Oil Drops To 4 Year Lows… And Hollywood’s Tariff Threat 5/5/25

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money Here's what's on tap tonight. Oil in retreat. Crude settling at fresh four-year lows as OPEC gets ready to up production. What it will mean for prices and for profits in the energy complex. And Netflix gets chilled. The streamer's record win streak comes to an abrupt halt as President Trump eyes a new target in the tariff wars. What it could mean for the industry and how the long-time leader could be impacted. Plus, Ford becomes the latest company to pull 2025 guidance. Skechers inks the deal to go private.

0:32Chris Verone is hacking into the cybersecurity stack charts. Can the group's run keep going? We'll get his take coming up. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the desk tonight, Tim Seymour, Guy Dami, and Chris Verone, partner and chief market strategist at Strategas, a Baird company. And we start off with another leg lower for oil prices. WTI crude sinking another 2 % today, posting its lowest settle since February 2021. This latest move coming is after OPEC Plus agreed to a production increase over the weekend. Prices traded as low as 55 bucks a barrel today. The oil flump taking a bite out of Energy Stocks, APA, Occidental, and AconocoPhillips, leading the group lower.

1:09It was the worst performing sector in the S &P this session and has been the biggest drag on the market this quarter. One of institutional investors, top oil analysts, warning there's no relief in sight. Paul Sankey is president and lead analyst at Sankey Research. He joins us here on set. Paul, always great to see you in person. What do you think this means in terms of how low oil prices can go? I think we're looking for the point at which you balance the market through price. And that means that you're going to have to shut down probably U.S. unconventional production. On our numbers at the liquids, overall liquids level, the U.S.

1:39production is around 20 million barrels a day. We think that's got to drop by about 2 million barrels a day to balance the market, assuming that OPEC follows through with these increases that they've been talking about. So it looks like a very bad balance. So you're talking about oil prices have to go lower in order to shut production down, which will then buoy oil prices. Yeah. So we just had an interesting press release from Diamondback, which is top Permian operator. And what they were saying is they won't resume any kind of growth until we get past$55 a barrel. It would really be more like$65 a barrel would be the level at which they would restart growth.

2:13And now they've just announced they're cutting capex by 10%. This is one of the best operators and$400 million, so not an insignificant amount of money. So what you're looking at here is already the best in class guys ahead of this downturn, because we haven't seen the demand downturn actually hit yet. But ahead of it, they're getting themselves ready for what is a market share war. And that would imply$40-ish. 40s oil would be where you're headed if you're really going to shut down the U.S. Well, pun intended, but let's drill down a little bit there because, Edison, be careful what you wish for here in the United States because at a certain price, it really hamstrings people down in Texas and people up north as well.

2:55And And Diamondback's letter tonight makes that point that the oil and gas industry has done an incredible job in the U.S. over the past 15 years. We've become the world's largest oil and gas producer, which is incredibly powerful for things like the U.S. dollar. And, you know, I just don't think you should be hurting this industry excessively in the way that you will be. We also think that relatively equilibrium or higher oil prices are good for the U.S. economy because of what it does for Texas, because of what it does for primary industrial activity in this country. So we don't see this as necessarily positive.

3:25However, I've been on this show many times and we've talked about the coming market share war and, you know, it came. But so who's hurting who? Because what I want to understand here is OPEC plus for years had shown a level of discipline that really kept almost this uncanny type of lack of volatility in the oil price. You talk about a war that U.S. producers may or may not want to get involved in. Obviously, my guess is OPEC plus really is not real happy with the U.S. nonconventional. So talk about this, because everything I'm reading is that in Midland or certainly kind of for the entire region, you're talking about break evens where oil prices now are already below that.

4:02And again, these are folks that CapEx discipline, fiscal discipline. This is what they've been about for the last six years. Yeah, but what's happened over the last six years, you really formed OPEC. You did form OPEC +, which included Russia as the big addition to OPEC in 2016. and what you've seen, you know, for that post-2016 period, which was bringing us out of a big downturn, it did work well as an organisation. But when you came to the big test in 2020, COVID, it actually blew up, and the result of Saudi and OPEC action, inaction, in fact, with disagreement was negative, nearly$40 oil prices for a moment.

