🥛 Should we be worried about oil? 👀

GM. This is Milk Road Macro, the newsletter that keeps you calmer than a trader who hedged before the oil market lost its mind.

Here’s what we’ve got for you today:

✍️ Everything you need to know about the oil chaos and what it means.
🎙️ The Milk Road Macro Show: Oil Prices Are Rising Fast… Is a Global Recession Next? w/ Peter St Onge.
🍪 U.S. gas prices “go up like a rocket, down like a feather”.

Summ (formerly Crypto Tax Calculator) is a tax software built specifically for crypto. Get started with Summ with a 20% discount.

Prices as of 10:00 a.m. ET.

EVERYTHING YOU NEED TO KNOW ABOUT THE OIL CHAOS AND WHAT IT MEANS

Everybody is watching the Strait of Hormuz.

Hundreds of oil tankers are unable to cross the vital waterway.

And a huge percentage of the world’s oil supply is currently choked up in the area.

The longer this sticky situation continues, the higher the price of oil could rise.

And a surging oil price would be bad news for the global economy and asset prices.

The International Energy Agency says “the war is creating the largest supply disruption in the history of the global oil market”.

So what’s the latest with the Strait?

Where will the oil price go next?

At what point does elevated oil become a big concern?

And is the U.S. manipulating the price of oil?

Let’s take a look…

What’s the latest with the Strait?

The Strait of Hormuz is still effectively closed.

Source: Bloomberg

Estimates put the daily loss of global oil supply at roughly 15 million barrels (roughly 15% of global demand).

On Tuesday, the U.S. Energy Secretary said the Navy had successfully escorted an oil tanker through the Strait.

Then, a few minutes later, he deleted the X post making that announcement…

The White House Press Secretary then confirmed the U.S. had not escorted any tankers through the Strait.

In recent days, Iran has attacked at least three further vessels in the Strait.

Iranian officials say they have switched from "reciprocal hits" to "continuous strikes".

U.S. officials also confirmed that Iran had laid dangerous anti-ship mines in the Strait.

It’s incredibly difficult and time-consuming to remove sea mines.

Currently, it doesn’t look likely that the Strait of Hormuz will be conclusively “re-opened” any time soon.

Where will the oil price go next?

The current situation is very simple - the longer the Strait of Hormuz remains closed, the more upward pressure on the oil price.

It’s really that simple.

Even though the current energy supply disruption is massive, the wider market is currently optimistic about this situation remaining somewhat temporary.

Should the Strait be conclusively reopened in the coming weeks, everybody can probably breathe a sigh of relief, and fears of higher oil prices will likely disappear.

But the longer this situation drags on, the more likely it becomes that the oil price will rise further.

Major nations have agreed to release 400 million barrels of oil from strategic reserves in an attempt to stop energy prices rising.

But this is ultimately not going to make much difference.

It’s likely that global strategic reserves will only be released at a pace of roughly 1 to 2 million barrels per day.

As a reminder, estimates of the current daily loss of oil supply from the Strait closure are roughly 15 million barrels per day.

Some other contingency measures are being put in place - like pumping more oil away from Gulf states using pipelines - but even this is likely to amount to roughly 3 to 5 million barrels per day.

So there’s still a “gap” of roughly 10 million barrels per day in the global oil supply in the best-case scenario.

And this “gap” is what is likely to pressure the oil price upwards over time - until the Strait is somehow reopened.

Former Head of Commodity Research at Goldman Sachs, Jeff Currie, thinks no effective policy response can halt or meaningfully reverse the upward trajectory of oil prices while the Strait of Hormuz remains disrupted/blocked.

He emphasized that policy options are "unlikely to break crude’s ascent" under current conditions.

Natasha Kaneva, Head of Global Commodities at JP Morgan, said:

“Policy measures may have a limited impact on oil prices unless safe passage through the Strait of Hormuz is secured. Escorting every tanker would require many warships and close allied coordination, but the U.S. Navy has limited vessels available due to ongoing operations.”

Amrita Sen, co-founder at Energy Aspects, said:

“We are in the midst of one of the biggest supply disruptions in the history of the energy market - an event that the industry has feared for 40 years. Yet, now it is here, no one seems prepared. Ultimately, with every day that the Strait of Hormuz is effectively shut, the volume of energy lost climbs higher. Volatility will remain elevated, and we will see crude prices continuing to rally.”

UBS analysts think that if disruptions last longer than a month, oil prices could average $110 in March and might climb towards $150+ by the second half of the year.

Barclays analysts believe oil could test $120 if disruption persists, and could reach $150 if disruption worsens.

