Why Oil Prices Could Hit a Breaking Point by Year End

**SPEAKER_1** (0:00)
I'm Steve Booth, CEO of Baird, an independent wealth, asset management, and global capital markets firm. At Baird, our 5,000 plus employees are united by an unwavering commitment to excellence and a genuine passion for helping our clients and each other succeed. As a privately held, truly employee owned company, we treasure our independence since we can focus on delivering results to clients and taking care of our people throughout the cycles in our serve markets. Learn more at rwbaird.com/wsj.

**Telis Demos** (0:32)
Hey, everybody. I'm Telis Demos. Welcome to another episode of WSJ's Take On the Week. This week, we've got a conversation about oil, but really, I think it's a conversation about inflation because I don't know about my guest host here today. I don't buy barrels of oil. I buy gasoline, but I don't know, Dave Uberti, WSJ Markets reporter, maybe you do buy barrels of oil. You've been writing about this stuff forever.

**David Uberti** (0:54)
It's a constant urge that I have to suppress, for sure.

**Telis Demos** (0:57)
Well, tell us about exactly what you do here at The Journal.

**David Uberti** (1:00)
It's all over the map. I first started covering oil and gas in 2022 during the last energy shock during the war with Ukraine. Last year, I moved toward more of the macro econ nexus. And then this year with Venezuela, with Iran, it's kind of like that scene from Godfather III where Pacino says, every time I get out, they pull me back in.
That's where I am now.

**Telis Demos** (1:20)
Well, that's unsurprising that energy markets have not let you go quite yet. It seems like they're the big story, at least for now. Another big story, we had the Federal Reserve meet this past week. They did not do anything on paper. They held rates steady, but there was so much action in the commentary. You had three dissenters who said that they thought that the Fed should be hiking rates. And then you had the reaction to new chair Kevin Warsh's press conference, which was to see short-term interest rates fall. That is like two-year treasuries, their yields went down. Longer-term treasuries, ten years, and especially 30 years, went up.
That's a move that suggests that people think that the Fed is behind the curve, that they should have hiked rates, and now they're going to have to do it more aggressively in the future.
What did you take away from the Warsh press conference that everyone's talking about?

**David Uberti** (2:15)
I mean, the interesting thing about this has been sort of a communications question from the outset. Warsh said he wanted to pull back on communications, issue less if not no forward guidance in some of these meetings or pressers following them. I've been talking to investors for weeks about this. Do you think that's going to inspire more or less volatility from markets? I think on balance, investors thought it was going to inspire more volatility in markets.
The weird line Warsh was trying to walk in that presser, he was basically saying, we want markets to speak. If you take that to a step further, you could sort of see the implication of, we will take a signal from markets, which obviously raises the question, if rates are going up, while the Fed is remaining silent, what does that tell the Fed to do?

**Telis Demos** (2:56)
Well, I've seen commentary from people who are trying to get in the Fed's head a little bit on this, or get in Warsh's head in particular, and have said that all this bond issuance and capex from hyperscalers is part of what is pushing up those long-term interest rates. So in a sense, maybe it is the market speaking, saying there's a lot of bonds coming, a lot of people want to raise money. That's going to naturally start to raise interest rates. And then the Fed will have to make a decision at some point about whether or not they think that that will be inflationary, whether all this capex will just push prices up, or whether, as Kevin Warsh and others have posited, that there will be a productivity boost out of this in the long run, and the Fed should just sort of let things play out as they will. But the fact that Warsh doesn't say anything, to your point, just leaves the market to its own devices.

**David Uberti** (3:48)
Right. I spoke to some investors after Warsh spoke. They said maybe having a more opaque Fed is a good thing. I mean, the day after Warsh spoke, of course, we're seeing a big rip in markets, especially tech stocks as well.
Sort of a risk on move, which is kind of intuitive.