The oil price you see on your computer, about $103 for Brent, is a futures contract for oil delivered roughly two months from now. It reflects traders’ bets that the Iran war’s disruption to Persian Gulf supply will ease by then.

The “actual” price experts refer to is the cost of physical barrels available immediately, and since the Strait of Hormuz was essentially shut down in late February, that price has been much higher. Dated Brent, the benchmark for North Sea cargoes you can take delivery of right now (prompt cargoes), peaked at a record $144 in April. Dubai and Oman crude, the benchmarks for Gulf oil sold to Asia, reached as high as $169.75 in March, before shipping costs.

Normally physical and futures prices differ by $1–2. This year the gap has repeatedly exceeded $20–35, because refiners who need crude right now can’t wait for the futures market’s expected recovery. In addition, buyers pay freight, insurance and financing. So the delivered cost of a Middle Eastern barrel to an Asian refinery can plausibly be around $160 even when headline Brent reads $103.

This matters for inflation because consumers pay physical prices, not futures prices. Gasoline, diesel, jet fuel, freight and petrochemicals are all priced off prompt barrels and product markets, so the headline futures price understates the energy shock moving through economies.

Société Générale notes that diesel is strong enough to imply Brent should be above $150 to restore normal refining margins. The U.S. is partly insulated: it is a net petroleum exporter, and its crude has traded at a record discount to Brent because of its distance from Asian markets.

But refined fuels trade globally, so American diesel, airfares and shipping costs still rise. That pushes up headline CPI and, through transport and goods prices, can feed into core inflation and complicate the Fed’s rate decisions. Oil-importing economies feel the shock much more directly.

Europe, Japan, Korea, India and smaller Asian and African importers pay physical or delivered prices, often in dollars their currencies are losing value against. Analysts flag Southeast Asia and East Africa as the most exposed, and the outcomes there range from sharp inflation to outright fuel shortages.

Demand destruction (the IEA expects global oil demand to contract in 2026) eventually limits how high prices can go. But any such ceiling would come at the cost of slower growth, so the world faces a stagflationary mix rather than a simple price spike.

The war on disinflation unleashed by Trump’s tariffs and attack on Iran was quite beneficial to gold, allowing it to break out of the steeper rising channel it had used to break out of two well-established and competing channels.

The inflation wrought by tariffs took GC out of both the rising white channel from 2011 and the rising purple channel from 2016. As soon on the weekly channel below, the breakout also allowed GC to backtest the gray channel dating back to 1999.

However, if we pull back even further, we can see that a much bigger channel top was tested: the yellow channel dating back to the 1970s.

Adding the yellow channel into the picture makes our 3344 target even more compelling. Should it occur around the end of the year, it would represent a backtest of the 2.618 Fib extension, the weekly 200-period moving average, the rising white channel, the rising purple channel and the yellow channel’s .786 Fib.

I believe GC will find the convergence of so many juicy targets at the same time and place hard to ignore. Needless to say, these targets all represent potential support. But, a drop through 3344 would open up 3000, followed by 2460. Note that it has already broken below and backtested its SMA200.

Of course, if it finds reason to break back above 5000, the next stop could well be in another galaxy.

Stay tuned…

A 5.30% increase in WTI isn’t the end of the world — except that it follows the path we laid out over a month ago that ends in new highs – meaning higher interest rates and lower stock prices.

The original forecast from Sep 4 [see Breaking Out]:

The path since then:

The big picture:

The falling yellow channel is a great fit since 1999 or so.

But, if we pull back a little, we can see a great fitting flat channel — shown below in white.

It helps reinforce our upside targets ranging from 121-133.

As we’ve said many times since the war started back in Feb, Iran’s efforts to ramp up the price of oil will be met with strong resistance from the US and its allies. Whichever country prevails, it promises to be epic.

Scott Bessent’s charisma isn’t doing it…

Futures are moderately higher, though with increasing negative divergence…

…thanks largely to the latest VX breakdown.

CL has nearly reached the cycle low we’d modeled…

…though the 10Y continues to push against its highs.

Last, but certainly not least, AI continues to drive everything.

Futures are flat as interest rates and credit risk continue to buffet currency pairs. Unlike the PIIGS crisis of 2008-2009, the FROGS (French Oversized Government and Social Security) crisis of 2026 threatens the EU’s second largest and the world’s ninth largest economy. France’s yield premium over German bonds recently reached 152 bps, the highest since 2011.

Bond investors are using the “R” word amidst a very troubling macroeconomic backdrop.

