Transcription
Phillip, how are you?
I'm good. Thanks for having me, Mario.
Pleasure. Um, so I want to get your thoughts on um, you know, funny enough, I feel like the optimism of a lot of my guests has been dropping in recent days and weeks. Um, a lot of them who believe that the war is over are starting to be a bit more skeptical about it. Um, and I want to play a clip. Lisa, if you can play that clip of JD Van speaking at an interview just a few days ago. Um, and I've got a few questions on on whether what we're seeing right now is just a pause, rearmorament for a continuation of the war until at least some of the objectives on the American side are achieved. But if you can play that clip please, Lisa, uh, be good of JD Vance has interviewed the rounds in the last few days uh, on various podcasts and, uh, this one was, uh, the quote here is a bit more concerning than others. Go ahead, Lisa. Uh Lisa, you want to play the clip?
While waiting for Lisa to play the clip. So essentially in in in the in the interview, he just talks about how this war was about preparing, you know, for the just letting energy markets calm down.
President has told us to do is use thisou to sort of refill the world's oil economy.
Yeah. to refill some stocks and then to see where the hand is. And you know, if the, as I' I've said this repeatedly, if the Iranians are willing to make the commitments that we would like them to make and are willing to back those up with verifiable milestones, then we are going to change our relationship with Iran. And if they don't do that, then nothing has really changed except for what we've already accomplished from the military campaign, which is a lot. So, we kind of have two options here. We have the option of pursuing a long-term deal with the Iranians, but that requires a significant change in their behavior. We have the option of banking our wins and then of course doing things on top of that if the president feels that we have to. And I think both of those options are very much in play and the president's going to let this play out. But what's happening right now is he's letting those options play out in an environment where there is significantly less pressure on the world energy economy. And this is my biggest frustration with right-wing critics of what we've done over the last few months in Iran is that they don't realize how completely they were losing the political argument because of what was happening to world energy markets. Yeah. So what the president of the United States has done, you're talking about the critics who want more bombs dropping. Their attitude is just drop bombs and drop bombs and drop bombs and they can't really articulate to what end. And what the president is saying,
I'm I'm willing to drop bombs and he's clearly shown that he's willing to drop bombs, but only if it serves an objective. And so what he's doing right now is taking a lot of pressure off of the world economy, the world energy economy in particular, while not giving up a single one of his gains and while preserving a lot of optionality. I I think that's a very good place for us to be in. But there's uncertainty because no one can be certain what the Iranians are going to do,
right? So then the message if if you're an Iranian, the message you're getting from the US is not, okay, we've settled this, you you get to keep the straight of Hormuz and we'll try to play nice now. The message is, uh, okay, we're we're going to serve our self-interest by replenishing the oil coffers and get back to us in 60 days, you might have some fire and brimstone coming back down. And if you actually behave, you won't, right? And that's that's that's what the president has has fundamentally put out there. Now, it is interesting to me because the Iranians have said, "We control the straits and yeah, we're going to let traffic flow for the next 60 days, but then we're going to negotiate over what happens from there." Okay? And what what I find just bizarre about that assertion is that nobody from the Gulf Coast or the the the Gulf Coalition countries, the Arab countries in the Gulf and the Omanis who are sort of the main Iranian theoretically partner, all of them have come out and said we don't accept this Iranian tolling mechanism. And so the Iranians keep on asserting something that isn't actually happening right now and they don't have a credible pathway to make happen in the future. So I do see this as a bit of a sideshow because fundamentally like their arguments what I what I mean is the side show is what they're saying.
Yeah.
What will actually happen is going to be determined through a combination of negotiation, diplomatic, economic and military leverage. What they're saying right now for the consumption of their domestic audience really seems um matters is what's gonna happen. Sure. Something that we're working on right now.
