Paper vs. Physical: What Tighter Oil Supplies Could Mean

With the proverbial ceasefire negotiation can kicked down the road for the second time in a week, the U.S. and Iran remain in a stalemate over the Strait of Hormuz. While equity markets have bounced back this month, seemingly moving on to the more upbeat fundamental and macro backdrop, and crude oil futures have dropped off their March highs, the physical supply squeeze for oil may be somewhat underappreciated by investors. Entering 2026, crude oil over supply was expected to be a headwind for energy prices, but damage to the energy infrastructure and production cuts in the Middle East have accelerated uncertainty around the supply crunch sparked by the Strait of Hormuz closure. For perspective, one-fifth of global supply typically traverses the Strait, but roughly 23,000 outbound kilobarrels of crude oil have passed the waterway since March 1 (just under 1.5 days’ worth, based on the one-year average before the conflict). Early-year oversupply has helped absorb the immediate shock better than feared, while markets still face normalization that could take months.

Headlines have broadly focused on futures prices across the so-called paper market, but what slipped under the radar was a disconnect beginning in mid-March between the physical market. As evidence of the supply squeeze, futures prices remain lower than dated Brent prices (the benchmark for physical oil prices) and have resumed moving higher despite coming back to earth a bit after soaring past $140 per barrel before the U.S.-Iran ceasefire.

Source: LPL Research, Bloomberg 04/27/26

Disclosure: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.

Considering that the final cargoes that departed the Strait of Hormuz before the conflict arrived at their destinations during the week of April 13, simply securing barrels of crude is rapidly becoming paramount. Japanese refiners have snapped up U.S. oil, Chinese refiners drove shipments from Vancouver to record highs, and India has lifted purchases of Venezuelan oil, and reports indicate traders at some Asian refineries reportedly disregarded price in recent transactions.

Although futures prices may fall following the first headlines of a durable reopening of the Strait, the futures curve suggests a new floor for crude has been set as impacts in the physical market linger, potentially leading to a structural change for energy surrounding a shift from a just-in-time market to one involving a renewed importance in strategic inventory reserves.

Another hot topic related to the physical oil squeeze has been the so-called death of the petrodollar. However, we don’t believe the petrodollar dynamic (a product of a 1970s U.S. agreement with Saudi Arabia to price oil in dollars, which has fueled capital recycling into U.S. assets) is over. Iran accepting tolls in Chinese yuan sparked angst around the end of the petrodollar, but the idea of a “petroyuan” seems farfetched as a meaningful shift would take years (potentially decades), not weeks or even months. We note the offshore petrodollar may not be as potent during this shock as in the past, given a few factors. One being Gulf States’ shift away from investing in traditional reserve assets (like U.S. Treasuries and dollars) toward sovereign funds buying equities. Another being the Saudis issuing dollar-denominated bonds rather than solely buying them. And of course, reduced Middle East energy sales from the Strait of Hormuz closure. But the U.S. acting as a net exporter will likely keep North American oil flush with onshore dollars.

What about equities? Well, as evidenced by global market performance since the end of February, the impacts of higher oil prices are not felt equally across the globe. The U.S. has firmly established itself as a net exporter of total petroleum products. This provides domestic equities with relative insulation compared to the rest of the world, and U.S. equities also display less exposure to overseas revenue compared to their global counterparts — likely acting as a buffer from spillover across the Atlantic and Pacific. Developed international markets, however, are more exposed.

As European underperformance during the conflict suggests, higher energy and raw-materials costs may pressure margins, limiting the runway for European earnings growth. Plus, with inflation often “imported” as energy prices rise, market expectations of a European Central Bank and Bank of England rate hike have risen for this summer. Despite the shock being treated as a temporary, near-term inflation disruption by markets rather than a policy regime change, more restrictive monetary policy may challenge the upside potential for European stocks over a tactical time frame.

Japanese equities remain acutely exposed given approximately 88% of the archipelago’s oil imports originate from the Middle East. However, equities have displayed some resilience with the recent rebound in tech shares supporting benchmarks — a similar story to the emerging markets across Asia as exchanges without a sizable technology sector, such as Thailand and Indonesia, have been hampered by oil prices and the supply crunch compared to the tech-leaning markets of South Korea and Taiwan.

This historic energy supply shock does warrant monitoring by investors. Market pricing suggests higher oil prices may linger, and physical markets potentially face a structural shift as supply normalization will take time. However, we don’t believe this spells doom and gloom for the dollar or equity markets. The U.S. dollar index has strengthened since the start of the conflict and its reserve status remains secure. Calls for the end of the petrodollar may be over the top. Given both Washington and Tehran appear committed to holding the temporary ceasefire and working towards an agreement on the Strait of Hormuz, equity trading will likely continue refocusing on fundamentals, leaving the effects from the de facto closure of the waterway an undertone. In the near-term, we expect the U.S. to outperform developed international and emerging markets as tech-driven earnings strength will likely outweigh smaller relative drags from the oil shock.

