This Is Now The ‘Worst Energy Crisis Ever’ | David Hay

Overview

David Hay (Haymaker Publications; former co-CIO at Evergreen Gavekal) argues that the current global energy and financial situation is far more severe than markets and major institutions assume. He frames it as the “worst energy crisis ever,” with knock-on effects across inflation, consumer costs, equities, and especially bond yields.

Main Arguments and Analysis

1) Energy crisis: not normalizing—still severe and worsening

• Hay disputes claims that disruption in the Strait of Hormuz has “normalized” due to higher shipping volumes, calling it complex and ongoing.
• He argues the crisis is driven by real supply losses, not temporary logistics bottlenecks—citing large-scale production outages (including references to billions of barrels of lost production).
• The issue is not just crude oil, but refined products, particularly diesel:
  • Even if crude prices are “manageable,” refined-product scarcity (the “crack spread”) is the main economic pain.
  • He points to examples of rationing and shortages abroad (e.g., France).
  • He warns of potential spillover into U.S. shortages—such as potential gas/diesel “line” scenarios in places with reduced refining capacity (e.g., California).

2) “No oil glut” — futures don’t reflect physical scarcity

• Hay criticizes the “oil glut” narrative and argues the International Energy Agency has forecasted poorly.
• He explains that oil markets are unusual because the futures market’s size and influence relative to physical markets can create misleading price signals—especially during political events.
• He highlights extreme market-structure conditions:
  • Backwardation (futures prices below spot) as a sign of persistent shortage stress.
  • A divergence between physical prices (e.g., higher in Shanghai) and U.S. benchmark pricing influenced by futures positions.
• Core point: even if someone expects oil to decline based on futures, Hay argues physical constraints can keep spot prices elevated.

3) Refining utilization is too high to “just refine more”

• Hay argues refiners are already running at very high utilization rates, leaving little room to increase output quickly.
• He warns that pushing utilization higher raises the risk of accidents and disruptions.
• He also connects the crisis to global diesel dynamics, including Russia’s historical role as a diesel exporter and ongoing damage pressures.

4) Policy and geopolitics: political risk could extend the energy shock

• He argues the war and related restrictions are lasting longer than expected.
• He suggests midterm elections and subsequent political dynamics increase uncertainty.
• He specifically warns investors not to assume policy incentives will keep pushing oil lower after the midterms—raising the risk of further upward pressure on energy.

5) Expected market consequences: potential commodity-driven stress for stocks and bonds

• Hay argues energy shortages and high refined-product prices can drive demand destruction (recession risk), even if recession hasn’t arrived immediately.
• He claims the bond market is already in disarray due to soaring yields and fragile fiscal conditions—not purely energy-driven correlation.
• He discusses how rising yields can eventually pressure equities through higher interest costs and risk-off positioning.

6) Macro uncertainty: energy stocks are outperforming, but “breadth” is worsening

• He notes strength in the energy sector:
  • XLE (energy ETF) has risen notably since his earlier bullish stance, with references to longer-term total return performance.
• However, he warns broader equity conditions are deteriorating:
  • Market breadth is very weak (“bright red” deterioration), implying gains are concentrated and the rest of the market is cracking.
  • He connects narrow leadership to risk of a sharper downturn (potentially a “very severe bear market,” though not necessarily immediate).

7) Midterms as an underappreciated market catalyst

• Hay highlights prediction-market odds favoring Democrats, but argues the risk is not only the outcome—it’s how contested outcomes could affect markets.
• He frames a “worst case” scenario as political conflict and legal challenges in close races that could heighten uncertainty and volatility.

Investor-Consumer “Outlook” and Strategy Suggestions

• Baseline view: the energy crisis is unlikely to quickly unwind, and inflationary impacts may persist.
• Suggestions mentioned:
  • Raise cash modestly / use a ladder in Treasuries to gain yield and flexibility (around 2-, 5-, and 10-year yields are referenced).
  • Consider energy-linked exposures (energy and midstream), and he personally favors certain service/energy names (including Halliburton).
  • Use selected bonds or higher-yield corporate bonds as ballast/alternatives (including an example of “Meta bonds” as attractive yield).
  • He implies energy and inflation hedges could benefit if markets correct and volatility rises.

Key Market Mechanisms He Emphasizes

• The energy market problem is concentrated in refined products, not just crude.
• Futures signals can mislead relative to physical scarcity.
• High utilization rates limit the ability to quickly add supply.
• Bond yields reflect broader fiscal fragility; energy is part of the linkage, but not the only driver.
• Equity risk is elevated due to deteriorating breadth and concentration in tech.

Presenters / Contributors

• David Hay (Haymaker Publications; former co-CIO, Evergreen Gavekal)
• David (show host, “David Squared”; name not provided in the subtitles)

Mentioned / credited contributors and guests

• Mike Rothman (Cornerstone Analytics)
• Bill Sme / Bill Sme (mentioned as having a similar bond/energy outlook)
• Jim Bianco
• Jeff Curry (Goldman Sachs)
• Dan Pickering (energy analyst)
• Jesse Felder
• Vincent Delaware (StoneX)
• Grant Williams, Doug Casey, Danielle Di Martino Booth, Peter Schiff, Mark “Mark Scousin” (as written in subtitles), Adam Hamilton (not present—only names from the conference list appear in subtitles; remaining conference list includes multiple speakers)
• Chris Wright (mentioned in relation to releasing SPR stocks)
• Nadella (Microsoft CEO, referenced)
• Carl Ro (referenced in relation to midterm commentary)
• Rick Rule (mentioned)
• International Energy Agency (IEA) (institution referenced)
• Goldman Sachs (as referenced via Jeff Curry)