SPEAKER_00 0:00

Welcome to today's deep dive. Since February, uh 12.8 million barrels of oil have just, well, vanished from the global supply.

SPEAKER_01 0:09

Yeah, vanished. It's wild to even think about that scale.

SPEAKER_00 0:12

Right. So today we are digging into exactly what that means. We're looking at the May 18th pre-market briefing from Eli Lavy. He's over at Canon Trading Company. And you can actually reach him directly at Eli at Canon Trading.com.

SPEAKER_01 0:24

It's a really comprehensive briefing. We're basically mapping out how the effective closure of the Strait of Hormuz is tearing through like everything.

SPEAKER_00 0:33

Yeah, everything from 20-year bond yields to the price of your morning wheat and cocoa.

SPEAKER_01 0:37

I mean, when you have the biggest supply disruption in history, the ripple effects are going to be absolutely massive.

SPEAKER_00 0:42

Exactly. But before we get into the weeds of those ripple effects, we do need to read a quick disclosure for you guys.

SPEAKER_01 0:47

Right, go for it.

SPEAKER_00 0:48

Disclaimer: Trading futures, options on futures, and retail off-exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

SPEAKER_01 1:18

So to understand the sheer scale of this catalyst, you really have to look at the IEA's May oil market report.

SPEAKER_00 1:24

Right, because global supply dropped another 1.8 million barrels a day in April alone, didn't it?

SPEAKER_01 1:29

It did. And that cumulative loss of 12.8 million barrels, well, that makes this the largest supply disruption in the history of the global oil market.

SPEAKER_00 1:37

The history. Yeah, like the fuel stops flowing out the nozzle, but all that buildup pressure violently bursts the pipes further back in the system. And in this case, those bursting pipes are global inflation and the bond markets.

SPEAKER_01 1:57

Yeah, the bond market has suddenly become the main story here. G7 government bond yields just hit their highest readings in over 20 years. Yeah. And the briefing highlights this great analysis from Apollo's Torsten Slark. He basically argues that the era of artificially suppressed yields is officially dead.

SPEAKER_00 2:17

Aaron Powell Which makes complete sense when you look at the forces colliding right now. You've got massive energy inflation returning from the Middle East conflict.

SPEAKER_01 2:24

Oh, absolutely.

SPEAKER_00 2:25

And then central banks completely backing off quantitative easing plus persistently huge government deficits and, well, a visibly deglobalizing world.

SPEAKER_01 2:34

Aaron Powell Right. So investors are finally demanding higher premiums. Those four forces essentially guarantee that rates are going to stay higher for longer.

SPEAKER_00 2:42

So the baseline cost of capital is fundamentally shifted.

SPEAKER_01 2:45

Exactly. It's a whole new regime.

SPEAKER_00 2:46

Okay, wait, let's unpack this for a second. If inflation and fear are running this high, shouldn't a safe haven like gold be surging?

SPEAKER_01 2:54

You would think so, right?

SPEAKER_00 2:55

Yeah. Usually when the world feels this unstable, gold is the ultimate shelter.

SPEAKER_01 3:00

It's a highly logical assumption, but it kind of ignores how intersecting market forces actually work in practice. Gold actually dropped to the 4,483 O area recently.

SPEAKER_00 3:12

Wait, really? It dropped.

SPEAKER_01 3:13

Yeah, it did. Because those higher treasury yields we just talked about, combined with a stronger US dollar, well, they make gold much less appealing right now.

SPEAKER_00 3:22

Ah, because gold doesn't pay yield.

SPEAKER_01 3:25

Exactly. When you can get a massive return on a quote unquote safe government bond, gold just loses its shine.

SPEAKER_00 3:31

That makes total sense. Though Goldman Sachs hasn't completely abandoned their structural call, have they?

SPEAKER_01 3:36

No, they haven't. They actually still target $4,900 by year end. That's largely driven by central bank buying. Aaron Powell Right.

SPEAKER_00 3:43

So the path up is just facing massive headwinds from the bond market.

SPEAKER_01 3:46

Aaron Powell Exactly. And that same systemic pressure squeezing the bond markets, well, it's showing up in extreme physical shortages elsewhere, too, especially in agriculture.

SPEAKER_00 3:56

Aaron Powell Because energy shocks don't just affect your gas tank. I mean skyrocketing energy prices translate directly into skyrocketing fertilizer costs.

SPEAKER_01 4:04

Aaron Powell Exactly. And when you combine that with extreme weather patterns, farmers are forced to plant less and ultimately yield less.

SPEAKER_00 4:11

The vicious cycle.

SPEAKER_01 4:12

It really is. The USDA's projections for U.S. wheat production illustrate this perfectly. They're sitting at 1.561 billion bushels right now.

SPEAKER_00 4:21

Aaron Powell And that's the lowest level since 1972, right?

SPEAKER_01 4:24

Since 1972, yes.

SPEAKER_00 4:25

Over 50 years ago. The scale of these disruptions is just incredible.

SPEAKER_01 4:28

Aaron Powell And the stress extends deep into soft commodities, too. Like cocoa recently rallied nearly 5% to a two and a half month high.

SPEAKER_00 4:35

Oh wow, 5% is a huge jump.

SPEAKER_01 4:37

It is. Early West African crop surveys are showing weak Charel formation.

SPEAKER_00 4:42

Shorelle formation. What is that exactly?

SPEAKER_01 4:43

Basically, it means the young cocoa pods are failing to develop properly, which points to a potentially disastrous main crop starting in October.

SPEAKER_00 4:51

So what does this all mean for you listening today? I mean, whether you're looking at metals, agriculture, or currencies.

SPEAKER_01 4:56

Every single market position right now runs straight through the Strait of Hormuz.

SPEAKER_00 5:01

Yeah, and these higher for longer interest rates, those are the twin engines driving current volatility.

SPEAKER_01 5:07

It requires a fundamental shift in how we analyze risk moving forward. The old playbooks, they simply don't map to these new constraints.

SPEAKER_00 5:15

Which leaves you with this to mull over. If deglobalization and massive supply shocks are the new normal, how will your definition of a safe haven asset need to evolve in the coming years?

SPEAKER_01 5:26

That's a really important question.

SPEAKER_00 5:27

Disclaimer: Trading futures, options on futures, and retail off-exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. Carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.