The Wall Street Journal
WSJ's Take On the Week
SUNDAY, AUGUST 2, 2026
8/2/2026 6:00:00 AMShare This Episode
Why Oil Prices Could Hit a Breaking Point by Year End
年末までに原油価格が限界点（転換点）に達する可能性
In this episode of WSJ’s Take On the Week, co-host Telis Demos is joined by guest co-host and Wall Street Journal reporter David Uberti to break down the Federal Reserve’s latest moves, and what oil’s volatile pricing—exacerbated by the U.S.-Iran conflict—might mean for inflation and the Fed going forward.
- This might mean ... for ... 意味するかもしれない
Then, BCA Research’s chief commodities strategist Roukaya Ibrahim joins the show to break down what’s behind oil’s volatile pricing. They discuss what current geopolitical tensions mean for oil and whether recent inventory data suggests a looming supply crunch. Plus, Ibrahim explains why the traditional link between gold and inflation has fractured, and how oil price shocks may impact the Fed.
Telis Demos: Hey everybody. I'm Telis Demos. Welcome to another episode of WSJ's Take on the Week. This week we've got a conversation about oil, but really I think it's a conversation about inflation because I don't know about my guest host here today. I don't buy barrels of oil, I buy gasoline. But I don't know, Dave Uberti, WSJ markets reporter, maybe you do buy barrels of oil. You've been writing about this stuff forever.
Dave Uberti: It's a constant urge that I have to suppress, for sure.
Telis Demos: Well, tell us about exactly what you do here at The Journal.
Dave Uberti: It's all over the map.
Telis Demos: Okay.
Dave Uberti: I first started covering oil and gas in 2022 during the last energy shock, during the war with Ukraine. Last year I moved toward more of the macro econ nexus. And then this year with Venezuela, with Iran, it's kind of like that scene from Godfather three where Pacino says every time I get out, they pull me back in. That's where I am now.
• constant urge /ˈkɑːnstənt ɜːrdʒ/ 絶えず湧いてくる衝動・欲求
• suppress /səˈprɛs/ 抑える、抑制する
• all over the map /ɔːl ˈoʊvər ðə mæp/ 幅広い、あちこちに及ぶ、一貫性がない
• macro econ nexus /ˈmækroʊ iːˈkɑːn ˈnɛksəs/ マクロ経済との結び付き（macro econ = macroeconomics の口語的省略）
Telis Demos: Well, that's unsurprising that energy markets have not let you go quite yet. It seems like they're the big story, at least for now. Another big story, we had the Federal Reserve meet this past week. They did not do anything on paper. They held rates steady, but there was so much action in the commentary. You had three dissenters who said that they though that the Fed should be hiking rates. And then you had the reaction to new chair Kevin Warsh's press conference, which was to see short-term interest rates fall. That is like two-year treasuries. Their yields went down. Longer term treasuries, 10 years and especially 30 years went up. That's a move that suggests that people think that the Fed is behind the curve, that they should have hiked rates, and now they're going to have to do it more aggressively in the future. What did you take away from the Warsh press conference that everyone's talking about?
• dissenter /dɪˈsɛntər/ 反対票を投じた人、異議を唱える人
• be behind the curve /bi bɪˈhaɪnd ðə kɜːrv/ 状況への対応が遅れている
Dave Uberti: I mean, the interesting thing about this has been sort of a communications question from the outset. Warsh said he wanted to pull back on communications, issue less, if not no forward guidance in some of these meetings or pressers following them. And I've been talking to investors for weeks about this. Do you think that's going to inspire more or less volatility from markets? I think on balance, investors thought it was going to inspire more volatility in markets. And the weird line Warsh was trying to walk in that presser, he was basically saying, "We want markets to speak." If you take that a step further, you could sort of see the implication of we will take a signal from markets, which obviously raises the question if rates are going up while the Fed is remaining silent, what does that tell the Fed to do?
