[0:00]Okay, so we have to talk about oil and how it's about to affect the entire world, because I think we're being lied to. Somebody shorted the oil market today by hundreds of millions of dollars, exactly 20 minutes before Trump made his announcement that everything was going to be great. And if you see that once, it could be a coincidence, but that's happened at least three times, if not more, since the war began. That's a pattern. The theory is that all of this back and forth about the straight is open, the straight is closed, well then it's open, and now it's closed again. It's actually really easy to explain. It's a way for insiders to manipulate the stock market. Because last Friday, we were told the straight of moves was finally open, which is a huge reason why the price of paper oil went way down and the markets rallied to a new all-time high. Only to find out that over the weekend, that's not the case at all, and the straight is still very much closed. And maps are showing a lot of the ships were being routed back and now no ships are allowed to pass. Now, there's also a lot of really weird things starting to happen as well. Like, for example, there seems to be a virus that's infecting the world's gas infrastructure. There are now dozens and dozens of energy pipelines that have caught fire or accidentally exploded. And this dates all the way back from March of this year and it's happening all across the world. And because all of this flow of energy is not allowed to move freely, there are now warnings that the world is about to go through a really bad recession. The International Monetary Fund is warning of a worldwide recession if the war in the Middle East doesn't end soon. If the conflict drags on, the IMF says energy and food prices will spike higher, stunting economic growth across the globe. Now, hold on, maybe everything will be fine for the US, right? Because we're told that the US is a net exporter of oil. But the reality is that the United States actually imports more crude oil than it exports, and here's the math. We bring in about 6.3 million barrels a day and send out about 4.1 million. That makes us a net importer, aka consumer of 2.2 million barrels a day. You can't be a net importer of something and also be the world's supplier of it. That math just doesn't make sense. And all of this confusion about how much we actually have or don't have, is exactly why the price of oil is two completely different numbers depending on where you look. One of those numbers is the paper price. The other is the price oil actually costs in the real world if a country needs a barrel delivered to it today. And the gap between those two numbers is about $35, which is the biggest spread ever recorded in history. When we talk about commodities, there is a huge difference between what you see on the screen and how much you pay to get that commodity. So, you see the screen, 90 for barrel, good luck if you get an oil barrel for $90. It's 120, 130, 140, 150, 160 even. The paper price of oil is what's called Brent futures. That's sitting at around $100 a barrel. If you Google what oil is worth right now, that is the number you're going to be shown. But the physical price, which is what it actually costs to buy a real barrel of oil that gets put onto a real ship and delivered to a real refinery, that costs over $130, depending on the day. That is called dated Brent, which is oil for actual physical delivery 10 to 30 days in the future. Now, the question is, why does this gap exist and what does it mean? And the reason the gap exists is because the people who need actual oil right now are paying whatever it takes to get it. But the paper market is still pretending everything is fine. How come? The theory is that it's because the paper markets are being used as a mechanism to suppress the price of oil psychologically to calm the markets down. Here's a chart from JP Morgan. It shows that spread going back to 2008. And for almost 20 years, those two prices, paper oil and physical oil, basically moved together. They were maybe a dollar or two apart, maybe $5 in a crisis, but the gap right now is way outside of anything we've ever seen. And the last time something even close to this happened was during COVID, when oil went negative for a very short time, but that's what economists called a demand collapse when nobody was buying anything because nobody was traveling. This is the opposite. This is a supply emergency. Now, unfortunately, peace talks and negotiations have failed, which means the war is technically not over. But the White House is taking a victory lap, and the stock market is coming back up. We're told everything is going to be fine, and the US just became the world's gas station again. But the data is telling us something is going very wrong, and I think the worst of it probably hasn't hit us at the gas pump yet. The effects are starting to be felt in different parts of the world, but not in the US, yet. So, in this video, I want to help explain exactly what I think is going on and when all of this actually starts to affect us at the gas pump and in the stock market. So with that said, let's get into it. Hi, my name is Andre Jick. Hope you're doing well. Come for the finance and stay for the world when it's your turn to be an adult. Do you remember watching Interstellar when they landed on that one planet and they were like, oh look, mountains. But it turned out, those weren't mountains. It was a giant tsunami. That's kind of how I'm seeing the world right now. The effect of this war is sort of been set in motion and we're looking around and we're seeing the mountains. The market seems fine and oil is not that much more expensive, but on the horizon, something is coming. What is that something and when is it getting here? So there's a couple questions I'm trying to understand. Like how bad is the oil shortage right now? Which parts of the world are going to feel it first? And what's happening in the global bond market? And how will this affect the investment markets if at all, because the stock market seems to be doing just fine. Okay, let's start with how much oil is now missing. So all of this, of course, goes back to the straight of her moves where a fifth of the whole world's oil and gas used to go through every single day. And remember oil is not just gasoline. Oil is how food gets to grocery stores. It's how factories run. It's how planes fly and ships move and fertilizer gets produced, right? And plastics get made. Oil is the plumbing system of the whole economy. And so the question is, how much oil is now missing and how much does the world need? Turns out, the world uses about 100 million barrels of oil every single day. That's at full capacity. What's missing right now is somewhere between 8 to 13 million barrels of that per day. That doesn't sound like much, but it's a lot. For context, the United States uses about 20 million barrels a day. So we're talking about losing the equivalent of half of America's daily oil usage. This is every day for weeks now. Now, one energy fund manager I came across put a specific number on the total damage, which is that the world will have lost 780 million barrels over the course of this conflict. Now, for context, the whole US SPR, strategic petroleum reserve, holds about 400 million barrels.