And so then if you
Yeah. So, um, what do you make of this? You know, from what I understand, you know, things he said, uh, he's expecting a change of behavior in Iran. Not sure what that means. Um, he admitted the obvious that Trump was forced to do this to ease the pressure on global energy markets. Um, and then they hint at, you know, Trump is willing to drop bombs, but only if it serves an objective. So then the question is, what is that objective? Before I go through other quotes, what do you make of what JD Vance said in this interview? I mean, you know, following the whole thing, uh, since it began, what, five months ago or something like that, JD is clearly the good cop, right? I mean, he's the good cop to Trump's bad cop. And so, he's going to make more consiliatory tones and so on, as he is, although they're slightly less consiliatory than they were uh before theou was first signed. Um, but I think the, you know, the question around energy markets is absolutely key. I think there's a really interesting uh tension in what JD is saying. On the one hand, he's talking about the political pressure that's being brought to bear on Trump, which is enormous from the Iran hawks. He calls them the rightwing. I I don't really get that terminology, but the Iran hawks effectively. And that's the kind of like political calculus, right? Like if you're a politician, I'm not I've never been a politician. I've never been sure why this is the case, but if you're a politician apparently and you have these like groups that pressure you, which I guess means like texting you or something or coming into your office, then you have to like do something for them. And that's what JD's talking about. So that is like he views that clearly as some sort of a like uh deterministic thing that has to happen. And then on the other hand is the realities of the oil market. Now I'm an economist uh work in investment not currently worked in investment for a while know the investment market bond market pretty well and maybe later we can talk about how they're suppressing it because I think it's interesting I think I have a few novel points on that but the idea that even 60 days or 20 days or whatever he's saying will ease pressure on the oil market is just absurd right I mean here's some very very basic maths right so the this the straight has been closed for almost five months right so call it about 150 days approximately and the original traffic was about 140 150 ships going through a day. Well, if you multiply 150 by 150, you get uh 15,000, right? No, you get more. You get 15 uh + 15 again, so you get to 17 500, right? So, currently there are like 14 ships going through the straight every day. you need to make up those tens of thousands or you know 1,700 ships to replace the lost capacity that you've lost over those over those five months, right? And at the moment like not only are we not up to up to 150 ships a day, we're nowhere near that. Um there's just no like it's not a drop in the bucket. 14 ships going through the straight isn't a drop in the bucket. So I I think they're I mean I think what they're doing is politics is all about narrative control, you know, and that's fine for politics, but narrative control doesn't actually change the reality of how many barrels of oil exist or don't exist. I mean, another way of putting it is you can't print oil, right? You can print money. You can you can forwardun bonds. You can be Scott Bessant and talk down or talk up the bond market. You can talk up or down the dollar, but you can't talk barrels of oil into existence. And I think the the White House doesn't fully understand that.
Okay. So, it's looking more and more like the MOU is just to it's a necessity rather than what Trump would like to do. It's a necessity politically, but also to ease the pressure of the oil markets. And that's what worries a lot of people, including people in Iran that are critical of the deal. People in Iran are critical of the deal because they believe they've given Trump breathing room to be able to um you know ease the pressure on the global economy, get through the midterms before he continues the inevitable. Um but then you you mentioned something that the price of oil is being suppressed. Can you elaborate what you mean by that?
So the evidence on this is is really really clear. It couldn't be clearer. Um, the crack spread, which you've probably talked I think you were talking to other guests about. I think I saw an interview that you did. The crack spread is the cost of producing oil by refiners. So, the crack spread will tell you how much basically you're going to pay at the pump, right? You're going to pay at the at the gasoline pump or the petrol pump as we call it in Britain and Ireland. Um, and that's going up. Okay. So the real cost and therefore the real price of refined gasoline and diesel is rising. Now what's falling the futures price WTI and Brent futures prices are traded on financial markets. They're like um stocks or bonds or something like that. They're they're virtual. They're not real. Now in theory the futures market is supposed to look at what's going on in the real world. That's not happening. And the way that you can tell that's not happening is because the the the futures price is now low while the crack spread is high. And what else is high? The price at the pump. Have you gone and walked by a gas station recently? Yeah. Okay. Prices may have come down in the past week by 5%. But they're still up like, you know, basically where they were at $95 a barrel. And Trump's out on Truth Socialing against uh gasoline stations. So you see the the futures price I mean we can talk about what futures markets are if you want. They they when they're functional they're in some senses useful but they don't they're not a real price of oil. The real price of oil is what it costs the refiners to produce and then they can sell that. So to they have to take in barrels of crude, right? black stuff that we all know. And then they have to refine it and turn it into gasoline and diesel and you know all these other components, things that make plastics and fertilizer and so on. And then they have to sell that and they have to put the costs of that which include the barrel of the black crude oil into the cost of gasoline or diesel or jet fuel. And these prices aren't coming down. I mean, they have come down a little bit on the back of this kind of excitement and speculative fervor that we've seen since theou and all this nonsense about the straight being reopened. But you can't, as I said, you can't print oil. You can print money and impact the value of a bond. Okay? Now, we won't go into why that is, but it's a financial instrument. You can do that. You can't do that with oil. You can't print oil. And so, everyone's saying, "Oh, gas uh oil energy prices are down." They're not. I guarantee you they're not like go and fill up your car. Go and wait until the month end gas ga natural gas bill comes. Especially if you're in Europe, maybe it'll have come down 5%. It's still up where it was at $95 a barrel. So this is I said to a friend of mine the other day like we're down the rabbit hole. We're at the Mad Hatters Tea Party here. Like nothing makes sense and you know the everyone's talking in nonsense riddles and stuff like that. And I think in the next week or two, maybe it'll maybe the madness will hold for a little longer. But at a certain point, people are going to go, "Uh, the gasoline prices didn't come down, guys." Like, it was all fake.