• pull back on ... /pʊl bæk ɑːn/ ～を控える、減らす
• walk a fine line /wɔːk ə faɪn laɪn/ 微妙なバランスを取る
in the presser = 「記者会見で」「記者会見の中で」
Telis Demos: Well, I've seen commentary from people who are trying to get in the Fed's head a little bit on this or get in Warsh's head in particular and have said that all this bond issuance and CapEx from hyperscalers is part of what is pushing up those long-term interest rates. And so, in a sense, maybe it is the market speaking saying there's a lot of bonds coming. A lot of people want to raise money. That's going to naturally start to raise interest rates. And then the Fed will have to make a decision at some point about whether or not they think that that will be inflationary, whether all this CapEx will just push prices up, or whether as Kevin Warsh and others have posited, that there'll be a productivity boost out of this in the long run and that the Fed should just sort of let things play out as they will. But the fact that Warsh doesn't say anything, to your point, leaves the market to its own devices.
• get in someone's head /ɡɛt ɪn ˈsʌmwʌnz hɛd/ （人の）考え・心理を読み取ろうとする
• posit /ˈpɑːzɪt/ （仮説・前提として）主張する、提示する
• leave A to its own devices /liːv ... tə ɪts oʊn dɪˈvaɪsɪz/ Aを自由にさせる、Aを成り行きに任せる
Dave Uberti: Right. I spoke to some investors after Warsh spoke. They said maybe having a more opaque Fed is a good thing. I mean, the day after Warsh spoke, of course, we're seeing a big rip in markets, especially tech stocks as well. Sort of a risk on move, which is counterintuitive.
Telis Demos: The stocks had initially fallen on the day of the meeting.
Dave Uberti: Totally. Then they ripped that. It's hard to read that any which way. I mean, one experience that I have from the oil markets, we have analysts who are using satellite imagery of oil terminals to try to gauge the height of shadows to understand what inventories are doing in places like China. And I just bring that example up to show that if tea leaves are not there, if they're not offered up, investors will find tea leaves to read.
• opaque /oʊˈpeɪk/ 不透明な、分かりにくい
• rip /rɪp/ 急上昇する（市場スラング）
• counterintuitive /ˌkaʊntərɪnˈtuːɪtɪv/ 直感に反する
• any which way /ˈɛni wɪtʃ weɪ/ どの方向にも、どう解釈しても
• find tea leaves to read /faɪnd tiː liːvz tə riːd/ 判断材料を何とか見つける
• tea leaves /tiː liːvz/ 占いの材料、判断材料（比喩）
Telis Demos: Yeah. Well, and there's a positive spin to put on all of this, which is like, "Look, we're making big investments in the future of the American economy. We are building giant new data centers. We are upgrading power grids, all these things that will power long-term US economic growth, which is something that will push up interest rates." And then we all have to figure out, and the Fed has to figure out again, whether or not that translates into healthy productivity growth that lets everyone sort of get richer from that, or if it just gobbles up a bunch of resources and nobody really benefits, and we're going to have to find some way to slow all of that down. That's the big question really, I think at the heart of this. One thing, David, I know you said is that the Fed not doing anything this meeting gives them a little more time also to think about what's really happening in the oil markets. We've seen the return of some pretty wild volatility with the price of crude over the last couple of weeks, right?
• positive spin /ˈpɑːzətɪv spɪn/ 前向きな見方、肯定的な解釈
• put a spin on ... /pʊt ə spɪn ɑːn/ ～をある方向から解釈する、印象づける
spin はもともと「回転」ですが、情報に「方向づけ・解釈」を加えるという意味になります。
• gobble up /ˈɡɑːbəl ʌp/ 大量に消費する、食い尽くす
Dave Uberti: There's been these incredibly wide swings with each sort of eruption of violence that has happened in the Middle East. We were in the 70s, even the high 60s, then we've rocketed back up to a hundred. Then we went back down to the high 70s, then hit 90 again recently. It just sort of goes to show that even as the start and stop peace process plays out, the oil market's going to have this incredible bout of volatility going forward. The volatility in and of itself could inspire some sort of energy inflation going forward. Even beside that, if there is an increase in hostilities going forward, we could very easily see oil back up to a hundred. I mean, we have two months before the next Fed meeting, that's an eternity in the oil market. But in terms of diplomatic processes, that's not that much time. So, we'll see what happens. For now, at least Warsh has some time to evaluate the extent to which that sort of energy inflation may or may not bleed into the core inflation that central bankers care more about.