[7:53]But it was already half empty before the war started. So we're talking about losing twice the entire emergency reserves the United States spent decades saving up. Now, obviously, countries have prepared for stuff like this, but they still won't have enough to cover what was lost without paying those higher prices. For example, US spare capacity is at about 1 million barrels a day. Venezuela, under 1 million. Canada via Pacific routes, under 1 million. And if you add every alternate together, you'll get about 2.8 million barrels per day from all the temporary emergency stockpiles. 2.8 million barrels against a hole of 8 to 13 million, which means reserves will eventually run out and there will be a shortage. So then, when is the world going to start feeling the effect of this missing oil? And according to the best research I was able to find, most likely sometime in mid to late April is when those global oil supplies run out. We are in mid-April right now. So the next question is, which countries are going to start to feel the effects of all of this first? Okay, so the effect of this whole blockade is already happening to the rest of the world right now. And the tsunami's coming, but it's affecting certain countries more than others. Asia, for example, got hit first and the hardest. Deliveries to Asia basically stopped on April 1st. There is a long line. And Asia sources roughly 80% of its oil from the Persian Gulf. What's getting through right now is only about 6% of pre-war volume. Now, the Philippines was also one of the first countries to declare their national emergency after their gas prices more than doubled almost overnight.
[9:49]It's so expensive. Indonesia and Vietnam told people to work from home to conserve fuel. In Thailand, their fishing industry, which is about 1% of their whole economy, is shutting down because marine fuel costs went up by 250%. In Japan, bus and ferry services are slowing down because of fuel shortages. In India, the government stopped LPG supplies for commercial use to protect household cooking fuel. In Mumbai, roughly 20% of hotels and restaurants had already been shut down by early March. In Africa, last deliveries to Africa stopped on April 10th. Countries like Ethiopia, Zimbabwe, South Sudan, they're now literally diluting their petrol. They're mixing it with other chemicals to stretch what's left, and they're also restricting electricity. Australia's last fuel shipment is expected to arrive April 19th. They've already released their national reserves. They've cut fuel taxes, and they put together a national security plan. And then there's Europe. Their deliveries stopped around April 10th as well, which is why they're doing everything in their power to reduce demand. How can we reduce the demand? Because of course, the least expensive energy is the energy that is not used. So that's not looking good. The dominoes are starting to fall. But what about the United States? JP Morgan says we're basically the last in line to be affected with most deliveries expected to have stopped on April 15th. The final crude cargoes reached Texas on April 1st and California on April 8th, which means the buffer that's been protecting us from feeling this at the gas pump, that buffer's gone. So the question is, how many more weeks of this can we expect before oil prices react and we actually start to feel it? JP Morgan puts a specific date on when this will happen. The last tanker to clear Hormuz on February 28 is expected to reach its destination around April 20, marking the point at which pre-closure barrels are fully exhausted from the global supply chain. And after that, there's no more buffer. And what that means is the physical price and the paper price will have to converge. Now, hold on. If all of this is already happening, why is the paper price of oil still pretty low, especially after we learned that ceasefire talks failed? Oil prices should have gone up, right? But they went down. And the best theory that explains this suggests that someone placed huge bets that oil prices would fall around the ceasefire announcement. In fact, they're doing an investigation into it. Those are called short positions. Now, remember, a short position in oil futures means that eventually, when that contract expires, you either close it out or you have to actually deliver physical oil. And the theory is that the ceasefire may have been partially engineered to give whoever placed those shorts one last window to exit their positions before the physical reality makes the paper price really impossible to hold. And Chris Martinson, who I cited earlier in this video, made a prediction about this. He said, whoever it is that's dumping paper oil futures cannot actually deliver the oil when the time comes. And maybe they don't have any intention of delivering it. Right now, the oil price is being heavily contained and kept by someone. Everybody knows that it's the United States government somehow, either directly or through proxies, has been actively suppressing the price of oil, which they can only do for another about another week here before it starts to really blow up on