But so from what I understand, the way to know the actual price of crude oil is looking at dated Brent crude. That's the price you look at to understand the price on the market right now. And that's at $70. So even so if you're buying doesn't that mean the oil that's coming out of the tankers going through the straight of home was is at $70.
Correct?
No.
Then this is another confusion in these markets. Right. So I remember back in the day I we could talk about oil markets for a while. I know oil markets quite well and they've always been partly manipulated and we can talk about that if you want. But the big debate back in the day about oil price manipulation was whether the futures price that's the one I've been talking about. Um, Brent's WTI, whether the futures price could have an impact on what you just said, the spot price, the dated price, right? The dated price is a paper market, too. They're both paper markets. They're they're paper markets at given times in the future. So, the the spot price is basically like quote unquote delivery of a price a barrel of a price of oil now, but it's only a paper barrel of oil. It's not it's a it's a contract to purchase a barrel of oil. If the barrel of oil isn't there, the contract's no good. The the people, the refiners are not paying that price. And we know they're not paying that price because the crack spread is so high. The crack spread is an actual uh physical output. It's like the um the producer price index or something like that. Like the the end price that uh the producers of laptops, mobile phones, cars will tell you, right? It's the actual price, the correct spread, and it correlates very, very readily with the price of gasoline, diesel, and so on. The spot market, as I said, the debate was always, can the futures market impact the spot market? Debate settled. It can. We now know it can because they've just done it. They've absolutely crushed the futures market and the spot prices followed it down. But crack spreads haven't and neither have prices at the pump. And that's why Trump is railing on truth social. So when people say the spot price is the price of a barrel of oil today, true, it's not an oil futures, but it's only a paper contract. So what they've actually done here is they've broken the financial markets around oil. But as I said, you can't print a barrel of oil. If there isn't enough oil, there isn't enough oil. And so I maybe I'll eat my hat on this, but I don't think the refineries are getting the spot price.
Well, then what how do I know the price that the refineries are paying for oil right now? So the oil coming out of the straight of
so where do I check where do I check there's there's one guy who publishes all the time called HFI research you can create a crack spread yourself
yeah you can create I tried it I wanted to check if his stuff was fake so you can actually create a crack spread yourself it's not published by the IEA the official American energy thing so I I created one it takes a little bit of maths and all that kind of thing but the ones he's publishing are real the crack spread has come down a little bit just as the price of um gasoline at the pump has come down you know five six% something like that but it's not down it's not following the the either the f fe futures of the spot price so the crack is just showing you literally what the cost that the refineries are eating
maybe they end up being able to prod manipulate the crack spread but I don't see any way of doing that
what we are witnessing today in the oil market is history in the making house so from the onset of the Iran conflict. These three were our signals. Crude time spreads, 321 crack spread and offshore onshore oil inventory inventories. If you have been following the oil market, you will know that the current conditions are as follows. Crude time spreads are weak reflecting a bloated physical market reason. Chinese crude imports. So, so it's a full breakdown.