• rocketed back up /ˈrɑːkɪtɪd bæk ʌp/ 急上昇して戻った
• high 60s /haɪ ˈsɪkstiz/ 60ドル台後半
• high 70s /haɪ ˈsɛvntiz/ 70ドル台後半
• bout of volatility /baʊt əv ˌvɑːləˈtɪləti/ 一時的な大きな変動
• in and of itself /ɪn ənd əv ɪtˈsɛlf/ それ自体で、それだけでも
• bleed into ... /bliːd ˈɪntuː/ ～へ波及する、徐々に入り込む
Telis Demos: And to that point, crude oil prices, though they may fluctuate, are not directly part of the CPI, the Consumer Price Index. The things that are, are things like gasoline. And one thing you've been writing about is that the prices of things that are derived from oil, like gasoline, like diesel, those prices have not necessarily gone right up and down with oil, but at times, even though the price of crude has fallen, the price of those other products have stayed high. What's the term for that? It's the crack spread, the crack spread.
• fluctuate /ˈflʌktʃueɪt/ 変動する、上下する
• be derived from ... /bi dɪˈraɪvd frəm/ ～から派生する、～を原料とする
• go right up and down with ... /ɡoʊ raɪt ʌp ənd daʊn wɪð/ ～と同じように上下する
• crack spread /kræk sprɛd/ クラック・スプレッド（原油を精製して製品化する際の利幅）
Dave Uberti: It's the sort of profit margin that refiners make when they're converting crude oil into gasoline or diesel.
Telis Demos: And that has been high at times lately, right?
Dave Uberti: It's been almost historically high at certain points at times. And what it's sort of left us with is abnormally high gasoline and diesel prices, even as crude has been pretty low. And the way that affects inflation is in two ways of gasoline, which as of this recording is about 4.10 a gallon nationally. That plays a huge role in fueling people's inflation expectations. And at the same time, diesel, it sort of factors into almost everything in the economy that needs to be moved. So, if you think of food, if you think of TVs, if you think of computers, if you think of chips, anything that's shipped around the world, that's sort of hard to measure to the extent that those prices are filtering into what prices consumers or producers actually pay. And that's why it's such a difficult thing for central bankers to try to evaluate.
Telis Demos: So, to try and get at those dynamics, we've brought in Roukaya Ibrahim. She is BCA Research's chief commodity strategist. And Dave and I peppered her with questions about what she thinks is the longer term picture that's emerging for oil and for those other products. How could our energy economy, the way that we power things change over time because of what's going on in this conflict that points toward sort of a longer conclusion about where prices and interest rates and all that sort of thing should be. So, we're going to have that conversation with Roukaya when we come back.
8:31
• get at ... /ɡɛt æt/ ～を理解する、核心に迫る、解明する
• pepper someone with questions /ˈpɛpər ... wɪð ˈkwɛstʃənz/ ～に質問を次々浴びせる
b--------------------------------------------------------------------------------------------------------------
Roukaya, welcome to our show.
Roukaya Ibrahim: Thanks a lot for having me, Telis.