4:36So there's been a bit of a mixed track record, and now what you're seeing is gradually the organisation is sort of shredding, and the big one at the core of it is Saudi UAE. And when that began to break down, that's when you almost began to completely lose OPEC. Subsequently, this year's crisis has been caused by Russia and Kazakhstan really not playing the game. And that's interesting because Russia, to a given extent, controls Kazakhstan's output because it controls the pipeline. So there's some sort of major issue here within OPEC Plus that's turning into a market share war. And that's basically what the Saudis are telling the press.

5:09You can read it in the press. We're going to have a market share war. If you do that, you have to take oil to where you shut down U.S. production, and you're probably looking at a forehandle. Paul, help me reconcile the economic message of a forehandle on oil with an S &P that's retraced all of its April loss. The oil market is clearly discounting a major recession at some point. Now, of course, an element here of the downturn in oil is the fact that you've got a supply shock as well. These things always seem to come together, demand downturn coming. Now, if you listen to the director of the Port of L.A., he said that the impact economically is going to be this week.

5:45You know, the tariffs were only in April, April 2nd announcement. So you're expecting to see a physical downturn as of this week. But I was, for example, Valero on their call last week, which is saying that the demand side actually is holding up. And to them, everything real time looks fine. You know, Times Square seems pretty busy. It seems like economic activity is continuing. So we really haven't seen the tariff effect, but we expect to see it this week. And Paul, and gas has been a place to hide and names like EQT and LNG have held in. Do you think that continues going forward? We do, yeah, because if you look at, for example, Microsoft Meta last week, the AI, natural gas, we need natural gas for electricity.

6:22That mega theme is one that we're going to stick with absolutely right here. We'll be seeing a few really important results this week. We've got Vista and Constellation in that space. But also Devon is the marginal U.S. E &P, and we'll be watching them carefully. Diamondback did the right thing today after the market with their results where they're cutting capex. And that's what the whole industry needs to do now. How much do you think if this is political, if at all, in terms of, you know, Saudi wanting to strengthen ties with the U.S., Trump having asked them to bring down oil prices? I mean, you have to conclude it's part of the equation, right?

6:56The Saudis do want some things. The good news for the Saudis is their balance sheet is strong. So people think that, you know, their break even is$85 oil. It is. But since when did the government balance its budget? You know, they don't have a lot of borrowing. So they've got the financial capacity. The other thing is Crown Prince, Mohammed bin Salman, is very popular internally. So the country is in good shape to go into this. And I think combined with what they want in return from the U.S., which would be things like a defense pact, nuclear agreements, stuff like that, they're probably also pushing the U.S.

7:26to take Iranian barrels off the market, which would help the balance a lot. But if we've heard already producers like Diamondback, you know, forecast what the impact is going to be, when will we see, you know, that hurt in Texas? When will we see when do you when historically have we seen that in terms of the lag or, you know, is it a matter of months? With the unconventional, it very much is. Yeah. The decline rates are 60 percent in the first year of production. So you have a very rapid decline rate and a need for very rapid activity. And during COVID, you saw a pretty rapid drop off, although, of course, the COVID recession was the shortest in history because you printed your way back out of it.

8:02The question is, how are you going to get out of this recession quickly if you're not going to print your way out of it like we did last time? So a silver lining theoretically for people's gas prices will go down in sympathy. That remains to be seen. But for some of the refiners, the input, right, I mean, the biggest input, crude oil, is lower. if they're still holding on to the margins, if the crack spreads are working in their favor, the Valeros of the world actually could be interesting here. Yeah. And that's one view, absolutely, that more OPEC crude is a wider heavy light spread. That's good for refining if demand holds up.

8:34So it becomes absolutely a question of demand holding up. More crude is good for refiners. There's no question about that. The other thing is, if you look at wholesale gasoline prices, which President Trump referred to, he said we're at$1.98. We're not at$1.98 at the pump. He was talking about the NYMEX price probably, which is closer, more like$2.10 on Friday. You can see clearly that pump prices have to come down by a decent amount to catch up with the wholesale market. So pump prices will be lower going into driving season. But Paul, how about the trade in the energy space, I think for the last five years, has not really been about, hey, get someone on the upstream or an E &P play.

