Could you explain how a squeeze doesn't play out when the Cushing Oklahoma oil reservoir doesn't happen when it reaches it's functional bottom at the end of June to early July? We have thousands upon thousands of futures contracts created for WTI crude and what happens if a few people/refiners want physical delivery instead of rolling them over but there's no barrels? Under the contract they are mandated to deliver the barrels. They have to buy inventory at any price to fill their obligation or their broker will liquidate their account to settle the contract. A contract is a contract and most WTI futures contracts that are settled and want physical delivery go through Cushing.
When Cushing hits its operational floor, the massive delivery squeeze usually doesn't happen because extreme price spikes instantly fix the problem by changing pipeline flows.
High premiums at the hub force operators to reverse pipelines and pull oil up from the Gulf Coast, while paper traders quickly choose to cash-settle or roll their contracts instead of demanding physical barrels that aren't there.
We're just rejecting the laws of physics here? Over the last 15 years billions were spent reversing major pipelines to flow downward to the Gulf Coast. You can't just press a button and reverse it. You're talking about making millions of barrels flow uphill against gravity and pipeline compressor stations. They're not designed to be reversed. The pressure heads and requirements are vastly different and many pump designs can't be run in reverse. You need to change the physical piping into the pump. What you're talking is a complex engineering undertaking of massive scale.
The market is toying with the idea we will have to live "without Hormuz" for some time, and should start looking for workarounds. Current prices ain't giving that signal so we need one more jolt. Taking barrels from the tank doesn't look that attractive now, specially for China. The end game is to deflect prices as fast as we can, works for Trump, works for China, but we traded vol/spikes for higher prices for longer... Middle East will never be the same until we have complete bypasses
noting is linear in this industry... that thing won't be "open" or "closed".. it isn't today and we will have to get used to not seeing the full picture (shiptrackers, deals, etc..) and that partly explains the apathy we are seeing, translated into price... you don't trade what you don't see.
Our price targets are based on a time-decay function of global inventory depletion. Each month the Strait remains closed, physical crude deficits compound, lifting the price floor.
Could you explain how a squeeze doesn't play out when the Cushing Oklahoma oil reservoir doesn't happen when it reaches it's functional bottom at the end of June to early July? We have thousands upon thousands of futures contracts created for WTI crude and what happens if a few people/refiners want physical delivery instead of rolling them over but there's no barrels? Under the contract they are mandated to deliver the barrels. They have to buy inventory at any price to fill their obligation or their broker will liquidate their account to settle the contract. A contract is a contract and most WTI futures contracts that are settled and want physical delivery go through Cushing.
When Cushing hits its operational floor, the massive delivery squeeze usually doesn't happen because extreme price spikes instantly fix the problem by changing pipeline flows.
High premiums at the hub force operators to reverse pipelines and pull oil up from the Gulf Coast, while paper traders quickly choose to cash-settle or roll their contracts instead of demanding physical barrels that aren't there.
We're just rejecting the laws of physics here? Over the last 15 years billions were spent reversing major pipelines to flow downward to the Gulf Coast. You can't just press a button and reverse it. You're talking about making millions of barrels flow uphill against gravity and pipeline compressor stations. They're not designed to be reversed. The pressure heads and requirements are vastly different and many pump designs can't be run in reverse. You need to change the physical piping into the pump. What you're talking is a complex engineering undertaking of massive scale.
The market is toying with the idea we will have to live "without Hormuz" for some time, and should start looking for workarounds. Current prices ain't giving that signal so we need one more jolt. Taking barrels from the tank doesn't look that attractive now, specially for China. The end game is to deflect prices as fast as we can, works for Trump, works for China, but we traded vol/spikes for higher prices for longer... Middle East will never be the same until we have complete bypasses
Great summary, appreciate your insights bro!
noting is linear in this industry... that thing won't be "open" or "closed".. it isn't today and we will have to get used to not seeing the full picture (shiptrackers, deals, etc..) and that partly explains the apathy we are seeing, translated into price... you don't trade what you don't see.
Yes, of course. We are all navigating in the dark to some extent.
How did you get to your oil price numbers? If hormuz opens in June, July, August, how did you get 80, 85, etc?
Our price targets are based on a time-decay function of global inventory depletion. Each month the Strait remains closed, physical crude deficits compound, lifting the price floor.