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1w ago on

Time to take prompt oil profits. I am taking profits on prompt oil and products into the midterms. The regime trade stays on. It comes back to the two trades I described this morning. The war trade pays on the price of the barrel: prompt crude, products, the windfall on barrels already in the ground. It is eight months old. The regime trade pays on the cost of replacing the barrel: rigs, services, local production, bypass capacity, firm power and storage. It is the structural supercycle call we made in 2020, driven by deglobalisation, debasement and electrification, compounded by underinvestment. The war brought that trade forward, but it did not create it. A reminder of the scorecard: commodities are the best-performing asset class of the decade: the S&P GSCI has returned about 260% since we called for the supercycle in October 2020, against 121% for the Nasdaq and 120% for the S&P 500. Commodities were already ahead of both before Hormuz - it just widened the gap. Why take profits now? Escalation would be so catastrophic for food and fuel supply chains that neither side will pursue it, while a lasting deal is equally elusive. The compromise is managed instability, with Schrödinger's Strait at the heart of it: a Strait that is neither open nor closed. That caps the prompt barrel. It does nothing to cheapen the next one. It has been a fantastic run. USO is up 144% this year. Energy, where the refiners and integrated majors carry the product exposure, is up 60%, the fifth-fastest run to a 50% gain since 1990, and the Munificent 7 did it on a Sharpe ratio around 2. The war trade has paid. My view on the regime is unchanged. Eight months into the closure, the world is rebuilding its physical system around the expectation that the Strait closes again: Gulf producers loading outside it, Italy restarting nuclear, the Dutch reopening North Sea gas, China sitting on 1.4 billion barrels. These are long-term investments in energy security. None of it dissipates when the ships come back. The investment to support that regime has barely begun. Oil is near $100 and drilling has hardly moved. Upstream investment is still well below its 2015 peak and refining investment sits at a decade low. Calendar 2027 Brent trades above every forecast on the Street: a long-term supply problem that nobody has yet been paid to fix. A supercycle is a capex cycle. The owners of the molecule get paid first. The builders get paid next. Prompt oil prices a war. Long-dated oil prices a regime. Trade the first, own the second. I have cut most of my prompt oil and product exposure and kept a small position in case hostilities resume after the midterms. If prompt prices fall from here I will not be in a hurry to rebuild them. The money has moved to the services and producers that build the regime. The first leg has paid. The second is still being built. These are my personal views and positions, not investment advice.

1947 Oil & Gas: check out Brendan Long from CREST's report. - Our production restart adds ~1,000 boe/d, ahead of expectations - He values the company on $75 WTI against spot of $103.44 and 2027 futures at $89.27. - He expects material upgrades into 2027 as strong oil pricing is recognised as structural. - CONVICTION BUY, 16.2p target, 76% upside. Read the report in full below.

The macro repricing of energy is now underway. Check out today's move in long dated oil - that's calendar 2027 WTI. When long dated oil moves this strongly in tandem with energy equities making new ATHs, financial markets need to listen. This is not a transient spike in prompt oil. It's far more structural. Get long, buckle your seat belt, and hang on for the ride.

We’re in a critical situation right now - there’s no easy fix to a lack of refinery capacity, a lack of strategic reserves and products, and now-depleted crude reserves. A route to partial normalisation would be looking to China to release spare refining capacity, which seems to be happening, but a return to full normalisation is unlikely any time soon. This will shape the broader commodity and macro-economic outlook. All other commodities are dirt and diesel: we saw all time highs in copper yesterday, record-high diesel last week - we’re going to see more highs across the non-energy complex. Throughout all this, the market is obsessed with crude oil - but everyone reading this right now, as well as the rest of the world, mostly has exposure to the refined product: gasoline, diesel, jet fuel. That will hit the headline CPI index very soon. And we’ve not event talked about food - Ukrainian strikes in the grain corridors in the Black Sea, as well as weather-impacted crop yields has combined to create a food crisis alongside the fuel crisis - wheat, corn and other crops have risen sharply over the summer. Again, that will hit the headline inflation number. The bottom line: this is a crisis not only caused by the Strait of Hormuz. Chokepoints from the Red Sea to the Black Sea grain corridor, the Rhine River, the Russian interior, the Panama Canal - weather, war and policymaking - have combined to create a crisis that has no easy way out. The energy crisis is here: it has arrived and it’s showing in the product prices, not in crude. My interview on @CNBC Access Middle East with @dan_murphy can be watched in full below - thanks to Dan and team for inviting me on.

Thank you to @JoeSquawk and the @CNBC Squawk Box team for having me on this morning. Nobody consumes crude oil - refineries do. Everyone else consumes gasoline, diesel and jet fuel. Crude is the noise, but products are the signal. Crude fell 9% this week on an Iran-Oman "proposed framework" for a transit corridor; diesel is still $174 a barrel against $80 crude. The framework is a joint statement between Iran and Oman, not a deal with the United States. The IRGC says the Strait stays shut until Washington accepts Tehran's conditions, and the US blockade remains in force. Five ships transited yesterday against 130 a day before the war. This is the third reopening the market has priced since June. The tankers haven't followed yet. Even if it holds, you can flush the crude out of the region but you cannot get the product out. Nobody is going to guide a full product tanker through what is still a hot conflict zone. Solving one chokepoint does not solve the problem. Hormuz is one squeeze among many that are both war-made and weather-made. Ukrainian strikes have taken out Russian refining capacity. The Black Sea grain corridor is shut with 97% of Azov–Black Sea export capacity offline, just as USDA cuts the corn crop. The Red Sea and Bab el-Mandeb remain constrained. The Rhine is at a 146-year low and Panama is cutting drafts. Every other commodity is dirt plus diesel, so what happens in Hormuz shows up in the price of grain. These bottlenecks do not exist independently of one another. Years of underinvestment in refining and logistics left no spare capacity to absorb any of it. That is why gasoline, diesel and jet are far tighter than the crude price suggests. You can increase the availability of crude, but if the system cannot refine and move it into the products people actually consume, the economic pressure remains. The story around crude is immaterial when you consider what is happening at both the affordability and CPI levels. Watch the full interview below. https://t.co/Flsj7qCwV0