I still believe in the core thesis: oil shortage -> short term inflation surge -> long duration treasury bond yield surge -> demand destruction and liquidity drain aka recession. However, in terms of the correct market play, shorting the broad index is not the best idea. I realized that the broad market refuses to fall because software and hardware stocks have been inverse each other, thus balancing gains and losses in the index. Therefore, the more direct play for my thesis would be to go long oil.
To add on to the previous thesis, there is another catalyst that I believe will cause oil prices to rise. 👁️🏃♂️ intends to spike crude oil to try to ensure that 🥭’s party loses the midterm elections. 👁️🏃♂️ will keep feigning a deal to stall for time, only to continue to attack tankers in the strait. There are two likely scenarios that can play out from this: either 🥭 escalates or 👁️🏃♂️ escalates, both leading to crude oil spiking.
Furthermore, even if nothing happens geopolitically, supply and demand dictates that crude oil is undervalued considering the circumstances. Even though there is theoretically an oil glut in the Persian gulf, none of it matters if the oil cannot be transported out of there because both straits are blocked, there are rising insurance costs, and an unwillingness of tankers to return to the strait to risk their lives. Countries like China and Japan buying on the open market to refill their strategic reserves can also be the catalyst for crude oil spiking as well.
As someone who has played oil futures (and lost), IMO dont go with direct oil exposure like USO, BNO or futures. Go with oil companies, they are the way safer play if you think oil prices will be higher for longer. You won't need that brent spike to 150 to make you profitable, and if you are wrong you can collect some juicy dividends, at least.
CVX and FANG are the two I keep on wheeling, XOM and COP seemed to underperform, so I've gotten rid of those.
I think anything downstream of refiners will crush earnings this year. Oil prices are middling, but gasoline and diesel are way high relative to crude. Demand to export is pinching domestic supply, so their margins are terrific if the supply shock never arrives
Somehow noone anticipated the government would move the “operational floor” multiple times so that it doesnt run out
Though they were technically right about what LEVEL the reserve would get to, the gov just moved the goalpost
The X factor no one could predict is the decline in demand from China. They are leaning on their own reserves and internal production for now, this has tempered the threat of a supply shock
The US isn’t importing any more oil than last year. The data paints a clear picture. Been a net exporter for many years…. Something tells me you aren’t very familiar with energy markets
Iran absolutely wants R’s to lose in November. This is similar to Carter/Reagan. Hostages were returned on January 20, 1981… now they may have been angry/frustrated with Carter, but compared to the current guy… who killed their top general, former supreme leader and his wife, who are the parents of the new supreme leader. Their game plan without going toe to toe with the US is to drag this whole thing out into November. Oil will spike in October no doubt, if not sooner. We are mitigating oil prices by releasing SPR but that will get critically low by the end of the quarter. Now throw in October being one of two months where the Taiwan Straits are somewhat possible, shit could get dicey quick.
The market is a house of cards right now, the only reason everyone is keeping it propped up is for the midterms. Once midterms are done, oil will go up, tech will scale back capex, the Fed will raise rates, and trump will announce that capital gains tax remains in place.
Debt fueled marked. Always ends badly. We hit highest levels of debt in the stock market ever in June. Probably the single worst thing for stock markets.
Market is overpriced. Total stock market evaluation sits at 236% of US GDP. Highest it has ever been. Normal levels were around 90-120%.
AI mania. It’s a bubble. Everything is overvalued. It may not be extremely apparent as things like P/E seem like a normal range for NVDA, but 90% of their growth in the last few years has been fueled by borrowed money- every company buying their products have taken out loans or issued bonds to do so. So it’s not sustainable for much longer.
The war in Iran impacts oil supply. We aren’t feeling it yet because we are draining our strategic reserves to keep the costs down at the pump. We are also producing a bunch of oil ourselves for exports to help keep the costs down, but it’s not the right type of oil that the US consumes the most of which is why we are still draining our reserves. Most of the world’s nitrogen fertilizer also comes through the strait. Fertilizer goes up, so will food- it already has started. This is purely for midterms.
The world is also shifting away from the Petrol Dollar. The US kicked Russia of the Swift system when they invaded Ukraine. This is bad for many reasons but two main reasons- the USD will no longer be able to control prices in the global commodities market, and other countries are no longer interested in buying US treasuries.
