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Listen up regards,
While you've been chimping out over SPCE, I've been staring at oil for the last 3 months, and something's not adding up.
About 20% of global oil supply, along with LNG, fertilizer feedstocks, petrochemicals, and a whole bunch of other shit that the world runs on, normally transits the Strait of Hormuz. And it's been basically closed since Feb 28th.
I'm talking 120+ tankers transiting per day to <6.
Big problem.
Right now, July WTI contract is around $94, but if you look at past energy crises, that price looks like peanuts.
The 1973 Arab Oil Embargo took roughly 4-5 million barrels per day off the market, about 4-5% of global supply at the time. Oil went from roughly $3 to nearly $12.
The Iranian Revolution disrupted roughly 5-6 million barrels per day of production and exports, around 5% of global supply. Oil peaked around $40 from roughly $15/barrel.
The Gulf War took roughly 4-5 million barrels per day offline, or about 6-7% of global production at the time. WTI peaked around $41 after starting near $17.
The Russia/Ukraine panic in 2022 involved fears around roughly 7-8 million barrels per day of Russian exports, around 7-8% of global supply. WTI peaked around $130, even though that supply was never actually even lost.
Today, we're talking about a chokepoint that normally handles roughly 20 million barrels per day, nearly 20% of global oil consumption.
Yet oil is $92, starting from \\\~$65 mid February.
So why haven't we seen gas shortages and parabolic prices yet?
The answer is inventories.
Countries and companies hold large reserves of oil, exactly for situations like this. Except that they've been draining.
The US SPR (Strategic Petroleum Reserve) has been drawing at a record pace of roughly a million+ barrels per day since the crisis began, and right now it sits at around 365 million barrels. It has not been this low since the early 1980s, and many analysts project it'll hit its legally permissible floor in another 11 weeks or so.
The US isn't the only one drawing inventories, either. Global inventories have been getting hit as well. That's the entire reason oil hasn't exploded yet. The market has been bridging the gap with storage, emergency releases, rerouting, and every other temporary measure it can find.
The problem is that inventories ARE only temporary.
Every barrel pulled out of storage today is one less barrel available tomorrow.
And unlike a normal supply disruption, this isn't some oil field that got knocked offline and can be brought back in a few days. This is one of the most important energy chokepoints on the planet.
Let's say the Strait magically reopened tomorrow.
Does 20 million barrels per day instantly start flowing again?
Probably not.
First you need confidence that the shooting has actually stopped.
Then you need mines cleared.
Then you need insurers willing to write policies again.
Then you need shipowners willing to send vessels back into the region.
Then you need tankers to physically arrive, load cargo, and begin making their voyages.
And even then, expect a gradual ramp-up, not an overnight return to normal.
The market seems to be pricing an on/off switch.
The reality is messier than that.
And even if a deal gets signed and the Strait technically reopens, that's not the same thing as the market trusting that it will stay open. All it takes is one tanker hitting a mine or another drone strike or a rogue IRGC commander that didn't get the memo.
Suddenly insurers pull back, shipowners get nervous, traffic halts again, and you're right back where you started.
That's the problem with a chokepoint like the Strait. It doesn't need to be completely blockaded to create chaos. It just needs to be dangerous enough that people lose trust, which has basically been the entire Iranian strategy during this conflict. It's a real mess.
Back in March and April, oil actually started behaving the way you'd expect. WTI got up near $113 as people began to realize this wasn't going to be an in-and-out war.
However, in the meantime, the Trump admin would mention something about "progress being made" on a peace deal every few days since the "ceasefire" was announced on April 7th. Like clockwork, oil would slowly bleed lower, all the way down to where it was only a week after the conflict started.
The thing is, though, through all the headlines and "peace progress", the Strait never reopened.
The tankers didn't come back.
The barrels didn't start flowing again.
The physical reality never changed.
Only the headlines did.
As mentioned earlier, even if the Strait opened tomorrow, you're still talking weeks before meaningful volumes start reaching end users, and potentially months before flows normalize.
Meanwhile inventories continue draining. That's why the timeline is everything. We're not talking about a disruption that happened yesterday. We're over 3 months into this already. The inventory drawdown is happening now.
The spice is not flowing.
And every day that passes, the system has less cushion than it did the day before.
Maybe I'm missing something here, but if you told me on February 27th that Hormuz would be effectively closed for three months, tanker traffic would collapse to single digits, inventories would be drawing at historic rates, strategic reserves would be drained to levels not seen since Reagan, and we'd still be arguing about when flow MIGHT return, I would've guessed oil would be higher than $92.
In other news, negotiations between the US and Iran have fallen apart today and escalation has resumed. That Strait ain't opening any time soon.
Position:
Long oil.
I'm in for 2 micro futures contracts. Each contract controls 100 barrels of oil and thus moves $100 per dollar change in a barrel of West Texas crude
/MCLN26 (July WTI futures contracts. Yes you can trade them on Robinhood)
Otherwise calls on US/Canadian oil companies