9:10It's really been about MLPs and utilities and people getting fat yields and gotten very comfortable with that. Is that trade something to be concerned about? Because, again, people that are in that trade are not people that are go-go, high volatility, energy, let's put it all in black. They're people that I want to clip my 6 % to 9 % coupon in some great names like Energy Transfer and go home. Yeah, I mean, I think in gas you can see the volumes are going to be maintained. We've got the LNG export story. We've got the Mexico export story. And then we've got the AI natural gas story. So volumes of natural gas likely to stay very high.

9:43The concern would be the more oily EMPs. You've already had some issues around exports to China. That's been a big part of the story for some of them. And so there's a concern that if we're going to stop activity on the oily side, then that's going to be negative for the more oily of the midstream players. And that would be where I'd be more concerned. Exxon last week said we're going to stick by our production forecast. We're going to stick by our growth forecast. And I'm wondering, at what point do even companies that have reported already have to pull back or revise their forecasts? That's really why we're talking about the 40 number, because this is going to be sticky.

10:16Saudi's in good financial shape. There's a lot of long cycle oil being added globally. A good example would be by Guyana. That stuff's just going to keep coming. Canada's just going to keep coming. So to shut down the U.S., you're also now for a first time dealing with Chevron Exxon, really Exxon, Chevron, Conoco, who haven't said anything. In fact, broadly speaking, said we're not going to change anything right here. Right. So it's going to be a tough battle, this one. Paul, great to see you. Thank you so much. Paul Sankey, Sankey Research. What do we do here? Well, he's on, listen, he's the man to speak to in terms of the space, and he's been spot on.

10:47What do you do here? Well, I do think refiners can work, to Paul's point. If crude keeps going lower, gas sort of hangs in there. Demand, Valero's interesting here, but, you know, Chris mentioned EQT. That stock is hung around pretty well as well. Nat gas downstream plays, clean energy. There are places to be, but the big cap integrated names like Exxon, which I loved, has not traded well now for the last couple of months. I think the context of this discussion is interesting when you have a Fed debating what's the bigger risk. Is it the growth side of the equation or inflation? And when I see crude at 57 today, all the energy stocks at new lows, the basic resource stocks, Tim, as you certainly know, have been weak.

11:22That doesn't seem like a very inflationary message. So I look at the macro ledger and I still think the bigger risk is to the growth side, not the inflation side. I think it's a fascinating time because I agree with you on the politics here. There's no question. There is there's I wouldn't we call it collusion. We want to call it. I mean, they're they're allowed to collusion sometimes is a naughty word. But I mean, if the Saudis want to play ball with the U.S., that's fine. And it means I think oil prices can go lower. Ultimately, the demand side of this is what we all get worried about. And I think Chris's question about the, you know, the discrepancy or one's not telling the right story, the S &P or the price of oil.

11:56And I would get back to the integrated. And it's been a very safe place to play. And I'm not saying I changed this view overnight, but there have been times where I felt very confident investing in the big integrators, especially because of the free cash flow and the CapEx discipline. And that's something that I think you have to look at. If you are, I love Total and Royal Dutch Shell over in Europe because their break evens are around 44 bucks. OK, so but if what Paul says holds true in terms of 40, all bets are off. Look, all bets are off for a space that always overshoots and the price of oil will overshoot.

12:26And we all remember the days when USO went to, you know, negative. I mean, I think we're all used to seeing the volatility in the energy space, and it usually leads the way. I mean, you've got to think of the last or maybe two bus cycles ago beyond COVID, what, 1980s or something like that, where you've got to be careful what you wish for President Trump in terms of lower oil prices. No doubt about it. And what it means for those regions, those jobs. I think we're talking about that. Texas has been an economic engine. There's a real fine line real quick. And remember, it was during the first Trump administration.

