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Hey, this is part 1 of a two-part writeup on how I'm investing in energy.
A quick disclaimer, I'm an oil-nerd but by no means a commodities- or energy-expert.
Three things, firstly the current US administration has essentially blown up the oil futures market due to the unprecedented level of headline driven volatility. Secondly SPR-flooding, global strategic petroleum reserves have all been drawn down to combat the shortfall in crude via the Strait of Hormuz. Lastly, a sharp reduction in Chinese open market purchases of crude oil.
The Oxford Institute for Energy Studies (OIES) has done extensive work on the market aspects of oil and their findings are clear. Oil-traders are still doing their jobs (obviously), they're just doing it in options, to stay within risk perimeters set by their firms, which simple isn't possible to comply with, trading any size in oil futures markets when any random Axios article can crash the price 5-10% in an instant. These options trades do have an impact on markets, they're just not as immediately reflected in the futures prices everyone is looking at to judge the value of a barrel of crude.
SPR releases have tapered off slightly in recent weeks, although still at very high levels, the most recent EIA data saw weekly US petroleum (crude plus products and distillates) outflows of 13.6mbpd, just 100kbpd less than total US crude oil production of 13.7mbpd.
This means that to sustain the massive export volumes and maintain total domestic petroleum consumption (~20.7 mbpd), the US is completely dependent on its non-crude liquids production (~7.6mbpd), steady imports (~5.5 mbpd), and aggressive emergency SPR draws (~1.1 mbpd).
This is not sustainable and I believe the increasing insistence of the current administration to make a deal with Iran, even if very favorable to the Iranians and very unfavorable to the US, is due to the SPR minimum levels in the US rapidly approaching. For hard reserve levels to watch there are two, the congressional one and the operational one.
The DOE is allowed to pull reserves down to 252.4m barrels, to pull any more congressional approval is required, this level is set to be hit (at the current rate), in 13 weeks. The absolute operational limit, below which the salt caverns housing the SPR, risks collapse, is estimated at 240m barrels, this level is set to be hit (at the current rate), in 14.5 weeks.
Without the US exports, there is no way to maintain supply balance without Hormuz normalization. Iran knows this too however and thus they are stalling for time, continuously increasing their demands.
I believe it's a matter of weeks at most, before the current US energy subsidization of the world can no longer be sustained, reserve-draws could be tapered to drag out supply and slow the onset of outright shortages however shortages are (I believe) unavoidable at this point.
The part nobody seems to be talking about is China. Total Chinese Petroleum stockpiles, across both strategic petroleum reserves and commercial inventories, are estimated at ~1.3 billion barrels. For the month of May alone, draws are estimated at ~120m barrels, equal to ~3.9mbpd. China's May crude imports were ~6.6mbpd. That's the lowest since 2016. Throughout 2025, Chinese imports were ~11.6mbpd. China's ability to rapidly reduce their imports by ~5mbpd has come at the cost of burning through stockpiles.
The current rate of Chinese petroleum drawdowns, while impressive, obviously, aren't sustainable as the entire stockpile would be depleted within a year and thus the Chinese buyers will inevitably have to re-enter the market. I believe this is likely to be a powerful catalyst for oil prices, driving a re-rate higher in order to maintain balance between supply and demand.
Even if Hormuz were to open tomorrow, which it obviously isn't, just given the very slow speed (similar to a bicycle) at which tankers travel and the repositioning of tankers that has occurred outside of the Strait in order to capture the increase in US exports, those tankers would take a month or more just to get back to the middle-east, let alone load the oil, sail to Asia and unload it again. The whole voyage (US-ME-Asia) would take a Very Large Crude Carrier (VLCC), an average of ~2 months from the date of departure in the US Gulf.
For my full portfolio writeup, see part 2 of this writeup at the link below:
[Portfolio writeup](https://www.reddit.com/r/stocks/comments/1txhqzl/my_highconviction_bet_on_a_prolonged_global_oil/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button)