Um, does this Okay, so, it's a it's a long piece. So, according to HFI, I'm on this website now. What is the crack spread? What is the price per barrel right now that refineries are paying?
I don't think you can tell. It's it's a derivative thing, but my sense is that they're still trading as if we're around $110 a barrel. That's what I saw from the statistics that are currently. So, you can I won't go into it, but you can run a regression on the crack spread versus the the oil the the futures price, and it looks like about 110.
Jesus. All right. So, but how how is that not common knowledge that the refineries pay that on the market on the open market? So, that's not a hidden secret. It's not classified information. How is that not publicly available?
This is all narrative control. Like, if you want to go into how they drive down the WTI price, we like maybe I should tell you how that's done because I'm pretty sure I know how it's done. So let me tell you a a story. So I was in finance for years. I was at a qu a a quantitative firm. Um and 10 years ago, so around 2015 2016, the quant guys upstairs were looking at early AI models. One of the first places to implement AI models were the financial markets. And it's obvious why. If you can get an edge, you can make billions of dollars, right? So So the financial markets implemented AI really early on. And what they found was they were only really good for text recognition. They were really good for going through news articles, financial statements by companies, financial reports by oil producers, this kind of stuff, and picking out keywords. So basically what they do is you take the human out of the equation. He doesn't have to follow central bank statements. He doesn't have to follow government announcements, geopolitical events, all this stuff that analysts do, human analysts do, you just put it through one of these robotic AI models, right? So that was already going on in markets at a at a very high level now back in uh back back about 10 years ago. And in the past three years, I'd say maybe four years, hedge funds have started implementing them. So I was looking around at hedge fund jobs about three or four years ago and they all wanted people with really good Python coding, right? And I asked my friends who were in hedge fund in in Green Park in the city of London. I said, "Why does everyone want pi really high-end Python coding as if you're a computer programmer?" Like, you coding is good, like if you want to deal with numbers, but why do they want the Python coding? Like, it's not necessary for a macro hedge fund. I know how to how macro hedge funds trade. You don't need it. They said they're automating everything. They're automating absolutely everything. So, they're getting their seasoned traders who have 20 years experience and they're they're getting younger guys to come in with Python programming. They're pro, they're turning them into robots. Basically, they're getting their trading strategy and uploading it into a computer. Okay. So, now what you've got is a bunch of algorithms, trading algorithms. They're called algos and markers. And the algos react to text to news events, right? So, if you can flood the zone with headlines and news stories that say the straight is open, oil prices are coming down, the new one is there's an oil gluff. Doesn't even make sense. That's completely crazy. How would there be all glotting? All of these terms glot will like show up in those searches. And so what you do is you drive the algorithms absolutely insane. Now you ask, well, why? It's common knowledge. Like any human can check this. Any person with Twitter can check this. It's not classified. Yeah, but if you've ever traded markets, you know that if a whale comes in, you get crushed. So if you take a long oil position, you usually do that with some leverage, right? If you're in a hedge fund, for example, and the hedge funds are doing all the trading here. I think you had a previous guest on who said they were like 95% short position or something. If you come in and you take the correct objective position of taking a long and you're leveraged, if that price crashes by 20%, your margin gets wiped out and like you're burnt. It's like it's like a child touching a hot stove. You just don't want to go back, right? And you don't want to trade it. So you can squeeze you can squeeze long positions out of the market by using these algorithms and getting enormous amounts of capital out outlay into the short positions. And here's the worst part of it. The hedge funds make money on this because the algorithms are just self-reinforcing. So if they get the direction right, everyone except the last guy makes money. Now if they hold those short positions for too long and it snaps back the other way, you could actually generate a crisis in the hedge fund sector at some point. But that's basically what they've done. I know it sounds absolutely wild. As I said, this is Mad Hatter stuff. I think we're learning in real time that like maybe AI doesn't take over the world and turn into Skynet. Maybe it just creates like a failed centrally planned Soviet style economy that you can manipulate really easily.