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Mid-Year Outlook 2026: Key Investor Lessons for the Second Half of the Year

July 9, 2026

Melanie Weischwill | Partner & Financial Advisor July 8, 2026

Don’t rely on AI for personal finance advice, study finds

July 9, 2026

Greg Iacurci@GregIacurci | Personal Finance Reporter Published Tue, Jul 7 202612:21 PM EDT Key Points A new study in the Journal of Financial Planning found that artificial intelligence programs can provide inconsistent, inaccurate or biased recommendations when it comes to personal finance. Researchers prompted seven AI programs — ChatGPT, Claude, Copilot, DeepSeek, Gemini, Meta AI and Perplexity — with questions about emergency savings, asset allocation and withdrawals from a retirement portfolio. The findings align with those of other experts, who recommend using AI as a starting point for financial questions but not as a final authority. When it comes to personal finance, artificial intelligence gives advice that can be inaccurate or demographically biased, and can range widely depending on the particular program that consumers use, according to a new academic research study. The research — which studied seven “widely available” generative AI platforms — found “significant variation” in how GenAI answered prompts about emergency savings, asset allocation and withdrawals from a retirement portfolio. Researchers examined free-access versions of ChatGPT, Claude, Copilot, DeepSeek, Gemini, Meta AI and Perplexity. “GenAI-driven responses may sound confident but can still be incomplete, misleading, or incorrect,” according to the paper, published last month in the Journal of Financial Planning and authored by finance professors at the University of Georgia and University of Rome Tor Vergata in Italy. Its “suboptimal” or biased outputs raise questions “about the consistency and fairness of GenAI-driven recommendations,” according to authors Swarn Chatterjee, Brenda Cude and Gianni Nicolini. The findings come as a large share of Americans are turning to AI to help manage their money. Two out of three Americans — 66% — who have used GenAI said they’ve leveraged it for financial advice, according to an Intuit Credit Karma survey published in September. The share is higher for Gen Z and millennials, at 82% for each cohort. Experts said that AI is generally good at providing high-level overviews of financial topics: For example, why it’s important to diversify investments, or why exchange-traded funds may be better than mutual funds in some cases but not others. However, it has limitations that mean users shouldn’t trust its output blindly, they said. For one, the programs can also provide wrong answers due to so-called “hallucination” of the algorithm, experts said. “One of the things about LLMs that I find particularly concerning is that no matter what you ask it, it’ll always come back with an answer that sounds authoritative, even if it’s not,” Andrew Lo, director of MIT’s Laboratory for Financial Engineering and principal investigator at its Computer Science and Artificial Intelligence Lab, told CNBC in an interview in March. “When it comes to very, very specific calculations of your own personal situation, that’s where you have to be very, very careful,” Lo said. In addition, AI is sensitive to how users write their prompts, meaning small differences in input can lead to variation in its recommendations. AI also doesn’t owe a fiduciary duty to users, meaning it doesn’t legally need to provide financial advice in users’ best interests. Other research studies have also pointed to the limitations of AI for personal finance. In one 2024 study, for example, researchers examined ChatGPT’s ability to provide financial advice. They found it could be a “first stop” for households seeking financial advice, but ultimately found its recommendations to be “generic,” often overlooking certain pertinent information. “We believe that ChatGPT can serve as a starting point in giving and finding financial advice, but its recommendations should be carefully scrutinized and assessed,” according to the study, published in the Journal of Risk and Financial Management. The latest study, in the Journal of Financial Planning, queried the seven GenAI platforms in August 2025 with the same set of prompts. Researchers prompted the platforms with three identical financial scenarios, related to emergency savings, the optimal withdrawal rate from retirement savings and the recommended composition of an investment portfolio. They then used the same prompts, but changed the race and gender of the hypothetical individual to learn if the GenAI recommendations would change. They found “substantial variation in guidance” across platforms relative to emergency savings and asset allocation. “Although the tools often produced recommendations that broadly aligned with generic financial planning principles, such as the 4 percent retirement withdrawal rule, there were significant differences across platforms in suggested emergency savings and portfolio allocations,” researchers wrote. “The findings suggest that GenAl may serve as a helpful starting point for consumers but should complement, not replace, professional financial advice,” they said. Of course, GenAI tools are “still evolving,” and future studies may find different results, they said. And, outputs from the paid GenAI models may differ from those of the free versions that were assessed. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. CNBC, South Star Wealth Management and LPL Financial are separate entities.

Paper vs. Physical: What Tighter Oil Supplies Could Mean

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Paper vs. Physical: What Tighter Oil Supplies Could Mean

Additional content provided by Brian Booe, Associate Analyst, Research.﻿

Dated Brent and Brent Futures Remain Disconnected

What’s the Buzz Around the Petrodollar?

What About Equities?

Conclusion

Additional content provided by Brian Booe, Associate Analyst, Research.