Telis Demos: So, here's what I'm wondering. Now that we know that pretty much at any moment seemingly, with a logic that, I don't know, maybe you guys have a view on, but I certainly don't, that the US and Iran could, regardless of whether or not there's a ceasefire or an agreement or a deal in place, could at any moment fire a missile at a ship, threaten to do that, and the price of oil will surge again. We'd seen the price of oil kind of stay below a hundred for a while, and then about a week ago it got back to that level. Given that, why should the price of oil ever be below a hundred since at any moment it seems like it could maybe shoot back up to that level? Why does it get back down? That's what I'm having trouble understanding.
Roukaya Ibrahim: I mean, from a really long-term perspective over 12 months and beyond, I think actually what we have just experienced over the past few months justifies lower oil prices.
Telis Demos: Really?
Roukaya Ibrahim: Yeah, absolutely. I think what we have seen is really peak influence of the Strait of Hormuz. So, first of all, what we've seen during this disruption is that a key part of the adjustment mechanism has been the pipelines in Saudi Arabia and the UAE that have enabled about five million barrels per day of oil to get out of the Middle East despite the closure of the Strait of Hormuz. And I think the Middle Eastern countries are going to double down on those. We already know that the UAE is planning to double the capacity of the ADNOC pipeline, which goes to the Gulf of Oman and thereby bypasses the Strait of Hormuz. Saudi Arabia is most likely going to either expand the East-West pipeline or even put in new pipelines that enable it to divert oil away from the Strait of Hormuz, but also reduce its exposure to the Bab-el-Mandeb strait, which we know is now also at risk. Iraq is also expanding pipelines to either Turkey or Syria. And so, in that way, I think really what we've seen is that the Strait of Hormuz, its influence has peaked. It's still going to be extremely relevant to global oil markets. I don't want to understate that. However, I think that from that perspective, from the supply side, that's sort of a longer term trend. And then also from the demand side, I think that countries are going to put in place policies that reduce their exposure to similar disruptions in the future.
Dave Uberti: But I guess my question for you, Roukaya, is that if the expectation is that crude will fall lower, maybe a little bit closer to where it was at its pre-war levels, but I just wonder, we've been in this sort of limbo for the last month or two where there's been some peace talks, then there's been renewed bombing campaigns, there's been peace talks and bombing campaigns. Oil was at a hundred, now it's back in the 80s. Say that continues for a month or two months or three months where we're kind of in this weird middle area where not a lot is happening, but still there's this supply disruption. When does the rubber meet the road for the futures market? And doesn't that sort of ortel higher oil prices by year-end?
Roukaya Ibrahim: Our outlook is that from a geopolitical perspective, what we're likely to see over the coming months is a pretty wide trading range for oil, probably between $70 and maybe $100 a barrel for Brent on the back of this sort of stop and start in negotiations and tensions in the Middle East. So, I don't think that it's going to be clearly over, and that's going to cause oil prices to be in this wide trading range. It's also going to mean that even if we do get a period of deescalation and some flows coming through the Strait of Hormuz, the oil disruption is not going to be completely cleared over the coming months unless we do see a clear sort of effort to deescalate. The incentive for that clearly is the midterm election. So, we could see that. And if we don't, I think where the rubber meets the road for the oil market, we can probably assess that by looking at the status of global oil inventories. And there, if we sort of project the pace of decline that we've seen since the start of the conflict out to the future, if we extrapolate that forward, we reach sort of critical operational stress levels, so-called operational stress levels towards the fourth quarter of this year. And I think at that point when we no longer have an inventory buffer, which I mean, according to our estimates, has contributed sort of up to four million barrels per day to the disruption. At that point, I think you would need to see a sharp move higher in oil prices. And that could be very damaging for refined products and ultimately for consumers worldwide.
Telis Demos: Just on that supply side, you're saying that what we're seeing in the futures market, this volatility we're seeing where the price might go up to a hundred, it might go back down. I think as we're speaking now, it's in the 80s. You're saying that behind that, that there is already taking place, like a rewiring of the market where people are trying to figure out how do we not make the Strait of Hormuz, which is the center of this conflict. How do we not make that this choke point? And that's already started to happen. Wow.
