Those are fair questions, and yes, in that scenario our oil outlook would need to be reassessed.
Our base case assumes the administration remains highly sensitive to inflation, gasoline prices, and the economic impact of sustained higher oil prices ahead of the midterms.
If Trump instead prioritizes a historic geopolitical outcome or believes higher oil prices would not hurt politically, then the risk of a larger and more prolonged oil spike clearly increases. Oil could move back above $100, potentially into the $110–120 range depending on the scale of disruption.
That said, we would still separate a short term geopolitical spike from a lasting change in the physical oil balance. We do not currently see why this would push oil into extreme or structurally higher levels unless the supply disruption became both material and persistent.
This may sound counter-intuitive, but the cure for high prices IS high prices.
When commodities move to new price levels, there is an impetus for bringing more of that item to the market. Either the additional product comes to market, lowering its price; or it doesn't, and prices go even higher. But there is a point where buyers cut back because of (usually) reduced demand for their end-products, which will cause a back-up in the supply chain.
We agree with this view. High prices tend to cure high prices over time.
As prices rise, supply gradually responds as producers increase activity and investment, while demand softens at the margin as consumers adjust usage or efficiency improves. If supply is slow to react, prices can overshoot in the short term.
This dynamic is consistent with our bearish oil view over the medium term. Any sustained period of higher prices tends to accelerate both supply growth and demand destruction, which ultimately pushes the market back toward surplus conditions.
That is why we view rallies as self-limiting unless they are driven by a large and persistent supply shock.
First of all thank you for the article. I was wondering specifically how much of an oil shortfall you think there is (you alluded to it in point #2 but werent very specific), because that would inform how severe you think this disruption is. The storage draws from the last weeks still indicate it is the largest oil supply disruption in history.
Second, do you think Iran is feeling pressured to strike a deal right now? Or do you agree with other reporting (such as the CIA report) that it would take around 3 additional months of the US blockade for them to feel significant economic pressure. (Currency pressure/devaluation) is less important as they dont have significant western currency liabilities.)
Third, coordinated SPR releases and importantly, release of massive sanctioned oil floating storage has given the world more lead time than first expected, but Asia ex-China onshore crude stocks are now at the steepest drawdown in recorded history, so it seems that buffer is mostly gone. How do you reconcile that with a strait being closed for another 1-2 months and oil prices staying around 100 dollars?
These are some of the chief points that keep me from agreeing with your thesis, how would you reconcile these opinions? Thanks
Good questions. The key is separating visible tight conditions from actual loss of supply.
On the “shortfall,” recent inventory draws reflect a very tight physical market, but they do not necessarily imply a global supply loss of the same size. A meaningful part of the movement comes from cargo delays, rerouting, and shifts between onshore storage, floating storage, and transit. That changes where barrels sit rather than the total amount available to refineries.
On Iran, Iranian oil is still flowing. The main issue is visibility rather than absence of supply. These barrels move through indirect routes and ship-to-ship transfers, which makes them harder to track in real time and can lead to underestimation in headline data. At the same time, these flows are constrained and fluctuate with enforcement and logistics, so they do not act as a stable incremental source of supply that can fully offset disruptions in a linear way.
On buffers, coordinated SPR releases and floating storage increase short-term availability. They smooth the system by pulling barrels forward in time. Once those barrels are released or absorbed, they reduce future flexibility rather than permanently increasing supply.
Reconciling this with prices, a move toward $100–110 is not necessarily a level where demand destruction becomes immediate or visible. Compared to today’s reference point, the adjustment is still meaningful, especially after a period of much lower prices around $70–75. Demand response typically becomes more visible as prices stay elevated over time and feed through to consumption decisions. The impact is smaller than at extreme levels like $130–150, but it is not zero, and it builds gradually. This is why tight conditions can coexist with weakening demand signals even before the market fully recognizes it.
Putting it together, inventories can draw sharply and the market can look tight in the short run. Our framework is focused on what typically follows that phase. Higher prices tend to bring additional supply back and reduce demand at the margin, which limits how long oil can remain around or above $100 unless the disruption is both large and sustained.
That seems like a valid thesis, but doesn't the demand destruction of oil impact the global supply chain, bringing the entire market down? Specifically everything related to AI, which is driving new ATH every week? Or do we expect developing countries to keep running their factories while households run out of electricity and gas.
Fair point, and you are right that we are not calling for a global recession. The argument is simpler than that. High oil prices slow things down at the margins, and that is enough to keep a ceiling on where prices can realistically go.
On AI, you are making the right point. If demand were truly as strong as the bulls are claiming, we would already be well above $150 with the Strait closed and all the geopolitical pressure that comes with it. The fact that we are sitting at $101 tells you everything about where real demand actually stands.
In terms of the oil being 100 v 150, there are multiple forces in play. We have a master manipulator with full support of media like Axios dropping curated baits at strategic timeframes. Historical levels of SPR released after the war started. Almost all the models by major players still use June as the baseline for when the supply shortage gets fixed, but there's no signs of that becoming reality. There are way better explanations in HFIR.
The problem with the argument of higher oil prices slowing things at the margin is that it assumes there's a well defined end in sight which was the case for most issues Trump get himself into, but here he can't unilaterally make decisions. There's Iran and Israel who don't play by Trump's rules based on what we've seen. With prolonged supply shortage, demand destruction of that scale will start impacting supply chain. So far the supply shortage has been offset be the SPR releases, but eventually they have to stop and whatever supply chain constraints happening now will only show up in a couple of months for most sectors
1. What happens if Trump decides his legacy is more important than the midterms and he commits in the hopes of a full Iranian capitulation?