Futures are up sharply on a jobs report so disappointing (29K vs 84K expected, 4.2% unemployment) that it would give the Fed a little wiggle room re their next rate increase. Unfortunately, it also reinforces the notion of an economic slowdown.

Note that the 10Y reached the June 2019 highs. Of course, back then CPI was 1.6% – far below today’s 3.4%.

Because I took 10 years out of my finance career to write screenplays, I have an admittedly overactive imagination. While I have the MBA/CFA training and decades of actual Wall Street experience, I have no trouble imaging scenarios that are much darker than those offered by the talking heads on CNBC. With that proviso in mind, this is the scenario for the next 5 years that keeps me up at night. There are worse ones, but this one is arguably more plausible.

 *. *. *

Assumption: Iran outmaneuvers Washington in the coming weeks, through drone strikes on Gulf export infrastructure and selective passage through Hormuz, and WTI rises from ~$90 to $118 (Case A) or $131 (Case B) by early November.

Thesis: The oil shock exacerbates 3% inflation, the Fed in hiking mode, a 10-year at a 24-year high and debt above 100% of GDP. It pulls the bond market’s peak forward to 2027, likely triggers a recession, and forces Washington into mild financial repression by 2029–30 in order to manage the growing debt.

How it Would Get Ugly

• Russia–China coordination. Russia gains an oil windfall; China, facing a larger import bill, leans on Russian and Iranian supply paid in yuan and gold. Expect joint patrols near Alaska and Japan and gray-zone pressure in the Baltic, but likely no formal alliance. The worse-case scenario contemplates an opportunistic formal alliance that takes advantage of the depletion of US arms.
• AI in markets. Correlated trading algorithms make a Treasury flash event likely (≈50%), and deepfakes or payment-system attacks are a real risk (≈35%). AI-driven job cuts deepen the recession and drive sentiment to new lows.
• AI at war. Cheap autonomous drones are how Iran effectively wins the war. By 2030, lethal engagements without real-time human approval will be commonplace. The tail risk is an AI early-warning false alarm in a crisis involving Russia and/or China.

What to Watch For

Q4 2026: oil spikes, midterms held amid high gasoline prices, Fed hikes in December. 2027: debt ceiling binds (~May), 10-year peaks, recession begins. 2028: X-date fight (~February), yields fall, stocks bottom early, presidential transition is the peak window for Taiwan risk. 2029–30: policy holds the 10-year near 4.5–5% while inflation runs 3.5–4.5%, so bondholders’ real returns turn negative.

Watch: WTI in December (below $100 means the squeeze failed; above $140 means worse); the 5-year inflation forward (above 3% signals unanchored expectations); auction tails and Japanese selling; the debt-ceiling timeline; and any week in which Russia and China move in the Baltic and around Taiwan at once.

Bottom line

No Treasury default, no U.S.–China war, no dollar collapse, but a costly replay of the 1970s: a 2027 yield peak, a recession, and years in which inflation shrinks the real value of the debt – and of savers’ bonds. The downside tail is oil above $140, a missed Treasury payment, or a military false alarm, any of which would push the outlook toward the darker case.

 

 

 

 

 

Futures are up modestly this morning as equities settle back down following the Sep 21 spike.

The Aug 14 highs remain unbroken, though, suggesting that the Sep 21 spike was a headfake.

The drivers remain the same: oil prices, which are closely following our forecast…

…and VIX, which continues to be smacked down with every attempt to break up a trend line or its SMA200.

My expectation continues to be that oil will spend the month leading up to the midterms on a tear to 120-130/bbl – driven by whatever Iran has to do to prevent Trump from prevailing.

Meanwhile, Trump will do/say whatever necessary to bring oil/gas prices way down by late October.  Two opposing forces, each with a great deal on the line. However it turns out, it promised to be epic.

WTI has almost reached our next upside target of 106.78-108.23 as things continue to heat up in the Middle East.

The upshot is that inflation remains elevated, forcing the Fed’s to hike interest rates on Wednesday.

The latest odds for a quarter-point rate hike are indicated at 80%. The impact is already being felt in both equity…

…and currency markets, as the yen carry trade threatens to unwind.

It’s horrible timing for Trump, with the midterms just around the corner. This, of course, is the goal of Iran’s refusal to buckle under increasing military and economic pressure.

As much as Fed chair Warsh would like to accommodate Trump, a failure to hike rates at this point would result in a significant loss of credibility.

Stay tuned…