Everyone hates high gas prices unless they refine oil for a living, and even a refiner hates volatility. The angst is manifest, nowhere more than in the media. A few numbers may provide some perspective.
Given the importance of the Strait of Hormuz and the prevailing narrative, the price of oil today is shocking. It is shockingly low. Roughly a fifth of the world’s daily oil supply passes through that strait, and that flow is undisputedly imperiled. And yet, as of this writing, West Texas Intermediate trades near $96 a barrel. That is 35% below its all-time high of $147, set in July 2008. It is also about 23% below the $124 it reached in March 2022 after Russia invaded Ukraine.
The why behind this isn’t newsworthy, and we tend to have short memories. I do not. Investing paradigms evolve, but history remains a useful tool for anticipating what comes next.
Price is the arbiter. History keeps its most honest record in prices. Over time, price is everything. It is the only impartial and dispassionate arbiter.
Since WTI peaked in 2008, it has declined about 2.4% a year, compounded. Over the same eighteen years, the S&P 500 rose from roughly 1,240 to 7,765. That is a compound return of about 10.6% a year on price alone, and about 12.5% with dividends reinvested. Put another way, a dollar in the index in July 2008 is worth more than six dollars today. A dollar’s worth of oil is worth about sixty-five cents.
Meanwhile, U.S. crude production went from about 5.1 million barrels a day to a record 13.8 million, nearly tripling. In 2008 we imported roughly 11 million barrels a day more than we exported. Today we are a net exporter.
Daily consumption has been remarkably flat, about 19.5 million barrels then and roughly 20.5 million now. As cars and trucks grow more efficient, and electric vehicles work their way into a fleet that turns over slowly, I expect consumption to begin a grind lower.
So what gives? Why is the national average for a gallon of regular sitting at $4.47, within 11% of the all-time record of $5.02 set in June 2022?
The kitchen, not the pantry. The answer is refining. Crude oil is the raw ingredient, and a refinery is the kitchen. Crude accounts for roughly half of what you pay at the pump. Refining, distribution and taxes make up the rest, and the refining piece is where the squeeze is.
The United States has not built a major new refinery in nearly half a century, and since early 2025 three have closed: LyondellBasell in Houston, Phillips 66 in Los Angeles and Valero in Benicia. National capacity has slipped to about 18.1 million barrels a day, only modestly above where it stood in 2008. The refineries that remain are running above 92% of capacity, near their practical limit.
The Strait did not strand only crude. The Gulf is also a major exporter of finished diesel and jet fuel. With those flows interrupted, the world is bidding for American product. Our kitchen is running flat out with the whole neighborhood lined up at the door.
That is how $147 crude produced $4.11 gasoline in 2008, while $96 crude produces $4.47 today. The gap between the price of the barrel and the price of the gallon is what refiners call the crack spread. One industry measure of the Gulf Coast crack spread averaged nearly $49 a barrel in the second quarter, up 140% from a year earlier. It is also the part of the equation most likely to change.
Refining capacity is a known limitation, and the industry is responding for both kinds of crude. Much of the U.S. system was built for heavy imported crude, and Gulf Coast refiners keep adding the equipment to run more of it, such as the coker Valero brought online at Port Arthur in 2023. For light crude, ExxonMobil’s 2023 Beaumont expansion added about 250,000 barrels a day built around Permian shale. And in March, America First Refining announced the first new U.S. refinery in nearly fifty years: a 168,000-barrel-a-day plant at the Port of Brownsville, designed specifically for American light shale. It is years from its first gallon, but the direction is clear.
The perils of groupthink. To manage money effectively, you need clear-eyed analysis, and groupthink is its natural enemy. Today the consensus holds that the Strait will stay closed, that gasoline is headed to $6, and that inflation will run hot for years. When everyone agrees on a story like that, it is already reflected in the price. The market does not pay you for knowing what everyone else knows.
I have seen this movie before. In the summer of 2008, headline forecasts called for $200 oil, and by Christmas WTI traded in the mid-$30s. In July 2022, JPMorgan analysts warned oil could reach a “stratospheric” $380 a barrel, and by year-end WTI was back near $80. Pilots flying in cloud learn to trust the instruments, not the sensation. Investors should do the same.