them. Figuratively speaking. What that means is someone is selling promises of oil at $100 a barrel, knowing they will never actually produce said oil. They're using the paper market as a psychological tool to calm the market down. But when those contracts come due, when the buyer says, okay, where's my oil? There will be a forced buying event. The entity that sold those contracts will have to buy them back at whatever the market price is at that moment. So if physical oil is at 130 or 140 or whatever it is, that's what they'll pay. That will be a short squeeze, and it's one of the mechanisms that can cause the paper price to catch up to the physical price very, very fast. Now, the next question is, what happens to the market? This is not the first time in US history where there was an oil crisis because it's happened before. Now, there is a famous saying in investing that says, the past is not a guarantee of future results. Just because something happened in the past doesn't mean it's going to happen again. But they also say, even though history doesn't repeat itself, it does sometimes rhyme. So it's worth taking a look at what history tells us we should expect. Here's a chart I want to show you that I think is one of the most important things you'll see in this video. It compares the three major oil supply shocks of the last 50 years side by side. There was 1973, 1990, and right now. And what happened to the stock markets and the economy in each case? Now, in 1973, the Arab oil embargo took about 7% of the world's oil supply offline. Oil prices then went up 300%.
[15:17]The stock market went down by 52% over 23 months. It took seven years to recover. Inflation peaked at 12.3%, and that was with 7% of supply offline. In 1990, the Gulf War took a similar 7% offline. Oil went up 75%. Stocks went down 21%, but they recovered in about four months because the war ended and the supply came back really fast. Mild recession, inflation peaked at 6.3%. But now look at 2026. Supply offline, 15 to 20%. That is more than double either of the previous crises. Oil futures up over 100%, physical oil up over 200% from before the war. And the duration so far, seven weeks with no clear resolution. So, even in the best case scenario in 1990, that was a 21% stock market correction and an 8-month recession. The market today is at an all-time high or somewhere close to it. It's pricing in zero corrections and zero recessions. Right now, Wall Street is telling us that this is going to play out perfectly with no side effects to anyone. And maybe it will, but history says otherwise. Now, Luke Groman points out, in 1973, markets stayed surprisingly calm even after the embargo was announced. In fact, the S&P 500 actually went up 2.3% after the ceasefire in October 1973. People thought the worst was over. And then stocks went down another 40% after that before they were done. It took markets weeks to price in the reality because nothing in their recent history prepared them for oil prices going up 300% in six months. There was no model. And there's a chart that I've also been looking at that shows this disconnect happening again right now. What you're looking at is the S&P 500, aka the stock market, measured against something called the University of Michigan consumer sentiment index. It is a long way of saying, a measure of how regular people feel about their financial situation. Wall Street is near at all-time highs, right? Main Street consumer sentiment is at one of the lowest points in a long time. Those two lines have just moved together for years. But right now that gap is really big. And at some point, one of them will be wrong and have to catch up to the other. Historically, it has never been the person filling up the gas tank who was wrong about how the economy felt. Now, that is just oil, right? But this is more than oil. It's also about food. Look at this chart. It shows the price of the most commonly used fertilizer in the world. It's going up right now. It's getting to the same levels we saw during the Ukraine war in 2022 when global food prices caused political crises across the developing world. And this fertilizer, called Urea, is made mostly from natural gas. And natural gas, just like oil, flows through the straight of her moves. So when you disrupt her moves, it's not just gasoline and diesel. It's also the feedstock for the fertilizer that grows the world's food. The price increase you're seeing in this chart will work its way into global food prices over the next 6 to 12 months, if these charts are telling us the truth. It's just going to be a delayed effect. We saw this thing play out in 2022. Energy prices went up in February, and then food prices followed through the rest of the year. So, to summarize, we have the biggest oil supply chain disruption in history. We have a market that's telling us everything is going to be fine, and a market that has never been more disconnected from how regular people feel about the economy. And a fertilizer price increase that'll probably hit the grocery stores sometime in the second half of this year. Okay, so with that out of the way, let me sort of tie everything