Well, AI is meant to manipulate us, not the other way around. So, this is fascinating. Well, it looks like humans, if you can set the narrative, if you can set the narrative in news, in whatever, you can manipulate the boss. Like, it's clear. And they figured it out. And by the way, how did they figure it out? Big reveal. The Treasury Secretary is a hedge fund manager. Hedge fund guys all know this. Everyone knows about the algorith, the trading algorithms of hedge funds. Scott knows. Besson knows.
No, everyone. Everyone algorithmic trading is nothing new. Most of trading is being replaced by AI. I think that's that's been like this for a while and it's increasing. You know, I come from the trading world in crypto. We have a large fund there. So, I I know that world well, we don't do it ourselves, but I you know, we've been talking about it for years. What you're saying now is that this offers an opportunity to be able to manipulate the algorithms through information, through feeding them flawed information.
Yep. And if Bloomberg's reporting it, it's a high trusted source. How do you create an algorithm? Just think about it for a few minutes.
But but there's just that massive. So if this is true, there's just that massive arbitrage opportunity. If you've got future prices, you know, if you've got WT WTI and Brent crude at these prices and actual oil at such a high price that doesn't that offer a massive arbitrage opportunity that anyone that finds this information, it's not hard to find. The refineries know the price they're paying could just take advantage of it. Well, you said you trade crypto, right? You've traded crypto before, have you?
Okay. You know,
I invest, don't you?
Go ahead.
But you've done you've done some leverage trading, right? At some point in time, you've tried it.
Yes, I know it. I've never traded. No zero, but I know it well. So, you could keep investing.
So, if you take a leveraged position on Bitcoin or Ethereum or something like that and directionally it moves like 5% 10%. Do you know how vicious the margin wipe out is? Your entire balance disappears. It just evaporates. It works exactly the same in hedge funds. You have a you have an amount of margin on the side. You take a leverage bet. And so what happens? It's like, as I said, it's like a child who goes up to a heated stove and they touch it and they got their fingers burnt. They won't touch it again.
But can't you just do like a good example for the audience to relate to is the big short? I think Michael Bur found that massive arbitrage opportunity that disconnect between the actual value of an asset and what the market is perceiving that value to be and took advantage of it. Now it was very difficult. he didn't have enough capital almost you know almost got margin called so I understand the risk he took there but um you know with larger funds that have enough capital they can easily take advantage of that you know they're sitting there on on you know hundreds of billions of dollars they could you unless the market is so huge that even hundreds of billions of dollars they could be get wiped out
I think a lot of people are long oil stocks right now I think that's the position that people are taking you can't go into WTI you can't go into brand but the beta as we call it between WTI and oil stocks like uh I don't know Ecuinor Suncor Petra brass these the beta is quite low but by which I mean if you see a 35% decline in WTI you see maybe a 15% decline in the stock price of those uh stocks and of course those stocks you don't tend to buy with leverage so I think a lot of investors are actually pulled into energy stocks the smart money is probably in energy stocks but but people are like you Oh, you're you're riding this insane volatility. Like take the example like Petrorast, right? It's the biggest um producer in Brazil. So, it's one of the major players in the world. It's stateowned. It's a very boring energy stock in a lot of ways. I think it's down 16% from its peak. Now, like if you're trading a like large stateowned oil company, you're not used to those swings. like the volatility that interest um introducing into your portfolio is a real is a real pain and like your clients are going to be annoying you and they're going to be reading headlines that say that there's an oil glob you know like if you're a portfolio manager it's a nightmare so yeah of course you can take contrarian positions in the market and sometimes you make money in my opinion I think this will end up falling apart because it's so absurd but you know taking contrarian positions in the market you know it's hard like it takes big kahones as they say you know
yeah and and I didn't know it's actually that difficult to get the actual price those refineries are uh paying for for oil coming out of the straight home I thought that would be relatively public knowledge
it's public but it's not straightforward look here's the trick on this
I just checked on claude and grock and trait it's not public
you can make crack spread
yeah come up But each people But different people come up with different figures when they make their own crack spreads. Correct.
Yeah, but the data all correlates. I made one the other day and it looked like HFI. Now, you can find this data. Look, here's here's the
Sorry. What's your I'll let you continue. What's your price when you did it? Can you give me the price again you came up with?
It's it's the crack spread doesn't map perfectly onto the barrel, but I think it's about 100 110. It's showing maybe a little more even 115. It's showing around that. It's showing basically the price of the barrel of oil before this nonsense started about a week and a half ago.