2. What is Trump thinks he can win the mid terms with higher gas prices?
The above are obviously not likely but if they do occur, does that change your oil outlook?
Those are fair questions, and yes, in that scenario our oil outlook would need to be reassessed.
Our base case assumes the administration remains highly sensitive to inflation, gasoline prices, and the economic impact of sustained higher oil prices ahead of the midterms.
If Trump instead prioritizes a historic geopolitical outcome or believes higher oil prices would not hurt politically, then the risk of a larger and more prolonged oil spike clearly increases. Oil could move back above $100, potentially into the $110–120 range depending on the scale of disruption.
That said, we would still separate a short term geopolitical spike from a lasting change in the physical oil balance. We do not currently see why this would push oil into extreme or structurally higher levels unless the supply disruption became both material and persistent.
This may sound counter-intuitive, but the cure for high prices IS high prices.
When commodities move to new price levels, there is an impetus for bringing more of that item to the market. Either the additional product comes to market, lowering its price; or it doesn't, and prices go even higher. But there is a point where buyers cut back because of (usually) reduced demand for their end-products, which will cause a back-up in the supply chain.
We agree with this view. High prices tend to cure high prices over time.
As prices rise, supply gradually responds as producers increase activity and investment, while demand softens at the margin as consumers adjust usage or efficiency improves. If supply is slow to react, prices can overshoot in the short term.
This dynamic is consistent with our bearish oil view over the medium term. Any sustained period of higher prices tends to accelerate both supply growth and demand destruction, which ultimately pushes the market back toward surplus conditions.
That is why we view rallies as self-limiting unless they are driven by a large and persistent supply shock.
First of all thank you for the article. I was wondering specifically how much of an oil shortfall you think there is (you alluded to it in point #2 but werent very specific), because that would inform how severe you think this disruption is. The storage draws from the last weeks still indicate it is the largest oil supply disruption in history.
Second, do you think Iran is feeling pressured to strike a deal right now? Or do you agree with other reporting (such as the CIA report) that it would take around 3 additional months of the US blockade for them to feel significant economic pressure. (Currency pressure/devaluation) is less important as they dont have significant western currency liabilities.)
Third, coordinated SPR releases and importantly, release of massive sanctioned oil floating storage has given the world more lead time than first expected, but Asia ex-China onshore crude stocks are now at the steepest drawdown in recorded history, so it seems that buffer is mostly gone. How do you reconcile that with a strait being closed for another 1-2 months and oil prices staying around 100 dollars?
These are some of the chief points that keep me from agreeing with your thesis, how would you reconcile these opinions? Thanks
Good questions. The key is separating visible tight conditions from actual loss of supply.
On the “shortfall,” recent inventory draws reflect a very tight physical market, but they do not necessarily imply a global supply loss of the same size. A meaningful part of the movement comes from cargo delays, rerouting, and shifts between onshore storage, floating storage, and transit. That changes where barrels sit rather than the total amount available to refineries.
On Iran, Iranian oil is still flowing. The main issue is visibility rather than absence of supply. These barrels move through indirect routes and ship-to-ship transfers, which makes them harder to track in real time and can lead to underestimation in headline data. At the same time, these flows are constrained and fluctuate with enforcement and logistics, so they do not act as a stable incremental source of supply that can fully offset disruptions in a linear way.
On buffers, coordinated SPR releases and floating storage increase short-term availability. They smooth the system by pulling barrels forward in time. Once those barrels are released or absorbed, they reduce future flexibility rather than permanently increasing supply.
Reconciling this with prices, a move toward $100–110 is not necessarily a level where demand destruction becomes immediate or visible. Compared to today’s reference point, the adjustment is still meaningful, especially after a period of much lower prices around $70–75. Demand response typically becomes more visible as prices stay elevated over time and feed through to consumption decisions. The impact is smaller than at extreme levels like $130–150, but it is not zero, and it builds gradually. This is why tight conditions can coexist with weakening demand signals even before the market fully recognizes it.
Putting it together, inventories can draw sharply and the market can look tight in the short run. Our framework is focused on what typically follows that phase. Higher prices tend to bring additional supply back and reduce demand at the margin, which limits how long oil can remain around or above $100 unless the disruption is both large and sustained.
That seems like a valid thesis, but doesn't the demand destruction of oil impact the global supply chain, bringing the entire market down? Specifically everything related to AI, which is driving new ATH every week? Or do we expect developing countries to keep running their factories while households run out of electricity and gas.
Fair point, and you are right that we are not calling for a global recession. The argument is simpler than that. High oil prices slow things down at the margins, and that is enough to keep a ceiling on where prices can realistically go.
On AI, you are making the right point. If demand were truly as strong as the bulls are claiming, we would already be well above $150 with the Strait closed and all the geopolitical pressure that comes with it. The fact that we are sitting at $101 tells you everything about where real demand actually stands.
In terms of the oil being 100 v 150, there are multiple forces in play. We have a master manipulator with full support of media like Axios dropping curated baits at strategic timeframes. Historical levels of SPR released after the war started. Almost all the models by major players still use June as the baseline for when the supply shortage gets fixed, but there's no signs of that becoming reality. There are way better explanations in HFIR.
The problem with the argument of higher oil prices slowing things at the margin is that it assumes there's a well defined end in sight which was the case for most issues Trump get himself into, but here he can't unilaterally make decisions. There's Iran and Israel who don't play by Trump's rules based on what we've seen. With prolonged supply shortage, demand destruction of that scale will start impacting supply chain. So far the supply shortage has been offset be the SPR releases, but eventually they have to stop and whatever supply chain constraints happening now will only show up in a couple of months for most sectors