together with the bond market. Here's another chart from Luke Groman. What you're looking at is the 10-year government bond yield for five major economies. The US, the UK, Germany, Japan, and China, going all the way back to 2008. Now, remember, a bond yield is basically the interest rate a government has to pay to borrow money. When yields go up, borrowing becomes more expensive. And when a country has almost $40 trillion in debt like the US does, every point in this yield costs billions and billions of dollars more in interest payments every year. Now, here's what the chart is actually showing us. Since this war has started, bond yields in the UK, in the US, in Germany, and Japan, all have went up. The US 10-year is at about 4.3%. The UK is at 5%. These are levels that start to cause real stress in economies carrying that much debt. But look at the red line. That is China. Chinese bond yields have actually gone down since the war started. Everyone else's borrowing costs are going up and China's is going down. In fact, for the first time in at least 20 years, China now has lower 10-year sovereign bond yields than the US, UK, Japan, and Germany. And what that means is, in a crisis, the world's money is moving toward China, right? That is the safe haven now. That's a very different world than the one we were told this war would create. Okay, then, that's great for China, right? Why does that matter to us? Now, why it matters is because the US 10-year yield is the interest rate that everything else in the American economy is priced off of. Mortgage rates, car loans, corporate borrowing, credit cards, they all move with that number. And there's a level at which the cost of servicing America's debt becomes a huge problem. And that is somewhere around 4.6 to 4.8%. We are not that far from that number right now. And an oil shock that drives inflation higher, makes it harder for the Fed to cut rates to bring that yield back down, despite what Kevin Warsh may or may not do. Oil goes up, inflation goes up. The Fed can't cut, yields stay higher go higher. So the cost of the debt goes up, the deficits get bigger, and the cycle feeds on itself. That's what economists call that death debt spiral. This crisis is different, right? If it it when you hit the wall and you're trying to issue treasuries and the Fed is the only buyer and the prices of the treasuries are going down and interest rates are up, that's a dangerous thing. And not that it matters much, but why did any of this have to happen? What was the strategy behind all of this? The theory is that disrupting Middle Eastern oil flows and cutting off cheap oil from places like Venezuela would hurt China and Russia more than it would hurt the US. So the goal was to starve China of cheap Gulf oil, force them to pay a premium for whatever oil they could find somewhere else, drain their foreign reserves and slow their economy down. Basically, more or less the same for Russia, which was already under sanctions. They would also be squeezed as global energy markets would be disrupted. And the US, with its shale production and its military power, would once again be dominant over the world's energy. That was probably the plan. Here's what actually happened though. The US burned through almost its whole inventory of advanced cruise missiles in five weeks. And rebuilding that inventory requires rare earth magnets and tungsten, both of which are mostly controlled by China. Which isn't happy with the US now. Trump's upcoming trip to China is supposed to focus on keeping those rare earth supplies flowing in. And what critical thing would China give that up for? For oil. Now, I don't know exactly how this is going to play out, and nobody does. Maybe a real ceasefire happens this week or the next, and maybe Hormuz reopens, and refineries get repaired faster than expected, and markets absorb all of this really smoothly. That's possible. But the physical evidence, the JP Morgan data, the bond market, the fertilizer prices, the 50 years of historical evidence, and all the conflicting back and forth messaging on Twitter are all pointing in the same direction. The paper markets and the official story is pointing in a completely different direction than the reality. One of them is right, and in every other time in history, it's always been the physical world that ended up being right. Right now, all of this is sort of being managed in the paper market. But at some point, you cannot print physical atoms. And at what point then does this management stop working? The answer, at least historically speaking, is when physical reality becomes too big to hide. And based on everything we've looked at today, that moment appears to be really, really soon, which means gas prices, grocery prices, and the price of a lot of things are potentially going to go up, aka more inflation. Let's see what happens. If you'd like to see how I'm preparing for this, I'm sure there's a video somewhere up here where you can watch. In the meantime, I'd love to hear your thoughts and theories and what you're doing to prepare, but as always, I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.
