Welcome to the March edition of the Board Economic Outlook.

My name is Nick Brown, and today we'll be talking about the rapidly evolving

dynamics in the oil market, the ripple effects for the broader economic landscape,

and the fading energy buffer that is placing major pressure on businesses and

consumers alike. The conflict in Iran sent oil prices surging as roughly

twenty-one percent of global oil movement has come to a near halt through the

Strait of Hormuz. Higher energy costs are already passing through to retail

fuel prices and broader cost pressures, risking a reversal of favorable

trends that we had been seeing through twenty twenty-five.

New inflation risks, paired with an already fl-- fragile labor market, will add

complexity to the Fed, as they reevaluate their rate policy

for twenty twenty-six. One of the key metrics that we're watching is the

oil transit through the Strait of Hormuz.

Through the start of March, the strait has technically remained open.

However, tanker calls have fallen to near zero as the area remains

extremely high risk. This is garnering global attention, and the

rapid repricing of risk has already hit consumers.

Here we see the global choke points for oil supply, highlighting the disruption of

over twenty million barrels of crude per day.

There are very few alternate routes, as you can see, that are available to make up

for this slowdown. Maxing out even the nameplate capacity of viable

options for bypassing Hormuz would still leave a deficit of roughly eleven

million barrels per day. This dynamic has contributed to major

price volatility as markets assess the impact and global leaders evaluate

options to alleviate risk. As of March eleventh, all thirty-two

member countries of the International Energy Agency have agreed upon a record

release of four hundred million barrels of strategic reserves to ease the

impact of the supply shock. But measures outside of the escalation are going to

do little to offset the heavy price pressure already being felt by businesses and,

and consumers. For context, the four hundred million barrels has the

potential to replace about twenty days worth of transit, that would have

otherwise taken place in the Strait of Hormuz.

So it's a little bit of a buffer, but it will not be a

long-term solution as countries evaluate different options to

replace that supply. Prices for retail gasoline,

which typically lag crude by one to two weeks, jumped immediately on the

news, bringing the national average up from two ninety-four as high as three

fifty-eight to start the month, while the West Coast saw prices touch over

five twenty per gallon. Early March movement saw crude prices swing as

high as a hundred and fifteen per barrel, which is the highest we've seen since

June twenty twenty-two. US consumers could expect gasoline

prices to revisit the four dollar mark if mitigation efforts and de-escalation

talks fall short. On top of that, a spike in diesel prices is going to

add even more pressure across supply chains.

Price risks, of course, extend beyond retail gasoline prices.

And another factor worth paying close attention to is the wholesale margin

compression. The spike in diesel prices and petroleum-based

products will weigh heavily on producers who have already been facing elevated

costs. This dynamic that we refer to as the fading energy

buffer can be seen in the most recent data from the BLS.

Core PPI has been on the rise even prior to this oil

disruption, with global trade and tariff dynamics leading producers to feel the

squeeze of those higher input costs.

Now we layer on continued increases in transportation and warehousing, and the

ability to absorb costs begins to diminish very rapidly.

A reversal of a dis-- of a disinflationary trend that we've seen in the space,

particularly in energy prices, can quickly lead to those path--

pass-through effects that consumers, across a wide range of, of,

product ca-categories could expect to see.

This price transmission is something that's critical to watch in the coming months

and the upcoming, inflation releases and will have major implications for Fed

rate policy. An already complex landscape becomes even more

difficult as the Fed is faced with renewed inflationary risks in a fragile

labor, labor market.

The probability of any future rate cuts will be heavily impacted by renewed

inflation risk should this conflict continue indefinitely.

Here's what we'll be keeping a close eye on as the situation develops.

Tanker activity and bypass channels.

These metrics are going to provide up-to-date information on oil flows and further

supply disruption, a key element that will play a major role in policy

shifts. The Fed will face another difficult trade-off as additional new

inflationary pressures further complicate the outlook and the job market remains

on fragile footing. While de-escalation will provide sustained relief,

strategic reserve releases will serve to alleviate some of that near-term

risk. And of course, the March and April inflation data will add crucial context

around pricing pressures resulting from the shock and what lies ahead for the

trajectory of twenty twenty-six.

If you'd like to learn more about how the economic environment impacts your

business, please reach out to Board for a demo of our foresight and signals

capabilities. With that, thank you for your time, and keep an eye out for future

updates.