Oil: Why I never capitulated

Disclaimer: by continuing to read you agree this is purely for entertainment purposes. I am not qualified for anything and I make incredibly irresponsible decisions on a regular basis, so it should be obvious that I am not qualified to give financial advice or help with financial planning in any way, shape, or form. This blog is simply a view into the thoughts of a madman, who is likely to go bankrupt because he keeps betting on conspiracy theories instead of making wise investments. I am extremely anti-establishment, and that is a great weakness and bias of mine.

With that said, let’s begin.

I addressed this briefly with a tweet on X, but despite the emotions getting intense, I continued holding on for dear life due to a single point: supply vs demand.

I’ve talked at length in twitter spaces and written and tweeted about it many times, but when it comes to commodity macro, I generally only care about (real) supply vs (real) demand. What I mean by real, is that it’s actually pumped out of the ground from oil wells, & it’s actually consumed for energy.

What happened was remarkable, and no one saw it coming: China cut imports so significantly, that with SPR releases from countries across the globe, most of the supply disruption was cancelled out.

But that’s not “demand destruction”, because I repeatedly sampled friends across China asking them how traffic was, and they all always replied with “normal” or in some cases “busier than normal”. So China was and is still consuming the oil products, they just weren’t making them as fast as they were domestically consuming them.

Artificially however, the (temporary) supply coming out of SPRs, combined with the (temporary) demand reduction from the Asian refinery buyers-strike for crude oil was able to balance supply vs demand well enough.

The thing is, as I’ve written before, my capitulation condition (the thing that would make me realize losses in oil and leave) has always been about two countries unshutting their shut-in production: Iraq and Kuwait. If these guys could unshut their wells, it would mean Hormuz flows were normal, and the gulf oil (real) production is effectively normal. The thing is, Hormuz flows only returned to normal for about three days due to a mass exodus of very large crude carriers (VLCCs) and other tankers. Other than those days, Hormuz hasn’t been normal when measured from an oil & oil products perspective.

That was honestly it; everything I needed to hold on and not capitulate. I didn’t care that SPRs were being drawn down, because unlike all the “professional oil analysts”, I believe SPRs will be refilled and new countries around the globe will have politicians mandate new SPRs that didn’t exist before (already has happened and I expect it will continue). Additionally, I know China’s buying strike is temporary, and not a real reduction in consumption.

So while people dance on the graves of oil bulls shouting repeatedly about how “supply > demand; super glut!” the truth was that real supply is down significantly, Hormuz is still almost totally shut, and real demand, being consumption, has no signs of demand destruction anywhere on the globe.

Now that said, here’s my thoughts on why I’m about to buy momentum, and how I’m personally going to do it.