People keep pointing to the front month of Brent being around 102 dollars and acting like the market has already priced this in and has it under control.
I do not believe it does.
To be precise, I do not believe in the screen price we are seeing. I am talking about the physical market of oil. Reuters literally reported that the North Sea Forties for delivery of barrels immediately is at 148.87 dollars a barrel while June Brent futures are sitting at slightly over 100? Dated Brent was literally trading more than 40+ dollars above June Brent futures. That is not a calm market at all. This is just the market paying a massive premium on top of the barrels that actually exist right now.
TLDR: The front end is screaming that there is a shortage while the paper curve we have on our screens says that traders think this war is almost over and normalization will happen.
That disconnect matters because the Hormuz is still closed and it is not just some "strait" that does not matter as Trump claims (With written Twitter posts calling them psychopaths and to open the strait). 20 million barrels move through this straight per day in normal conditions and the IEA has called this the biggest oil disruption in history. Even after the emergency reserves were released, the supply-side measures alone can not eliminate the disruption.
So ask yourselves: If the physical oil market is pricing an active supply emergency in, why is the broader markets still behaving like this is just another temporary scare in headlines?
SPY literally went green intraday today (April 13 as I write this up) and the S&P has also rebounded hard from its March low. All the banks are already back to the usual propaganda of "buy the dip". Maybe they are right, Maybe this all cools off.
But if they are wrong, this setup is screaming dangerous in every direction because what the oil market is saying right now (I'm literally informed by a petroleum engineer):
Replacements of oil barrels are scarce in supply
The near term supply is at risk
The damage from this conflict is not fully prepared to be fixed (this is already going to cause oil be at 100 dollars plus for the remainder of the year minimum)
The market is too confident that this will blow over soon.
That's why I think markets are not pricing this conflict in properly.
I am not calling for a Black-Monday style event guaranteed tomorrow morning, however, I do believe it is coming towards the near end of this month, and Trump intentionally pumped the markets with a false claim of desiring a ceasefire. I believe Trump wanted a PR stunt to look like he tried negotiating with Iran so he would maintain the "President of Peace" card and that Iran did not want peace and wants a "nuclear weapon" (they've been claiming Iran is 1 week away from a nuke since 1981 till today). I believe Trump intentionally pumped the markets creating a liquidity exits for his inner circle and we are about to see one of the largest crashes in history in a single day. He also is indirectly threatening China's tankers by saying he's "blockading the Hormuz" which is basically a threat to any Chinese tanker that loads up Iranian oil for those who didn't understand what he is trying to say (as I am making this post a Chinese tanker just passed through).
I am saying the odds of a violent repricing look much higher today than what SPY's action suggested today.
The IEA says around 20 million barrels per day normally transit the Hormuz and the March emergency release of reserves of 400 million barrels (the largest in its history) can not replace the disruption of the Hormuz. Reuters also reported that analysts now expect the oil market to run a 750,000 barrel per day deficit in 2026 vs a 1.63 million bpd surplus which we expected last September while OPEC said March OPEC+ outputs collapsed by 7.7 million bpd. On the side of equity, SPY has already been modestly higher intraday on the 13th of April while Reuters said that the SPY has rebounded nearly 8% from its lows in March. J.P. Morgan and Morgan Stanley literally told clients that recent weakness looks like a buying opportunity instead of a prolonged downturn.
In other words the cleanest way for me to express this is:
I am putting my money where my mouth is at and opening shorts on the SPY + holding my oil positions"
Physical markets are trading supply at an emergency, equities are still trading a "temporary" geopolitical scare, and one of them is wrong.
NFA. Just watching the tape.
One of my ports. I have more positions and have bought more in March and last week
Chinese Defense Ministry: ‘Chinese ships continue to move in and out of the waters of the Strait of Hormuz. We have trade and energy agreements with Iran, which we will respect and abide by. We expect others not to interfere in our affairs. Iran controls the Strait of Hormuz, and has opened it to us.’
