods orders — up 0.8% in March. This number is often skewed by orders for aircraft and military hardware, which are notoriously volatile month to month. Take those out and you get a category called “core capital goods.” This number jumped 3.3% in March.
That’s a very healthy number — too healthy. It suggests businesses are rushing to place orders ahead of expected price increases.
Power Grid Emergency
The news got lost in the shuffle of war headlines last month — but here’s a development with America’s creaky power grid we shouldn’t overlook.
“The U.S. Department of Energy (DOE) announced it will invest $1.9 billion to accelerate improvements to the nation’s electrical grid,” says Paradigm natural-resources pro Matt Badiali.
“Of course, this program has a stupid acronym: ‘Speed to Power through Accelerated Reconductoring and other Key Advanced Transmission Technology Upgrades’ (SPARK).
“What’s important about SPARK is that it will accelerate the purchase of electrical components made in the U.S. from metals like aluminum, steel and copper. The DOE will announce the recipients of the money at the end of May this year.
“To add to the urgency, the White House announced an executive order that marks America’s electric infrastructure as critical to national defense under the Defense Production Act.”
We’ve been sounding the alarm about the grid in these pages for nearly four years. Rolling blackouts during hot weather were becoming a very real risk in mid-2022: Too many coal and nuclear plants were being retired, and the wind and solar coming online weren’t nearly enough to replace it.
Starting in early 2024, we also led the charge in warning about the added stress that AI data centers would put on the grid — long before the mainstream caught on.
But fixing the problem doesn’t come cheap.
The American Society of Civil Engineers says there’s a $578 billion gap between planned spending on maintenance and what needs to be spent for upgrades.
“There are only so many bandages you can put on a failing system,” says Matt. “At some point you need to tear the system down and actually fix it. That’s why SPARK and the new executive order are so critical.”
Key investing angle: “The U.S. cannot make these grid upgrades without buying metals. Lots of them.”
That will undoubtedly benefit the copper miners in Matt’s Real Wealth Insider portfolio.
It will also benefit the aluminum giant Alcoa (AA). Matt talked up Alcoa in a special Martin Luther King Day edition of 5 Bullets last January. It’s up a modest 4% since then, and the thesis is only getting stronger.
“While electric motors must have copper,” says Matt, “transmission lines are primarily made of aluminum… and they are old.”
The design of the power lines we use today dates back to the 1970s. Many power-industry experts believe that just replacing the old lines and conductors with new technology could double the grid’s capacity.
Another tailwind: “According to the Aluminum Association,” Matt tells us, “the U.S. needs about five new 750,000-metric‑ton primary smelters to ‘fully meet current metal needs’. That is roughly 3.75 million tons of additional annual capacity. The U.S. currently consumes about 5 million metric tons per year, across all sectors. That includes construction and packaging.”
And that doesn’t even get to the aluminum shortage resulting from the blockade of the Strait of Hormuz.
Bottom line: Aluminum is lucrative — and Matt says Alcoa is the only good way to play it at this time.
Comic Relief
A grim chuckle courtesy of Bloomberg’s commodity reporter…
Audiophile Mailbag
Let’s keep it light: Our musings in yesterday’s edition about the revival of vinyl record sales prompted the following email from one of our longtimers…
“Dave, Dave, Dave… Just when the readership was getting calmed down, you go and call us ‘oldsters.’ LMAO! I know it was just meant in jest, but with all the riled-up readers lately, well, who knows how that will be taken?
“But (the inevitable) let’s talk about that costly endeavor of serious audiophiles. Yes, I’m an ‘oldster’ and proud of it! I also have an ‘awesome’ (ah, you Gen-Xers) sound system. Carver 150-watt amp, SoundTech speakers and the turntable? A Bang and Olufsen Beogram horizontal turntable! (google it!).
“Hope your editors keep churning out winners, as these new collector vinyls are running upwards of $120 nowadays. Jim, BTW, is doing a great job of that!
“Then the wife (she’s Chinese) needed me to add onto the sound system for her and her karaoke friends. We added a mixer board, mikes, a 12”/CD silver-platter karaoke player. When we were younger our place was the place to party at! Yes, honey, do you need anything else? 😊
“If that wasn’t loud enough to wake the neighbors, my son recently handed me down his Logitech 500-watt, six-way surround sound system, because it was ‘too much’ for his place. So now Dad has F-15’s (think Top Gun) landing and taking off in my living room! He’s a Gen-Xer too and I taught him well!
“So Dave, go enjoy a cold microbrew (think I steered you away from light beer in ’23), you ELP-loving guy and crank on Tarkus on your budget system! I’m going to enjoy a full-volume version, err, as soon as the wife goes shopping! LOL!
“Still in your corner after all these years!”
Dave responds: Hats off. That’s hardcore.
Different strokes for different folks. An NAD CD player, an iFi headphone amplifier and a pair of Grado SR325 cans are all I need. Even today the whole shebang sets you back about $1,000.
Yeah and I’m still not above a Miller Lite now and then. Can’t be a Milwaukee Brewers fan otherwise, right?