Analysts at Capital Economics see oil potentially reaching $150 per barrel in the event of a conflict lasting three months.

According to speculators on Polymarket, there is currently a 47% chance that traffic in the Strait of Hormuz returns to normal by April 30.

Source: Polymarket

THE SOLUTION TO CRYPTO TAXES

Tax season is right around the corner.

And if crypto taxes are already stressing you out, meet Summ.

Summ is a tax software built specifically for crypto.

Why we like it:

3,500+ exchanges, wallets and crypto projects (with DeFi, NFT, staking and airdrop support)
Direct TurboTax integration
Official tax partner of Coinbase and Metamask
Helps sanity-check your new 1099-DA form/s.

The best part? You can get 20% OFF Summ for the first year.

Stop doing your crypto taxes the hard way.

Get started with Summ with a 20% discount.

EVERYTHING YOU NEED TO KNOW ABOUT THE OIL CHAOS AND WHAT IT MEANS (P2)

At what point does elevated oil become a big concern?

A sudden spike in the price of oil acts like a tax on the global economy.

It quickly raises the cost of transport, manufacturing, food, materials, chemicals, and energy all at once.

It squeezes household spending as well as company profit margins.

And it tightens financial conditions and makes central banks less willing to cut rates, just as growth is slowing.

I’ve looked at several expert opinions on what different oil prices mean for the global economy.

And here’s your handy cheatsheet showing the consensus views…

Source: TradingView

In the past several days, Brent crude oil appears to have generally settled around the “mostly manageable” ($80-$90) and “headwind” ($90-$100) zones.

Here’s the breakdown:

Brent at $80-$90: Mostly manageable for the global economy. Sustaining here can still lift inflation and hurt consumers, but it is unlikely to trigger serious growth or recession fears by itself unless the economy is already weak. The more serious macro concerns begin once oil is above $90 for an extended period.
Brent at $90-$100: This is the headwind zone. Growth starts to take a visible hit if prices sustain here. Goldman Sachs said a temporary move to $100 could shave about 0.4 percentage points off global growth.
Brent at $100-$120: This is the stagflation zone. Oil sustaining at this level is no longer just a consumer squeeze - it becomes a policy problem. This is where the wider market starts worrying about a growth slowdown plus stickier inflation.
Brent at $120-$150: This is the danger zone. BNY analysts say if oil spikes to $120-$150 and stays elevated, the world economy could be significantly impacted. This is the level where commentary typically shifts from “macro drag” to “heightened recession risk”. This is the closest thing to a modern breaking point in current expert commentary. Economists generally believe the U.S. economy likely remains mostly resilient unless oil sustains at $125 or above.
Brent above $150: This is the global shock regime. Sustaining at this level, the issue is not just weaker consumption but also a much broader tightening in financial conditions, worsening trade balances for importers, and serious conversations about a global recession.

Is the U.S. manipulating the price of oil?

Last week, a report emerged that the U.S. Treasury was considering actively trading oil futures in an attempt to put a lid on the oil price.

Since then, talk about this topic has gone quiet - so it’s not clear whether this is going to be done, or is already being done.

But experts are pleading: don’t.

Amos Hochstein, former Assistant Secretary for Energy Resources, said:

“This is the worst oil supply crisis in history. You can’t financial-paper-exercise your way out of it.”

Joe Brusuelas, Chief Economist at RSM, said:

“I understand the idea, but the risk is that the U.S. Government ends up in the mother of all short squeezes. It could be challenged by global investors willing to test its mettle.”

Wrapping up

The Strait of Hormuz is the most important thing to watch.

The longer it remains closed, the more upward pressure there will be on the oil price.

And the higher the oil price, the higher the risk to global economic growth.

Unfortunately, right now it doesn’t look like the Strait will conclusively “reopen” any time soon.

If the oil price starts to linger above $100 for a sustained period of time, risk asset prices will likely start to take a hit.

Watch the Strait and watch the oil price…

OIL PRICES UP, RECESSION NEXT? 🛢️

In today's episode, we sat down with Peter St Onge to talk about why the economic risk from the Iran conflict is mainly oil-price driven, not an immediate physical shortage.

Here's what you'll hear:

Why the real danger is months of oil near $135, not a brief spike to $120 for a few days.
Who’s exposed, the U.S. and Europe have buffers, while much of Asia has about 1 to 3 months of reserves.
The Trump-Xi dynamic, and how Russia’s reintegration could shift oil leverage and pressure China.
AI and the labor market, fewer entry-level tech hires, plus the case for AI infrastructure over app moats.

Hit play and see for yourself 👇️