Are We Headed For $4 or $5 Gas?

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Are We Headed For $4 or $5 Gas?

Here’s the short answer: if oil supplies remain constrained, absolutely. Let’s talk about what we have seen with the price of oil in the last few days. It has been a historic 48 hours or so. Oil prices closed the day on Friday at $91/barrel. On Sunday they moved to almost $120/barrel. As of this moment, those prices are back down to $86/barrel – less than they were before the price spike over the weekend. We are witnessing historic moves in the price of oil – 30% to the upside, and then right back down below where we started. And it is no wonder – we are seeing a historic supply shock. According to CNBC, roughly 20% of the world’s oil supply travels through the Strait of Hormuz. CNBC reports that we have never had this large of a supply shock. That includes the Suez crisis of 1956 and 1957, the Arab oil embargo of 1973, the 1979 Iranian revolution, and the Gulf War of 1990 and 91. This isn’t peanuts. This is 1/5 of the daily production of oil for the entire globe. The Wall Street Journal reported yesterday that G7 countries may release some of their strategic reserves to help global supplies. They also reported proposed naval escorts for oil tankers, and a nearing to cessation of hostilities. All of these headlines seem to have brought oil prices back down to a reasonable level. Price movements happen every day and they are driven by supply and demand. If the supply of something goes down and demand stays constant, the price is likely to go up. Likewise, if the supply goes up with demand staying constant, the price is likely to go down. So, the ability to ship oil through the Strait of Hormuz will affect how much you and I pay for gas, for some groceries, and for other goods whose prices are affected by the cost of getting them to the consumer. But to keep this weekend’s price spike in perspective, oil has been this high before. According to Macrotrends, 2022 is the last time we saw prices this high for crude oil. The important thing to watch is whether the price of oil stays elevated. So far it has not – and the price of crude oil is a good leading indicator to signal that we might be nearing an end to this conflict.

This is a great example of an opportunity to do the scenario planning for small businesses that we’ve talked about in the past. Remember, you can’t predict the future, but you can prepare for certain scenarios. Since you can’t make plans for every scenario, it is best to make plans for those scenarios which are either highly probable or are increasing in probability. So, you might be wise to look at your business and balance sheet and explore what the impact of $150.00 oil might be. I’m not predicting that oil will go up that high, but it would be beneficial to know how that would affect our businesses. Could you survive? In all likelihood, your income may be down, but could you survive a shock to the supply chain like $150 oil? If you happen to have a high amount of debt, you have a thinner margin of safety. Hey, if you have no debt, you’ve got a massive margin of safety.

So, if higher oil prices remain with us, must we assume what we will see inflation of everything? No. Just because the cost of something as essential as oil goes up, it doesn’t mean that every single thing in the economy goes up. Milton Friedman, one of the most respected economists of the 20th century would remind us that if the money supply stays constant, the increase in price of certain goods and services related to oil will lead to the decrease of prices for other goods and services, since there’s only so much money to go around. However, many times the money supply is artificially increased in times of financial stress, and that could apply to the current situation. So, oil price increases in and of itself will cause the price of certain things to go up. No doubt about it. But the prices of other things in the economy will go down. That is…if the growth in money supply remains where it is today. But I we see an increase in the supply of money, then inflation could again become broad based – much like we see post-Covid.

I think the greatest takeaway from today’s episode is to have a cash reserve. Dave Ramsey calls it an Emergency Fund – I call it a reserve. Because we cannot predict what the price of oil will do, because we cannot predict geopolitical events and timelines, because we cannot what markets will do in 2026, because we cannot consistently predict what interest rates will do this year, focus on something you can control – your amount of cash in the bank. True, you don’t want to hoard and have too much that is unproductive. But you simply must have a margin of safety. I just finished reading the book, How the Mighty Fall, by Jim Collins. It is a book about the 5 stages of a failing company. But one of the conclusions he came to that I wholeheartedly agree with is that businesses die for a lack of cash. You need cash on hand – and you must exercise wisdom as to what that percentage needs to be. Warren Buffet’s Berkshire Hathaway is carrying almost 30% cash right now. This higher percentage is more because of a lack of investment opportunities than a conviction about the direction of the economy. But if you look at his cash holdings historically, they average 10% to 20% – depending on the environment. I think that’s a good range. Do you have 10% to 20% of your overall total assets personally or in your business in cash? If not – while most prices are near an all-time high, it might be a good idea to raise some cash.

If you are looking for a sturdy place to store your cash, I’d invite you to check out Foundation Bank. We’ve been around for 92 years, and we are making decisions every day, if the good Lord is willing, to be around another 92 years. Visit foundationbank.org and start your financial conversation with us. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on March 10, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.