Evercore's Roger Altman: We may be approaching a tipping point in oil

But thank you for having me.

Well, I think the big question of the moment, including reflecting events over the last two or three days, is whether we're now at a tipping point in terms of the oil market and whether we're about to see over the next, say, two weeks, really substantially higher oil prices. Why would that happen? Because 12 to 14 million barrels a day have been taken out of the oil market against an average daily global consumption of about 102 million barrels. And that effect has been cushioned, and I think Dan Yergin might have referred to this, by high inventories, a lot of tankers at sea that were full, strategic petroleum reserves which have been released, and high China inventories. All those now have been drawn down a lot and are about to really lose their cushioning effect on the market. So the oil experts I talk to tell me that pretty soon we're going to see the spread between the price that people actually pay for physical crude when they actually want it to be delivered to them, and the paper price on our screens, is about to widen. And then the paper price will go up a lot, a lot. And the underlying question is, will markets remain stable in the face of that? I would be skeptical of that, but I can't be sure. You're right that the underlying momentum of the markets, which I think is driven by corporate profits and a strong US economy, is powerful. I mean, we have a huge boom in business fixed investment going on. It's centered in Asia, but it's not limited to AI. A lot of manufacturing investment, a lot of machine learning, robotics-related investment. We have a resilient consumer, the wealth effect of the stock market and consumer spending, clean balance sheets, the fiscal impact of the one big beautiful bill. And we have a high rate of new business formation because technology is lowering the barriers to entry to starting businesses. So the conditions of the markets and the economy before we may see these higher oil prices are really very good. So are we at a tipping point? You know, a lot of oil experts think we are. And if we have $150 oil or worse, will that destabilize markets and the economy? Maybe. So far, people have been, up until the last couple of days, relaxed about inflation because they think the underlying rate hasn't risen. And they think fundamentally the energy-driven increases are temporary. But we're at a stalemate in Iran. There are really no good options, and the Iranians are emboldened, it seems, by their own tenacity.

I think the markets would go first.

It could be. Although I think the US economy is pretty stable right now. I think we may see the second big inflation shock of this decade after COVID.

This, if this, yes, from this. And the higher yields we're seeing in the last couple of days, 10-year over 4.60, 30-year, 20-year high, Japanese yields this morning. You know, that may move up from that, which I think would be negative for markets. But I think the markets would move before the economy.

I do like Kevin Warsh. I think he's a serious guy. I know him a bit, not a huge amount. But what I know, I respect. And I think of all the choices President Trump could have made, he made a good one.

As you know better than me, there are a lot of fears that he would choose a dove.

Or even a lackey.

Yeah. But it's a good choice.

I think it's the latter. You never know. Over the years, Kevin obviously was critical of the Fed and critical of the Fed's expanded balance sheet and critical of the way the Fed measured inflation. But now that he's in the job, he's faced with a lot of practical realities. And I think he's going to react to those realities rather than ideology or whatever you might call his prior views. I actually think he's going to do a good job. I think he's going to maintain the Fed's independence. Keep in mind, he's only one of 12 votes at the beginning. By the way, one of the really tough calls is going to be, well, I take that back. I don't think he's going to find it tough. But the federal funds futures markets as of this morning are signaling the greater likelihood of a Fed rate hike than a cut. Now, I don't think Kevin Warsh is going to hike the funds rate right off the bat taking the job under these circumstances. But it's going to be hard to...