The physical oil market is screaming there is a supply shock yet equities still seem calm?
byu/Doditty6567 inwallstreetbets
Posted by Doditty6567
25 Comments
Layering out 3-4 week SPY puts as hedges for this clown market.
Treasury and Japan are artificially depressing the futures market price. That’s why the gap is so large Imo
if accounting for inflation, 2008 oil would be equivalent to roughly 186-210$ bbl in todays money, so we are barely close to the height of this crisis.
1. It’s priced in.
2. The US treasury has openly discussed the possibility of getting involved to manipulate oil futures prices. Who knows to what extent it, and other nations, are doing the same?
3. Every now and then, the stock market (Wall St) has huge deviations from reality (main street). The Great Depression, Dot Com bubble, The Great Recession, COVID. Chances are, this is also a time where the trading market has been dislodged from fundamentals.
4. Markets are usually future looking, and perhaps traders are hoping for a quick end to the war. The short term profits in this scenario are a small blip, then, on long term outlooks. In other words, it’s priced in.
I think that anyone who doesn’t have SOME puts right now is delusional, but fuck theta can be a heartless bitch
How many times are you going to post this lmao
Welcome to the circus,
Oil contracts are trending down man shit don’t make sense
Whats the alternative? Hold USD or treasuries? You must be joking.
Remember TACO Tuesday is tomorrow
Tbh, what else people can buy if not equities.
Real estate sucks, Crypto mania over, gold/ sliver already so high. Where else would you invest
Buffet has often said the current market is no longer attached to classic economic rules. People still buy BTC, as one example.
Agree SPY is overdone today but not sure how heavily SPY price will reflect a short-term (albeit significant) supply disruption. The main dated futures of course are forward looking a month or two, IMO SPY generally is further forward looking e.g. big funds are looking end of year, index funds. If the strait is opened in the next 2-3 weeks, there will be a nasty short-term price shock but that fact that it will be known supply is going to be reestablished in a few months will limit the damage it can do to most equities. Growth revisions might be slightly downgraded, maybe fewer rate cuts this year, but this isn’t going to have a monumental effect on big tech, banking ETC bottom lines, maybe a bad quarter. Consumer maybe but its not a huge % of SPY.
Bols would be in shambles if they could read
It’s my fault. I’m holding oil calls.
We’re giving out price increases to customers but we don’t even have our latest costing. Everyone is trying to get ahead of this but we don’t even fully understand what we’re up against.
The oil tankers still arriving at ports carry oil from BEFORE the war started and the SOH closed, thats how slow they move. By the end of april the shock will come. Also remember the oil and refinery infrastructure that has been taken out. If SOH opens tomorrow and things go back to the way they were, the world is down ALOT of refining capacity and O&G infrastructure
I don’t think the market catches on for about 1-4 months. I’m stupidly pessimistic and none of it makes sense, but I’m long until I ca finally go short
This is hardly new. Granted The Big Short the movie embellished it, but remember the way the part of the movie where none of the shorters could figure out why their shorts weren’t printing yet, and it turned out the banks were manipulating things to hold off before they could set their positions? It’s very possible it’s a similar trap the entire market is walking into, but they won’t care as long as today’s close is green.
We’re in the “dragon turns its head” stage. The “dragon whips its tail” is incoming.
Nothing ever happenes
Just for today. To kill the option contracts.
What SPY positions did you open?
If the strait of Hormuz turned into a crater, it would lose 20% of the global trade. USO has gone up 85%, how much higher do you think it’s going
Not only that but a lot of oil production/storage/distribution infrastructure has been destroyed.
My personal take is that the markets are betting that this conflict won’t last long. We aren’t talking about a year+ conflict here. Frankly, I bet most people assume this will be wrapped up within 2 weeks.
Too many players at play here. Other countries will either back the US or get the US to back down. The US cannot keep this up long term by itself. They will either “wipe Iran off the map” and end the conflict that way, or just back off and let EU/Asia deal with the fallout. Either way, US companies should be fine.
The consideration is the backlash worldwide on US markets. Obviously we won’t be popular after this stunt. That will hurt US companies but that will not hurt every company equally.