Strategist Sees WTI Falling to $40 a Barrel

Key Concepts

• Super Abundance: A state of excess supply in the Western Hemisphere (specifically the U.S. and Canada) across crude oil, liquid fuels, and agricultural commodities.
• Market Elasticity: The ability of markets to find alternatives or efficiencies when prices rise, effectively reducing demand and rendering cartels like OPEC less influential.
• Technological Deflation: The role of technology in simultaneously increasing supply and reducing demand for crude oil.
• Retail-Wholesale Lag: The time delay between fluctuations in wholesale crude oil prices and retail gasoline prices at the pump.

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1. The Forecast for Crude Oil

Mike McGlone projects a significant reversion in crude oil prices, potentially reaching $40 per barrel (WTI) by the second half of the year.

• The Mechanism: High prices accelerate the "super abundance" trend. Currently, the U.S. and Canada maintain a surplus of approximately 7 million barrels per day; if prices remain high, this could climb to 10 million barrels per day by 2028.
• Historical Parallel: McGlone compares the current market to 2008, when crude oil peaked at $147 before crashing to $40 by year-end.
• OPEC Redundancy: The speaker argues that OPEC is becoming increasingly irrelevant as global producers (including the U.S., Canada, UAE, and Iraq) increase drilling capacity, effectively adopting a "drill at will" strategy.

2. Commodity Trends and Market Volatility

McGlone identifies a broad "pump and dump" trend across various asset classes.

• Asset List: The trend of declining prices now includes Bitcoin, natural gas, gold, silver, platinum, palladium, iron ore, corn, and potentially U.S. Treasury bond yields.
• Stock Market Correlation: A critical observation is that significant "swoons" in crude oil prices historically coincide with downturns in the stock market. McGlone warns that as volatility increases, commodities like copper and oil are likely to face downward pressure alongside equities.

3. Gasoline Prices and Political Pressure

The discussion addresses the President’s criticism of energy companies (ExxonMobil, Chevron, Shell, BP) for not lowering pump prices.

• The Reality of Pricing: McGlone notes that retail gasoline prices are actually tracking wholesale prices accurately, though there is a natural "lag" in the adjustment process.
• The Midterm Dilemma: While the President desires lower gas prices (targeting $2.25–$2.90) to combat inflation and improve election prospects, McGlone warns that achieving these lower prices may come at the cost of a stock market correction, which would be politically detrimental.

4. Precious Metals: Gold and Silver

Gold and silver are described as having reached unsustainable highs in Q1.

• Technical Indicators: Gold reached a 40-year high relative to the Bloomberg Commodity Index and a 60-month moving average. Furthermore, the valuation of Treasury bonds relative to gold is at its lowest point since the early 1980s.
• Outlook: McGlone suggests that gold has likely hit a significant peak and may remain range-bound for years. He invokes the market adage: "You're supposed to be selling when they're yelling."

5. Synthesis and Conclusion

The overarching theme is that the global energy market is undergoing a structural shift toward super abundance, driven by technological advancements and increased production capacity in the Western Hemisphere.

• Key Takeaway: The market is currently correcting from over-extended highs. While lower energy prices are expected—and politically desired—they are likely to be accompanied by broader economic volatility and potential stock market weakness. The speaker emphasizes that the U.S., as the world’s largest energy producer and net exporter, is fundamentally incentivized to see lower prices to manage inflation and voter affordability.