12:57Go back and look to Tim's point when he had a minus 40 front month crude for other reasons other than, you know, we're talking about here. But we went to OPEC and said, hey, you know what? You've got to cut production. I mean, the price is too low. So we walk a fine line here in the crude oil world. And, Guy, just go back to 2014, 2015. Don't have to go all the way back to the 80s. I mean, there was an oil shock in 14, 15. Well, there's a credit shock in that space, too. That's something that I think a lot of people are still, you know, feeling the burn on. Yep. Meanwhile, Treasury Secretary Scott Besson speaking at the Milken Institute's Global Conference in Beverly Hills today, making his case for President Trump's America First economic plan.

13:33Our Sarah Eisen spoke with him after his panel. She joins us now with the latest. Hi, Sarah. Hi, Melissa. Good to see you. Treasury Secretary was here at Milken talking to investors globally. It's a community he knows well as a former hedge fund manager and making the case for why it is a good time to invest in America. Also making the case that the economic policy agenda is not just about trade. It's trade along with tax legislation, which he's talking of, and deregulation, all of which he expects to hit in the second half of the year. When we talked about economic growth expectations, he said he wants to get back to the 3 % level.

14:15Why? Well, economic growth, but also because he is a so-called deficit hawk and wants to bring the deficit down as well. to the 3 % range of GDP. So some numbers there. As far as trade, of course I asked for an update on how it's going, particularly with China and whether things are still at a standstill. Here's what he said about whether we could see de-escalation when it comes to the US versus China on trade. I think we could see substantial progress in the coming weeks, we'll see. That as, I think it's Steinsall, that which is not sustainable doesn't continue.

14:57So again, repeated that it's unsustainable to have this kind of trade embargo with China. Also reiterated that it's on China to de-escalate. And according to history and academics, that's what he said, that China gets hurt more than the U.S., than the deficit country when it's a trade fight like this. And so continues to believe the U.S. has the leverage. wouldn't comment necessarily on how that de-escalation process happens. But he did say a matter of weeks. And then with the rest of the trade deals, he said we're prioritizing 17 partners and said, as President Trump said, that we could see a deal announced as early as this week.

15:35And then, Melissa, just because you guys were talking about energy prices, I mean, he did point out that that was one of the administration's policies and goals to bring down energy prices. Certainly that has happened in a big way. mortgage rates were another area he pointed to as far as progress, because, you know, they're looking at that 10-year Treasury yield and trying to bring rates down as seeing signs that that's all starting to work out. Sarah, thank you. Sarah Eisen joining us from Milken after having spoken with Secretary Besant. Again, promises from the administration that progress will be made.

16:09We could be on the verge of deals, although President Trump earlier today said that he has no plans right now to speak with President Xi Jinping of China. So look, if you think we're on the verge of a deal, I understand why the markets listen. Technically, I understand why the markets rally. Chris can speak to that. Maybe we've overshot a little bit, although the S &P traded basically up to the 200 day moving average. But there are other things that work here. There's a reason why crude is lower. Things are slowing down. There is a market slowdown. And you know what? It comes down to whether we're in one or about to go into recession.

16:41I mean, the average multiple during those times is not 21. It's more in the mid-teens, which we're nowhere near right now. And by the way, it's against earnings revisions that have to continue to come down. And by the way, there's a reason why Warren Buffett now is almost$350 billion of cash sitting on the sidelines and has done nothing over the last couple of months. Something to think about. Well, if you think about, you know, I was just looking at a report from Fitch who says our effective tariff rate is somewhere around 24%. This includes, you know, 90-day delays. In other words, what we have now, not what could happen in 90 days if they don't cut deals with those 17.

17:13And it includes kind of China where they're at. We started the year at a defective tariff rate of about 2.3 percent. Okay, so no matter what you do, we're at a place on tariffs that we haven't seen in a post-World War II environment. When you think about the impact of that, I think it's still yet to come. When you think about from a market's perspective and sentiment, we all know where sentiment was three weeks ago. And it was about as bad as you could get. I also think with the administration, in terms of what they're delivering to us now, the worst of that detox is over. I'm not talking about the economic impact.