Roukaya Ibrahim: Yeah. So, I mean, just to be clear, these pipelines, they do take time to build. And so, the impact is not going to be felt for the remainder of this year. So, this is more of a 12 months and beyond type of story. But I think over the near term, why would oil prices come down? So, I actually think that there is a floor for oil prices. And I think when they dip down to, in the case of Brent, $70 a barrel just a month ago, I think that was really the very bottom of what is justified on a fundamental basis. Simply because if you take a look at the mechanisms that enabled the world to deal with this disruption, many of them are temporary in nature. And actually going forward, regardless of whether the Strait of Hormuz is reopened or not, they're going to be less of a headwind on prices and more of a tailwind to prices. So, specifically, for example, China, which of course has basically cut its imports by about five million barrels per day, that is really a temporary mechanism. On the other hand as well, inventories, which we know have declined meaningfully over the past few months. There's a limit to how much we can draw down on inventories. And actually once flows start to come out of the strait, what we're going to start to see is that the inventory drawdowns are going to reverse and we're going to start to see inventory builds that support demand and prices.
Telis Demos: And just on the supply side still for one second, Roukaya, one thing I know you've talked about is this idea of changing incentives for oil producing companies. You talked about the anti-OPEC club, maybe countries that will think about supply and demand differently. Are there places where supply of oil is, that this crisis maybe will accelerate the production of oil from certain places or things that maybe weren't economically or politically feasible before that are now? Are we seeing a change on the supply picture coming out of what's been going on over the last couple months?
Roukaya Ibrahim: Well, I mean, I think that a lot of market participants were surprised by the relatively tame response from US producers. And I think that highlights really that US producers are very much focused on returning value to shareholders and they're not willing to pump at any cost. And what we've seen is actually US production in particular typically, so US oil production growth typically lags oil prices by about six months. And that's what we're seeing now. So, I think it was just very premature to expect US producers or even other global producers to ramp up aggressively when the duration of this disruption is ultimately unknown. And so, that's one thing. I think whether that's the US or other global producers, they're not really willing to take measures to aggressively increase production when it's just a temporary situation. But even in the case of the US, for example, the magnitude that we're likely to see in terms of the increase in production is probably not going to be anywhere close to being enough to offset the size of the disruption. So, I think that there will be certain countries over the near term that could increase slightly, but it's really not going to be very meaningful. And instead what we've seen is that US exports have actually surged, but that's come on the back of a drawdown in US inventories, not a meaningful increase in production. And what that means is that the surge in exports that helps cushion global oil markets is ultimately temporary. And in fact, in recent weeks, we have seen US crude oil exports relapse to where they were prior to the crisis. So, that sort of support for global supply has faded for now. But in terms of the longer term outlook, I mean, you mentioned OPEC, and I think it was really interesting to see the UAE announce that it was exiting OPEC in the midst of this crisis. It may have been accelerated by the crisis, but really the reason why it's exiting is because it has invested in its domestic capacity, production capacity, and the OPEC production quotas do not allow it to sort of match that increase in production capacity. But I think what we're likely to see is, as you mentioned, sort of a coalition of countries that's not a formal sort of coalition in the same sense that OPEC is, but a group of countries that are geopolitically aligned with the US that are more willing to increase their production and are less sensitive to global prices than the US producers are.
Telis Demos: But getting back to what you said before too, it seems like you're saying that maybe the bigger change. So, the supply changes you're saying are meaningful, especially at the margins, maybe in a time of crisis, but are not an enormous change in the amount of oil that will be supplied. It sounds like you're saying, and David, I'm curious for your perspective on this too, that it will be a change in demand that really is kind of the biggest shift that comes out of this crisis. Am I understanding that right?
Roukaya Ibrahim: Yeah. And from my perspective, it will be a shift in demand that really ultimately accelerates trends that were in place prior to the crisis because the electrification trend and reduced demand for fossil fuels, these trends were already in place, but I think this sort of adds another layer of an incentive to accelerate this trend. And I think that's probably going to be the more dominant dynamic over the longer term.