At KWM, I don’t try to predict the next headline. I model portfolios across a range of outcomes: a prolonged closure, a messy partial reopening and a durable resolution. For each scenario I ask how every client’s portfolio holds up. That work points to an asymmetric opportunity right now, and it is not in chasing oil. It is in the bond market.
The opportunity in quality munis. Should the Strait resolve, as I believe it will soon, and refining capacity increase as it must, the outcome will be disinflationary. When crude and crack spreads normalize, headline inflation follows them down, and interest rates tend to follow inflation.
That sets up an unusual opportunity. With the 10-year Treasury near 5%, the highest-quality AAA-rated municipal bonds yield around 4.75% at the long end of the curve, free of federal income tax. In the top 37% bracket, that is a tax-equivalent yield of 7.54%. Add the 3.8% net investment income tax, and it rises to about 8.02%.* For Texas residents, who pay no state income tax, the federal figure is the whole story. I have not seen tax-exempt income this attractive, relative to risk, since the aftermath of the financial crisis.
The other side of the ledger matters too. If rates fall as the energy shock fades, investors who locked in today’s yields keep them, and the bonds they own rise in value. Windows like this tend not to stay open long. The last time the 10-year Treasury touched 5%, in October 2023, it fell more than a full percentage point within about ten weeks.
Structure matters. Maturity, call protection and credit selection separate a good municipal portfolio from a merely adequate one, and that is where I do my work. If you’d like to see how this might fit your own situation, call me at (512) 368-4593 or email scott@keelwealth.com.
Scott Zodin, Keel Wealth Management
*Tax-equivalent yields assume a 4.75% tax-exempt yield and no state income tax: 7.54% at a 37% federal bracket, and 8.02% with the 3.8% net investment income tax added (40.8% combined). Figures are approximate as of September 22, 2026, and yields vary by issue and maturity; long-dated municipal yields are often quoted to the call date. Index returns are shown for illustration only; they are not investable and reflect no fees. Past performance does not guarantee future results. Opinions are the author’s as of the date written and are subject to change. This is not a recommendation to buy or sell any specific security. Keel Wealth Management is an SEC-registered investment adviser; registration does not imply a certain level of skill or training.
Why the Price of Oil Matters (It’s Not What You Think)
Everyone hates high gas prices unless they refine oil for a living, and even a refiner hates volatility. The angst is manifest, nowhere more than in the media. A few numbers may provide some perspective.
Given the importance of the Strait of Hormuz and the prevailing narrative, the price of oil today is shocking. It is shockingly low. Roughly a fifth of the world’s daily oil supply passes through that strait, and that flow is undisputedly imperiled. And yet, as of this writing, West Texas Intermediate trades near $96 a barrel. That is 35% below its all-time high of $147, set in July 2008. It is also about 23% below the $124 it reached in March 2022 after Russia invaded Ukraine.
The why behind this isn’t newsworthy, and we tend to have short memories. I do not. Investing paradigms evolve, but history remains a useful tool for anticipating what comes next.
Price is the arbiter. History keeps its most honest record in prices. Over time, price is everything. It is the only impartial and dispassionate arbiter.
Since WTI peaked in 2008, it has declined about 2.4% a year, compounded. Over the same eighteen years, the S&P 500 rose from roughly 1,240 to 7,765. That is a compound return of about 10.6% a year on price alone, and about 12.5% with dividends reinvested. Put another way, a dollar in the index in July 2008 is worth more than six dollars today. A dollar’s worth of oil is worth about sixty-five cents.
Meanwhile, U.S. crude production went from about 5.1 million barrels a day to a record 13.8 million, nearly tripling. In 2008 we imported roughly 11 million barrels a day more than we exported. Today we are a net exporter.
Daily consumption has been remarkably flat, about 19.5 million barrels then and roughly 20.5 million now. As cars and trucks grow more efficient, and electric vehicles work their way into a fleet that turns over slowly, I expect consumption to begin a grind lower.
So what gives? Why is the national average for a gallon of regular sitting at $4.47, within 11% of the all-time record of $5.02 set in June 2022?
The kitchen, not the pantry. The answer is refining. Crude oil is the raw ingredient, and a refinery is the kitchen. Crude accounts for roughly half of what you pay at the pump. Refining, distribution and taxes make up the rest, and the refining piece is where the squeeze is.