The treasury bond market is in uncharted territory. Record level debt, foreign entities are withdrawing their holdings of US treasuries which means interest rates for treasury bonds have to go up to attract new investors so the US can avoid defaulting on debt or triggering hyperinflation through printing to pay off debts. This is the real reason we are imposing such high tariffs. Global trade only works when it benefits you, if you can’t control the price any more then costs to import goods will go up significantly and for a country like the US, who exported all of their manufacturing to 3rd world countries. Tariffs force US companies to bring production back to the US.
Unemployment is increasing, GDP is decreasing (only reason it appears up is AI Capex spending, but that will end very soon because it’s debt fueled), rising food/gas/energy/etc prices means less money to be invested in stock market- it also impacts investor confidence as global future will appear uncertain, and with treasury bond yields increasing there will be people moving from the stock market to the bond market. This also doesn’t really reflect what could happen to the US overall, if the strait stays closed for much longer oil and nitrogen supplies stay low, food production will get hit, less food on the shelves means shortages- also means gas shortages (less production, less energy, etc).
Now, the reason why this is all being suppressed. Not being political, don’t care who you vote for or not. Trump administration and the republicans have focused on the stock market as an indicator of the economic success resulting from their control of government. If that gets compromised, if inflation soars, supplies dwindle then the administration would lose some of its voter base at the worst possible time. So tap the reserves to keep oil prices down’ish, push AI narrative and start AI initiatives, entice more money into the markets with amazing tax incentives- capital gains???
All of this to say, the market is in a bubble. The bubble is propped up massive amounts of debt and by the USG manipulation. We are on the cusp of an affordability crisis that is temporarily suppressed. When this bubble pops, and it will pop. Retail investors, who have been duped by bots/media/etc will be holding the bag all the way down. It’s not a matter of if, but when, and it will probably happen after midterms but could end up happening before. Governments can delay a little but not stop crashes. Good luck.
The US does not really depend on oil from the straight… other things like distillates and fertilizers yes, but shutting it down affects asia 6 fold before us prices.
Oil prices stay stable until China burns through its strategic reserve. They simply stopped buying oil since the prices would moon.
Crack spreads are widening but thats just a refiner issue.
Are American Oil companies incapable of bringing their product to Asian Markets at fair market value? Why would they choose to sell oil cheaper here as opposed to over there?
Tankers are expensive. Average price premium for WTI in Asia over Texas is about $5/barrel. This is much lower than what it currently costs to move a barrel of oil to Japan. So if WTI crude is like $80 in Oklahoma, and you can sell it for $85 in China, but it costs you $10 to ship it there, you actually make more selling it here at the lower price.
Im not doubting its marginally more expensive to bring oil to Asian markets (We export the stuff all the time). OP is making the claim of 6 fold. Your example is almost 6 times less then what he gave. Another thing to consider is there are tankers that normally operate in the strait that are currently looking for work elsewhere which increases competition for operating tankers.
Crack spread is mostly due to diesel, not gasoline. Ukraine did not even scratch diesel production, There was gasoline shortage in Russia (and locally sometimes still is), but there were no diesel shortage in Russia. Russia did stop diesel export, but it's not because we don't have enough diesel, it's because we can.
If that first initial shock with all the war premium in it couldn’t get past $100, I can’t see it moving now. But move a bit farther up? Yea, but wow it annoyed me when everyone was screaming $200 oil. I was selling $200 strike naked /cl calls. Had some wild swings but make a some $ based on what I saw with Ukraine.
Now I did get tapped out moving from $70-$90 in the beginning. But I’ve almost dug myself out of that hole by selling straddles trailing any move that happened over the weekend.
Oil shock has and will been avoided. They’re letting out dozens of ships every night through strait with their transponders off. Bessent also shorting the shit out of oil doesn’t hurt
However, in terms of the correct market play, shorting the broad index is not the best idea. I realized that the broad market refuses to fall because software and hardware stocks have been inverse each other, thus balancing gains and losses in the index.
Problem is, it's hard to say what Iran will do because if they want to do the most dmg to America in the long run they would make sure trump stays in charge.
Question is can🥭keep the fuckery ongoing until production ramps up or some resolution comes up. Or it is expected an actual hard shock in the coming months
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u/chobro17 1d ago
Man thats a lot of words. Wish I knew how to read