Is US economy, GDP strong enough to offset oil price shocks?

00:00 Josh

So what you’re saying is, you got to think through a scenario where let’s say the war ends days or weeks in fairly near term, and the straight reopens, and OPEC plus increases production and then we keep pumping. And then would that what you’re saying is, would that mean, okay, we have more oil available than expected? Good news for the economy, consumer and inflation.

00:20 Tally

That’s right. And what are markets going to do? They’re going to start pricing it in beforehand. And so I I think what you just said is uh the the the real money question and issue. The trade right now has been pro energy, pro oil. The destruction has been in the consumer cyclicals. That’s what we’re tending to look for and hunting for opportunities.

00:46 Josh

I will I did have an oil analyst on the show earlier today, Tally. I was asking him about this and he was saying, listen, uh, even if this war ended tomorrow, Josh, he said, and the straight everything’s back to normal. You are not getting back to pre-conflict $67 a barrel because his point was, Tally, interested to get your take on this. He’s like, there’s just been there’s been too much damage done to energy infrastructure and that’s going to take weeks, months, maybe years to fix. What do you say to that?

01:17 Tally

So, I think, and rightly so, there’s a big difference between Brent crude oil prices and WTI crude oil prices. And so, yeah, I think the logic and the reasoning, it’s very bad for European and Asian markets. But remember, we are a net exporter of petroleum liquids. We’re energy independent and our infrastructure is secure. And so I don’t think our policy prerogative or goal is to replace missing barrels for Europe and Asia. We’re doing just fine. The US economy is much more energy efficient. Right now, if you think about energy spending, goods and services, it’s about 1%, Josh, of GDP. And so when you look at weekly economic activity, it’s actually accelerating here at home. The US is a relative haven amidst the the turmoil.

02:18 Josh

So what do you say to those folks though Tally who come on, bunch of smart economists and strategist. They’re nervous now because they see what’s going on, prices at the pump. We quickly went from three to four and they say, hey, that’s bad news. Tally and Josh, they’re going to pull back in response to that.

02:30 Tally

So, I think when you actually work through the numbers, we have spent uh incremental $8 billion more on gasoline since the war started. Sounds like a big number. It’s not even .1% of US GDP. It’s .03%. That’s my point of GDP. So the the consumer, yes, it is uh uh an energy tax, but it’s not the same hit to consumption and the economy here at home that it was back in 1980 when Gulf oil imports mattered so much more than they do. They don’t matter right here for Americans.