Why the Price of Oil, Beef, Electricity, and Everything Else Makes No Sense

Episode Summary

Executive Summary: Recorded live in London, the episode examines how the Strait of Hormuz conflict could reshape oil, fertilizer, food, and broader real-asset markets. Javier Blas and Lorkin Roche Kelly argue that markets are being cushioned by stockpiles, demand destruction, and prior buying, but the real squeeze is delayed rather than avoided—especially for agriculture, where input costs and supply constraints may bite later in 2025-26.

Main Topics: Strait of Hormuz and oil market disruption (Priority: 5/5): Javier Blas explains that the blockade has tightened oil markets, but prices have not spiked as dramatically as feared because of spare logistics, stock drawdowns, and demand reduction. The central question is when the strait reopens and how long inventories can buffer the shock. Europe’s energy shock vs. oil shock (Priority: 5/5): The guests distinguish between oil prices and the broader electricity shock that hit Europe in 2022. They argue electricity is the more important transmission channel for inflation and business viability, and that current power prices are far less extreme than during the 2022 crisis. Agricultural markets and delayed food inflation (Priority: 5/5): Lorkin Roche Kelly argues that food markets look comfortable now because global supply is abundant, but the real consequences of today’s price signals will appear months later when farmers decide what to plant and raise. He expects tighter food supply and higher prices in 2026. Fertilizer oversupply now, tighter supply later (Priority: 4/5): The discussion shows how Europe’s CBAM-related pre-buying created a temporary fertilizer surplus that is cushioning current prices, but this merely postpones higher costs. Once inventories clear, fertilizer costs are expected to rise again and pressure farmers globally. Beef, dairy, and protein-driven consumer shifts (Priority: 4/5): The speakers discuss how low cattle numbers and higher protein demand are driving beef prices, while dairy markets are being reshaped by GLP-1 use and the protein craze. They describe a coming wave of cheese and whey investment, with soft cheese production favored over aged cheese. OPEC cohesion and the UAE’s ambitions (Priority: 4/5): Blas says the UAE’s decision to leave OPEC is a major challenge for the cartel because it reflects a desire to produce more oil and weakens Saudi-led supply discipline. He frames this as part of a broader erosion in OPEC’s ability to manage market share and price. Demand destruction and U.S. supply response (Priority: 3/5): Both guests stress that much of the market adjustment has come through demand destruction rather than pure supply expansion. Blas expects some additional U.S. oil output, but not enough to offset the large market gap.

Key Arguments: The Strait of Hormuz remains the key variable: until it clearly reopens, oil and jet fuel markets will stay vulnerable, even if shortages are not yet severe. Current oil prices are below worst-case expectations because inventories, alternative pipelines, and deliberate demand reduction have absorbed part of the shock. Electricity, not just oil, is the critical energy price for Europe because it directly drives inflation and business solvency; 2022 was worse because power bills themselves became existential for firms. Food inflation is delayed: abundant global supply today masks the fact that planting and breeding decisions made now will constrain supply and raise prices later. European fertilizer policy and pre-buying have created a temporary buffer, but CBAM and tighter global supply will likely raise fertilizer costs again after existing stocks run down. Beef prices are high mainly because there are too few cattle, not because processors are profiteering; the bottleneck is supply, and retail pricing has not fully adjusted. The UAE’s exit from OPEC reflects its ambition to grow output and weakens the cartel’s ability to restrain production and defend prices. U.S. shale can add supply, but the expected increase is too small relative to the size of the global disruption to materially solve the problem. Consumer behavior is changing: GLP-1 use and protein-seeking are reshaping dairy, cheese, and QSR demand patterns. Trade headlines matter less than currency moves in some sectors; a weaker dollar has had a larger real impact on European exports than tariff-style policy changes.

Data Points: Recording date: May 7 - The live London episode was recorded on May 7 at Wilton's Music Hall. Location: Wilton's Music Hall, London - First-ever UK live show for the podcast. Jet fuel shortage horizon: A few weeks to end of June - Blas says jet fuel remains manageable until the end of June, after which summer demand makes things tighter. Gasoline price in U.S.: $4.5 per gallon - Used as an example of rising but not yet crisis-level U.S. fuel prices. Oil price: about $100 per barrel - Current benchmark referenced during discussion of the Hormuz shock. Electricity wholesale prices in Germany/Europe pre-2022: 50 to 75 euros/MWh - Baseline electricity price before the 2022 energy crisis. Electricity wholesale peak in 2022: 1000 euros/MWh - Illustrates severity of the European power shock. Current electricity wholesale price: around 80 euros/MWh - Described as close to normal compared with 2022. Demand destruction: about 5 million barrels/day - Blas estimates global oil demand has fallen this much without major economic pain. Demand destruction share of market: about 5% - Alternative expression of the 5 million barrels/day demand reduction. U.S. wheat plantation: lowest total acreage ever - Lorkin says forecasts point to record-low U.S. wheat plantings since 1919. Historical wheat acreage reference: 1919 - Oldest comparable data point mentioned for U.S. wheat acreage. Milk supply growth: up 5% globally last year - Used to explain why dairy markets are under pressure. Milk supply growth in some European countries: up 7% so far this year - Supports the argument that milk prices are falling below production cost. Tyson beef processing loss: $150 million in three months - Evidence that processors are not making easy profits from beef scarcity. U.S. cattle herd level: lowest in 75 years - Explains tight beef supply and elevated prices. UAE oil output ambition: 4.5 million barrels/day to 5 million+ barrels/day - Highlights the UAE’s desire to expand production after leaving OPEC. European fertilizer pre-buying surge: 60% to 80% above normal - December 2025 purchases jumped before CBAM took effect. CBAM impact on urea imports: up to 120 euros/tonne - Estimated tax burden from the Carbon Border Adjustment Mechanism starting in 2026. U.S. farmer nitrogen price tolerance: $450/ton vs. $700/ton - Illustrates how much fertilizer cost increase becomes uneconomic for farmers. Corn price comparison in 2022: $4 to $8 per bushel - When fertilizer rose in 2022, higher corn prices offset some of the pain. Current corn price: $4.5 per bushel - Shows why the current fertilizer spike is more painful for farmers than in 2022. Cheese plant investment: four or five massive plants - Indicates future U.S. capacity growth in cheese and whey processing. Dollar weakness: 20% weaker than a year and a bit ago - Blas says FX moves have had major effects on trade and demand.

Pivotal Quotes: "We have so much food out there. The world is drowning in wheat. It is swimming in milk." — Lorkin Roche Kelly: Describing why food prices do not yet reflect the looming supply squeeze. "The defining picture of 2022 crisis... it was the electricity bills that people would post on social media." — Javier Blas: Explaining why Europe’s 2022 energy shock was more severe than the current oil shock. "This is not a crisis that's going away, this is a crisis that's delayed." — Lorkin Roche Kelly: Summarizing the timing of fertilizer and food-market stress.

Implications: Markets may remain deceptively calm while inventories and pre-buying absorb the shock. The real inflationary pressure is likely to emerge later through food, fertilizer, and industrial inputs, with Europe and farmers especially exposed.