17:42I'm talking about what you hear from the White House. And I think there's going to be a lot of goodies we're going to hear from the White House, too. Whether the market believes them or not or whether you think the follow through, whether you think there can be tax cuts, I'm not going to opine on that. I'm just saying in terms of what we've encountered in terms of market sentiment out of D.C., I think we've seen our worst. You know, I would tend to agree. I think we learned 4 ,800 is certainly a pain point. Maybe that's the Trump put here. I think we learned 460, 470 and 10-year yields is also a pain point here.

18:09And you bring up tax cuts. Well, there's a tax cut right in front of us. We just talked about it with Paul, right? We've seen oil go down meaningfully. Rates are off their highs. So I'm not opposed to the idea of, listen, we know the facts that are in the present, but what's the future telling us here? What could go right? Do we have the imagination to think what could go right from here? I think that's important going forward. Coming up, earnings season in full swing. Ford, Hims and Hers, Palantir, and more all on the move after reporting the numbers from the quarters next, plus a tariff on Tinseltown, how Hollywood could get hit by Trump's tariff proposals.

18:39And the streaming stocks not loving the drama. Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee, right here on CNBC.

19:00Welcome back to Fast Money Earnings Alert on Ford. The company reporting top and bottom line beats, but shares moving lower on suspended full year guidance as the automaker expects to take a big hit tied to tariffs. Phil LeBeau's got all the details. Hey, Phil. Hey, Melissa, the call has just begun, and they really haven't gotten into the decent questions from analysts. They're still sort of rehashing a lot of the first quarter and what their plans are for the rest of this year. Nothing substantial with regard to tariffs. As you mentioned, Ford did beat on the top and the bottom line. But let's be clear here.

19:29The analyst estimates, they were dramatically cut over the last 45 days. So, yes, they did hit the target, but the target has been moving down. The ICE division, now this is something that's going to get some attention on the call. $96 million profit a year ago. It was$901 million. Some of that is because of lower volumes. Some of that is because of mix. We'll hear what they have to say during the call. $1.5 billion is the net tariff impact that they expect at this point for 2025. So as a result, as you take a look at shares of Ford, as you mentioned, the company has suspended its guidance. There have been a few people who have said, well, the company says they, X tariffs would hit their target of profit of between seven and eight and a half billion.

20:13Sure, but nobody's quite sure what the tariff impact is going to be over an extended period of time here. They say right now with the current policies, it's 1.5 billion. What if there's a new policy, et cetera. Also, Ford is evaluating its manufacturing footprint. We're going to be talking with Jim Farley tomorrow morning, first on CNBC. You don't want to miss what he has to say. Most importantly, it's about tariffs. It's about how do they continue to have some type of certainty with regard to their costs. Yes, they're saying it's $1.5 billion. But Melissa, let me throw an example here. What happens if Ford and other automakers have to commit to financially helping suppliers in order for those suppliers to come into the United States.

20:57Nobody's saying that's going to happen at this point, but that's one of many questions that are out there within the auto industry. Again, we're going to hop back on the call, see if Jim Farley has any further details about what they're expecting with tariffs. So, Phil, I'm curious, because GM adjusted their full-year operating profit guidance lower because of the situation, and Ford pulled it. So how do you think they shake out in terms of, does GM look like they're giving guidance that is just unknowable, or does Ford look much worse because they have no handle on what their guidance will be?

21:29Well, I don't think that Ford has no handle on it. Look, there are back of the envelope, you could sit there and say, OK, they expected to earn between seven and eight and a half billion dollars, take off one point five billion for the expected impact of tariffs. And you have them earning between five and a half and and what, seven billion dollars. But they've made a point of saying we think that's the impact at this point, But things could change. And I think that it's just two different approaches to how you want to look at full year guidance at this point, Melissa. I don't think that Ford is unknowable and that General Motors is 100 percent knowable.

22:05I think this is just their approaches for handling this. Phil, thanks. Phil LeBeau. You bet. What would you feel more comfortable with? Is this a kind of a would you rather dress up in a little different way? Kind of. I mean, would you rather have a company just pull their full year guidance or would you rather have a GM that will estimate some sort of guidance, not really knowing what the exact future will be? I'd like them to give me something. I'd like them to give me something. And I understand that we live in a volatile environment. I mean, GM has also given us some sense of where their tariff offsets are.