Why Oil Prices Could Crash to $60

Kevin Warsh is the frontrunner to lead the Federal Reserve, and he wants to change how the "bank for banks" operates. For the last 15 years, the Fed has acted like a helicopter parent, constantly talking to the stock market to make sure it doesn't get scared. Warsh wants to end that.

• No More "Spoilers": Usually, the Fed tells us exactly what they plan to do months in advance (this is called "forward guidance"). Warsh wants to stop doing this. He thinks the Fed should just act when it needs to. The result? The stock and bond markets will likely become more "jumpy" because they won't have a roadmap anymore.
• A Different Way to Measure Inflation: Warsh thinks the standard way we measure inflation is a bit dramatic. He prefers the "trimmed-mean" method, which ignores huge price spikes in specific items (like a random surge in the price of eggs) to see the bigger picture. Right now, this math shows inflation at 2.33%, which is lower than the official numbers. This might give him a reason to cut interest rates sooner.
• Ending the "Free Money" Era: Warsh is a big critic of "Quantitative Easing" (QE), which is when the Fed pumps money into the financial system. He famously called it "Reverse Robin Hood," arguing that it mostly helps rich investors while making life harder for everyone else by driving up the cost of living.

The Oil Crisis That Wasn't

People were terrified that the "closing" of the Strait of Hormuz would cause a global collapse. It didn't.

• It wasn't actually blocked: Countries like Saudi Arabia just moved their oil through pipelines to different ports.
• The "Emergency Stash" worked:The U.S. and other countries released massive amounts of oil from their strategic reserves to keep prices from exploding.
• The U.S. is now an energy powerhouse: We produce so much of our own oil and gas now that we aren't as vulnerable to Middle Eastern drama as we used to be.

The "Glut" Problem: Could Oil Prices Crash?

Ironically, we might soon have the opposite problem: too much oil. When the conflict in the Middle East fully settles, a "perfect storm" of supply will hit the market:

1. Middle Eastern countries will turn their taps back on full blast.
2. All the tankers stuck in traffic will finally deliver their oil.
3. U.S. drillers are already pumping at record levels.

Experts think oil could drop from current highs down to $60 or $70 a barrel. The only thing that might save the price from crashing further is that the U.S. government needs to buy oil to refill the emergency reserves they just drained.

The Bottom Line

The stock market has basically stopped worrying about the war and the Fed. Instead, investors are focused on corporate earnings and the news there is actually great. Almost 90% of companies are making more profit than expected.

Stocks are currently very expensive (high P/E ratios). Everything looks good right now, but the market is "walking a thin ledge". If companies start saying that high gas prices are finally hurting their customers, the stock market could have a painful reality check this summer.