By Jules Rimmer
Any rebound in oil prices could prove opportunity to bet on crude’s subsequent decline, strategist says
Energy prices have already been discounting a peace deal of some sort as Vladimir Putin and Donald Trump meet.
Already, the summit taking place in Alaska Friday, aimed at ending hostilities in Ukraine, has partly contributed to the 12.6% decline in oil prices in 2025. Energy traders have “Baked Alaska” into their expectations for a resumption of Russian oil supplies, as Bank of America strategist Michael Hartnett puns.
The potential for a rebound on any such announcement would set up an interesting opportunity, he says.
As Hartnett reminds, President Donald Trump has promised lower pump prices for the U.S. consumer, and if there’s Russo-American cooperation in a “Race For Arctic” initiative to take advantage of a northern sea route, exploiting 15% of world’s undiscovered oil and 30% of world’s undiscovered natural gas, then he predicts the bear market in oil prices intensifies.
Could U.S.-Russo cooperation in the Arctic lead to lower energy prices?
Hartnett raises this possibility in his weekly Flow Show report, entitled “Into the Jackson Hole” where he notes something else that’s well priced in: a 25 basis point rate cut for September, or rather, Fed Chair Jerome Powell confirming its imminence. As with the oil price dynamic, Hartnett suggests buying the expectation of an easing before selling its announcement.
Among the more eye-catching data points cited by Hartnett this week is that 2025 so far has occasioned 88 separate central bank rate cuts, a party which U.S. stock and bond traders obviously expect the Fed to join soon.
However, he warns the rumors of yield curve control – 54% of fund managers expect yield curve control or quantitative easing from the next Fed chief – a new inflation target and a threat to the Fed’s independence are coinciding to disrupt fixed-income markets.
That disruption, he predicts, “equals debasement” and a structural bear market for the dollar DXY. He calculates the weighted average maturity of U.S. government debt to be between 5 and 6 years, so if the Fed reduced rates to 3% – funnily enough, the level suggested by Treasury Secretary Bessent this week – that would bring down the yield on the 5-year note BX:TMUBMUSD05Y to around 3.1% and stabilize $1.2 trillion of interest.
All this, he contends, weighs in favor of higher allocations to crypto, gold and emerging markets in the second half of the 2020s.
The disfavor shown by investor toward U.S. government bonds, combined with the AI boom, is “champagne for stocks,” Hartnett says, as he points out the S&P 500 SPX price-to-book ratio of 5.3 times, an all-time high exceeding the 5.1 of the dot-com bubble in 2000.
S&P 500 price-to-book value ratio is at a record high, exceeding that of the dot=com bubble
Hartnett captures the zeitgeist with his summary of the investment dilemma: “I’m just hoping the market goes up more than the currency goes down.”
-Jules Rimmer
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08-15-25 0917ET
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