I feel like I feel like I'm talking I went back in time and I'm talking to an Irish version of Michael Barry. This is this is what I feel like now.
This is not investment advice.
That is a wild conversation. I didn't know all this.
No, I I think like only a few people have figured it out. Look, here's the trick. If people want to follow this, right, ignore the noise. find the energy analysts. There are a bunch of actual energy analysts on Twitter, not the Bloomberg energy journalists. Those guys are caught up in this for whatever reason. Um, there's energy analysts. There's a bunch of people who trade energy, right? And if you just go on the HFI uh Twitter handle, you'll find like their followers will there'll be loads of energy analysts and stuff. Energy analysts, the real ones are from a different world. They don't actually like some of them work for investment banks and stuff, but some of them actually work for energy companies for uh companies that buy a lot of energy. Can you imagine like if you're a massive consumer of energy, oil, crude, gas, you'll have an energy trader on site, right? And those guys aren't speculators. They're trying to they're trying to hedge your energy costs and all this kind of thing. Um, so they're like having a foreign exchange guy on site for like a food company or something like so if you follow those guys, they're not caught up in this narrative. And in the energy community, trading community, everyone's like, everyone thinks like me. It's like Mad Hatter Tea Party, you know, like the white bunny just kind of like hops by and you're like, how long do we have to put up with this? It's completely crazy.
It's so weird. So, but but there is a lot of oil going through the Red Sea, the the Saudi pipeline, going through Fyra. A lot of ships are going through. You're talking about HFI. Well, HFI, no, Kepler, sorry. Kepler put out a um an analysis today. US naval forces are reportedly supporting and protecting super tankers transiting through Homoo. Over the last 24 hours, at least four nonIranian VLCC, very large crude carriers transited inbound with with AIS. So maybe there's more without AIS via the route the Omani side, the route under American oversight. So according to this report and I saw another report yesterday that actually what if just what if the truth is a lot less uh less crazy, Philillip, what if it's just there's more oil going through than what we know? Remember a lot of ships have their AIS turned off. We know that China has reduced their imports. So maybe we also know more oil is going through Yanbu the the east west pipeline in Saudi and Fujiro than initially expected. So what if with with the east with the Saudi pipeline with Fujiro as well as the ships that are going through Hmush that we don't know about what if there these these just are the numbers they are higher than what you know of?
Well, okay. So, like, think about this narratively, right? So, the pipelines, look, if those pipelines could have s could have um done what the ships in the straight could have done, those ships would have never been sailing. If you have a pipeline, it's fundamentally cheaper to put oil through it, right? Like, it's easy to understand,
but limit No, but it's limited capacity. But capacity is limited in the pipeline.
Yeah. No, limited capacity. Exactly. So, like, why weren't they at full capacity before? It doesn't make any sense. So, but here's the thing. The pipelines have been open since the straight has been closed, right? No new pipelines have been built. Building a pipeline takes a very long time. No, no new pipel's been closed since March or whatever. I can't remember the exact date. Um, the straight's been closed since March. Those pipelines have been open. Throughout that period, oil has been trading around 100 dollars a barrel, right? Bouncing between 90 and 100. So, nothing's changed on the pipeline front. The only thing that's changed in the past 10 days or however long it's been is this narrative that the straight's been opened. Now, the straight hasn't been open. Okay, again, do just do some back of the envelope math on this, right? So, let's say 50 of the 150 ships that were going through the straight before the the crisis were uh very large oil capac oil tankers, right? Super tankers. So, that's about a third, right? So, say a third of them, 50, right? And it's been 150 days, give or take. Okay, so that's 7,500 ships we haven't got. And where do the barrels of oil come from that we haven't got? They come out of storage. They come out of either private inventories or state inventories like the Special Petroleum Reserve, which is going down like crazy, like never been seen before. So even if we reopen the street, we have to refill the reserves. But we haven't reopened the street. There's like maybe five tankers getting through and a couple of Iranian ones going to China. And those Iranian ones have been going to China at least since I don't know April or something like that. So this the Iranians don't fire on their own tankers because they're not stupid. Trump put a blockade in front of them. I didn't see a single Iranian tanker get hit by that blockade. I think it was more kabuki theater. But and why would you want to prevent more oil going on the