Telis Demos: David, what do you think? Do you think we can really use less oil? I mean, we've been hooked on this stuff for so long. Are we really going to finally make the big shift to get away from that? Because I thought that in the US, policy was sort of moving the other direction. Less emphasis, no more subsidies for EVs, et cetera. Maybe that's not happening around the rest of the world.
Dave Uberti: I mean, in the US, we're definitely trying to ramp up. If you look north to Canada, that country is trying to export more oil from the Western part of the country as well. Guyana, Brazil, Petrobras was in the office several months ago talking about trying to boost their production as well. All of the countries that have these resources know that there is something of a ticking clock when it comes to some of these longer term trends that Roukaya is talking about. So, they want to cash in while they can. But to your point about in the US, we're definitely going all in on fossil fuels at this point. I think the more meaningful and potentially more interesting change that Roukaya was sort of mentioning is about these oil consuming countries, particularly lower or middle income countries in South or Southeast Asia who have really taken the brunt of this impact in the short term this time around. The question, of course, is the extent to which that becomes a medium or long-term trend.
Telis Demos: All right, let's hold that thought and take a quick break when we come back more with Roukaya Ibrahim of BCA. Welcome back. So, obviously we've been talking mostly about crude oil and oil futures, but there's also the physical market for oil where people actually need these things because we don't use crude oil in what we do every day when we drive.
Dave Uberti: Speak for yourself, tell us.
Telis Demos: Okay. Yeah, maybe you guys are buying barrels of crude. I don't know what you do with your spare time, but we use gasoline, we use diesel. We pay for airline tickets that use jet fuel. What's happening in that market? Given that the physical disruptions that are happening to oil, is that part of the demand solution? It's just we've made gasoline and diesel more expensive in the long term.
Dave Uberti: Yeah, I'll throw this back to Roukaya, but this has been the most interesting thing for me to watch as an oil reporter. Obviously, oil gets the headlines. President Trump will talk about crude prices, but if you actually look at gasoline or diesel futures, they've remained relatively stable over the last month. I think both of those are up as well, and they've been relatively flat since fighting was peaking in March and April. So, they really haven't come down the same way the oil futures have. And at the end of the day, as you say, that's what is actually meaningful to people who are fueling up at the pump as well. So, Roukaya, I'm curious if you could help us understand why that's been happening, especially in the last couple of weeks or so since there's been this stop and start peace process as oil has come down. Why have gasoline and diesel stayed pretty elevated?
Roukaya Ibrahim: Yeah, I think that's been the most interesting part of the past couple months is that we've seen the crack spread, that difference between the refined product and the crude prices has widened meaningfully. And I think that there is several reasons for that. I think the Strait of Hormuz crisis plays a part, but there's also more going on. So, first of all, regarding the Strait of Hormuz, so as I mentioned earlier, China has limited exports of fuel products, which has helped the crude oil market cushion the supply disruption, capped prices in the crude oil market. But at the same time, it has actually created a bigger problem for refined products because these Asian countries that depend on Chinese refined product exports now no longer have these supplies. So, it's tightened the global market for refined product. So, that has, I think, contributed to the increase in the crack spread. The other dynamic also is that when you look at what goes through the Strait of Hormuz prior to the crisis, 15 million barrels of crude and five million barrels of refined product. So, really the refined product market has been faced with this sort of double whammy of not only is the crude that is used to produce the refined product is now limited, but also part of the supply of refined product has also been constrained. And then outside of hormuz, I think that what is happening to Russia, increased Ukrainian attacks on Russian refineries is also playing a part. Ukraine has really ramped up its attacks on Russian refineries over the past couple months. And as a result, and that's hurting Russian refined product supplies domestically in Russia. As a result, Russia has banned exports of diesel. It's the second-largest diesel exporter in the world. And so, that has tightened global markets for refined products as well. But it has also, interestingly, on the margin, eased global crude markets because now Russia has actually increased its exports of crude because the refined capacity has been damaged by the Ukrainian attacks. And so, as a result, it increased its exports of crude. So, it kind of also helped widen the crack spread. I think it's probably near the peak. I think that these dynamics are probably going to reverse over the coming months, but it's been something interesting to watch.