The United States has not built a major new refinery in nearly half a century, and since early 2025 three have closed: LyondellBasell in Houston, Phillips 66 in Los Angeles and Valero in Benicia. National capacity has slipped to about 18.1 million barrels a day, only modestly above where it stood in 2008. The refineries that remain are running above 92% of capacity, near their practical limit.
The Strait did not strand only crude. The Gulf is also a major exporter of finished diesel and jet fuel. With those flows interrupted, the world is bidding for American product. Our kitchen is running flat out with the whole neighborhood lined up at the door.
That is how $147 crude produced $4.11 gasoline in 2008, while $96 crude produces $4.47 today. The gap between the price of the barrel and the price of the gallon is what refiners call the crack spread. One industry measure of the Gulf Coast crack spread averaged nearly $49 a barrel in the second quarter, up 140% from a year earlier. It is also the part of the equation most likely to change.
Refining capacity is a known limitation, and the industry is responding for both kinds of crude. Much of the U.S. system was built for heavy imported crude, and Gulf Coast refiners keep adding the equipment to run more of it, such as the coker Valero brought online at Port Arthur in 2023. For light crude, ExxonMobil’s 2023 Beaumont expansion added about 250,000 barrels a day built around Permian shale. And in March, America First Refining announced the first new U.S. refinery in nearly fifty years: a 168,000-barrel-a-day plant at the Port of Brownsville, designed specifically for American light shale. It is years from its first gallon, but the direction is clear.
The perils of groupthink. To manage money effectively, you need clear-eyed analysis, and groupthink is its natural enemy. Today the consensus holds that the Strait will stay closed, that gasoline is headed to $6, and that inflation will run hot for years. When everyone agrees on a story like that, it is already reflected in the price. The market does not pay you for knowing what everyone else knows.
I have seen this movie before. In the summer of 2008, headline forecasts called for $200 oil, and by Christmas WTI traded in the mid-$30s. In July 2022, JPMorgan analysts warned oil could reach a “stratospheric” $380 a barrel, and by year-end WTI was back near $80. Pilots flying in cloud learn to trust the instruments, not the sensation. Investors should do the same.
At KWM, I don’t try to predict the next headline. I model portfolios across a range of outcomes: a prolonged closure, a messy partial reopening and a durable resolution. For each scenario I ask how every client’s portfolio holds up. That work points to an asymmetric opportunity right now, and it is not in chasing oil. It is in the bond market.
The opportunity in quality munis. Should the Strait resolve, as I believe it will soon, and refining capacity increase as it must, the outcome will be disinflationary. When crude and crack spreads normalize, headline inflation follows them down, and interest rates tend to follow inflation.
That sets up an unusual opportunity. With the 10-year Treasury near 5%, the highest-quality AAA-rated municipal bonds yield around 4.75% at the long end of the curve, free of federal income tax. In the top 37% bracket, that is a tax-equivalent yield of 7.54%. Add the 3.8% net investment income tax, and it rises to about 8.02%.* For Texas residents, who pay no state income tax, the federal figure is the whole story. I have not seen tax-exempt income this attractive, relative to risk, since the aftermath of the financial crisis.
The other side of the ledger matters too. If rates fall as the energy shock fades, investors who locked in today’s yields keep them, and the bonds they own rise in value. Windows like this tend not to stay open long. The last time the 10-year Treasury touched 5%, in October 2023, it fell more than a full percentage point within about ten weeks.
Structure matters. Maturity, call protection and credit selection separate a good municipal portfolio from a merely adequate one, and that is where I do my work. If you’d like to see how this might fit your own situation, call me at (512) 368-4593 or email scott@keelwealth.com.
Scott Zodin, Keel Wealth Management
*Tax-equivalent yields assume a 4.75% tax-exempt yield and no state income tax: 7.54% at a 37% federal bracket, and 8.02% with the 3.8% net investment income tax added (40.8% combined). Figures are approximate as of September 22, 2026, and yields vary by issue and maturity; long-dated municipal yields are often quoted to the call date. Index returns are shown for illustration only; they are not investable and reflect no fees. Past performance does not guarantee future results. Opinions are the author’s as of the date written and are subject to change. This is not a recommendation to buy or sell any specific security. Keel Wealth Management is an SEC-registered investment adviser; registration does not imply a certain level of skill or training.
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