Telis Demos: So, what's your longer term outlook on, I guess, essentially the crack spread? Can we get this easing in oil, crude oil pressures that you guys are talking about, increased supply, decreased demand, but still face elevated prices from what we're used to in the stuff that we use in gasoline, diesel, airline, jet fuel, the various products that go into plastics and apparel and all that? Could those things still stay expensive longer than the crude market will?
Roukaya Ibrahim: I mean, the lesson from 2022, the disruption at the time is that yes, it does take time between the peak in crude prices and the peak in the crack spread. So, back then, the peak in crude prices came ahead of the peak in the crack spread. So, I think that there probably is going to be this delay whereby we see crude prices decline. And even though refined products will also decline, but the decline in crude prices is going to be much more aggressive. And I think that that will sort of lead to relatively higher refined product prices for a bit longer. I mean, if you take a look at, for example, the national average retail gasoline price in the US today, it's above $4 a gallon. And I think that it's probably going to fall below that level, but it's not going to come back down to where it was prior to the crisis as quickly as crude prices will. So, I think, yeah, US consumers will probably face that higher refined product prices for longer.
Telis Demos: So, Roukaya, I know we've been talking about commodities, your current role as commodity strategist, but I know you've got broad experience, you've written about the macro kind of markets before. Translate your thoughts on the short, medium, longer term for oil and oil products into how we should think about inflation. Do you think that we should have maybe a more sanguine inflation outlook because of these kind of long-term release valves for oil? Or is the fact that the crack spread and products are more expensive going to keep the prices that we measure and look at as part of when we talk about inflation high? How would you advise somebody to think about inflation coming out of all this?
Roukaya Ibrahim: Yeah, so that's a great question. I think ultimately the base case, my base case is that what we're seeing in terms of the disruption to the oil market is temporary. It's creating, of course, a lot of disruption in the near term, and that will translate into higher headline inflation. But ultimately what matters is core inflation. And in order to see those sort of second order effects, spillover effects into core inflation, we would have to have a relatively prolonged period, I think, of higher prices at higher energy prices. Of course, that is possible, but at this point, I wouldn't say that it's the base case. So, I think that for now, I would say that the disruption that we're seeing is translating into higher headline inflation, but not yet core. And I think that it's probably going to stay that way. But of course, if we do see this disruption continue for several more months, then that would be another issue. Longer term, because I think that the trends from this disruption, from this closure of the Strait of Hormuz are ultimately bearish for oil markets as we discussed, both because of supply as well as demand. I think that in terms of its impact on inflation really limits the upside for inflation. So, it becomes less relevant for the longer term outlook for inflation.
Telis Demos: And Roukaya, I also wanted to quickly ask you about gold. Your thoughts on why gold prices have come down. Because I feel like maybe that's telling us something interesting about how the markets are thinking about longer term inflation. Gold is still pretty expensive in the grand scheme of history, but has come down quite a bit from the 5,000 plus per ounce level that it was, I think was earlier this year. What's that telling us about inflation and where does that fit into everything going on out of the Middle East?
Roukaya Ibrahim: Yeah, that's a great question. And I think it's a misconception among market participants and investors that gold is a good inflation hedge. When that is sort of discussed, often the 1970s period is what is referenced. And at the time that's true, gold was a good inflation hedge. It rose in both real and nominal terms as inflation was increasing. Increasing, but the difference between today and back then is that today inflation expectations are well anchored. And so, whenever we see an increase in inflation on the back of something like an oil price shock, what that translates into is a repricing of Fed expectations in a more hawkish direction. And that translates into an increase in real rates. And ultimately, the tightest relationship that we've seen year to date is between gold prices and real rates, whereby there's that inverse relationship, higher real rates are a headwind for gold prices. And that's really what has dominated gold markets over the past few months. As we've seen real rates increase, that has put downside pressure on gold prices. And I would just add one thing is that it's been really interesting to see that because that is, while it's true, historically gold does have a very tight inverse relationship with both real rates and the US dollar, but that relationship actually broke down between 2023 and 2025. And we've only seen that relationship reconverge since the beginning of this year. And I think that highlights that the gold market dynamics have shifted, the drivers of gold demand have shifted, whereby while central bank demand, the main driver over the past few years remains strong, central banks are trying to diversify their reserves away from US dollar assets and into gold.
Telis Demos: Which had translated into dollar weakness for a period of time.
Roukaya Ibrahim: Yes, that is correct. And that ultimately is continuing, but it's just putting a floor beneath gold prices. And there's this added layer now that we saw an increase in investment demand, ETF demand for gold last year, and that has made gold prices more vulnerable and exposed to what happens to real rates in the US dollar, which I think is what's driving that relationship this year.
Telis Demos: So, returning to that inverse relationship where gold goes down, the dollar goes up, that kind of historical relationship, I mean, that's also related to what's happening in real rates to your point, right? Because that real interest rate, which is the difference between what people's long-term inflation expectations are and what longer term bonds are yielding, has been pretty wide. Inflation, like you said, the market still expects that in the 2%-ish neighborhood for the long term, but now some bonds are yielding almost 5% so that you're getting maybe a 3% gap, which is historically very attractive, which makes people want to own the dollar and not own as much gold.
Roukaya Ibrahim: Yeah. I mean, ultimately real rates in the US dollar are sort of the opportunity cost of holding gold. So, when you see a stronger dollar, higher real rates, that does translate into weaker demand for gold. And so, there is that very strong inverse relationship historically between gold prices, real rates, as well as gold prices in the US dollar.
Telis Demos: And Roukaya, remind us the difference between what's measured in core CPI versus the headline that you're talking about.
Roukaya Ibrahim: Yeah, absolutely. So, core CPI is basically headline CPI, so the Consumer Price Index, but it excludes energy and food prices. And so, when we see an increase in the prices of energy, whether that's gasoline, diesel, et cetera, that directly translates into higher energy costs and therefore is reflected in higher headline inflation. But in the core measure of CPI, the core inflation measure, that component is excluded. And so, that's why you do not see that direct impact from higher oil prices on core inflation.
Telis Demos: All right, Roukaya, thank you so much for joining us. It's been really interesting to kind of look through the volatility in the oil market, which is what we sort of talk about every day.
Dave Uberti: The long-term implications of what's happening right now.
Telis Demos: Exactly. To look through that and say, "Okay, but what's really happening under the hood and how is the global energy system being rewired?" So, this perspective has been really interesting. Thank you so much for joining us.
Roukaya Ibrahim: Thanks a lot, Telis. Thanks, David. It's been an absolute pleasure talking to you about these fascinating markets.
Telis Demos: And that's everything you need to know to take on your week. This show is produced by Alexis Moore, Michael LaValle, and Pierre Bienaimé, with production support from Anthony Bansie. Michael LaValle is our sound designer. He also wrote our theme music. Aisha Al-Muslim is our development producer, and Chris Zinsli is our deputy editor. For even more, head to wsj.com. I'm Telis Demos.
Dave Uberti: And I'm Dave Uberti. Until next time. Oh, yeah.
Telis Demos: Slay.
Dave Uberti: That's what I thought you said.
Telis Demos: Sorry, you mean I did a good job? Okay.
Dave Uberti: All right. Great. Yeah, yeah, yeah. Okay.