market? These numbers don't don't just don't add up. Also zoom out a little bit. Right. So back in back like before any of this happened, if you looked up like nightmare geopolitical scenarios for the U for the global economy, there were the two worst by far were war between the United States and China because presumably then all the manufacturers to come out of China would not leave, right? Or they'd have a hard time leaving. That was number one. That would create like hyperinflation probably. And number two was closure of the straight of Hormuz. It was always talked about and now the straight has been closed for five months and like some hair hats on television are telling me that like oh it's no big deal like oh I'm buying that it's the biggest deal in the world so I don't buy it. Look we have to refill these inventories. This the thing's been closed for five months. We've lost so much oil. China have wound down their consumption. We can talk about that. That's a big deal. It's not enough to to get rid of the the crisis, but it's a big deal and we can talk about that. Um SPR, the special petroleum reserve is tanking. Trump came out accidentally let slip that they only had what, four weeks of oil left. Yeah, he's talking about the SPR because it can only get so low and you know there's problems when it starts getting too low. I think it's pressure problems or something with the caverns or something. Um but he's already kind of blurted that out, right? So, like I think we're living in La La Land here. I do you know when do you know when the um the Roadrunner goes off the cliff and he's like standing there and he doesn't he doesn't fall until he looks down.
Yeah, We're we're the road runner off the cliff. You know,
you said about China you could do you could dig deeper into that. What what's bizarre about China? They've the demand the Chinese demand for oil dropped significantly. I'm guessing they've just tapped into their reserves.
Yeah. So, China have this enormous reserve. It's like nothing else in the world. Their private reserve and their state reserve are integrated because their industry in their state is integrated, right? It's a it's not a communist economy, but it's it's not a normal capitalist economy. It's like a state capitalist economy or something. And so, they have these enormous reserves. Now, there's no mystery behind that. Their oil consumption is the same as as it was, you know, before they started doing this. And their reserves are going down. So, they've replaced the imports with reserves. The question is why' they do it? because that's just bailing America out. That's using their reserves to bail America out. So I have a guess on this. It's only a guess. Nobody knows. America cut a deal with China when Trump went over to visit Gi on exactly this issue. Now question is what China got in return. Some speculated has to do with Taiwan, but no one knows. But more importantly, more importantly from our point of view, was the deal indefinite? was the deal. We're going to wind down our reserves in China for as long as it takes you to get the uh situation in the straight resolved. Very unlikely. Much more likely they said the Americans said to them, this is all guess, but I think it's educated guess. The Americans said to them, "We're going to do thisou. We're going to try and get everything resolved." And the Chinese said, "Okay, we'll give you 60 days and we'll absorb it with our oil reserves and you'll give us X in return, whatever that is." Probably something to do with Taiwan. And that's that. So my guess is the Chinese are watching, you know, Vance being interviewed and so on and having the same conversation that we're having right now,
which is what what's going on? Is theou falling apart? this oil price makes no sense. There's also a huge temptation of the Chinese to buy at this limited discount price. As I said, the the real price of a barrel of oil is not $70. I don't believe that. But, you know, it's come down about six 7% or something like that at the margin. You know, the speculators can be shaken out and etc, etc. A little bit of pressure can be put on the market. So, you know, and they're and their reserves are going down. And the Chinese are really conservative about that sort of thing. They don't like doing these big risky gambits of drawing down reserves. The Americans like have been doing that for years since Biden and they see it as irresponsible. So, I think the Chinese are giving them a grace period to try and get this deal sorted out. My guess is it's probably the 60-day time window. I think that's what's going on. But what happens even in that scenario? What happens if the Iranians just say, "Nah, they start watching these interviews and they're like, "What is this?" Like, "What what are we doing? This is all fake." I don't know if it is or not, but like I wouldn't be surprised if those conversations are being had in uh in Thran right now. Now, the interesting counterpoint to that is that Galibath, the fairly hardline um speaker of the house, who's been one of the main point people on the negotiations, is out today making very consiliatory noises, saying, "Oh, no, don't worry, and it's all worthwhile." And everything like that. But if you understand politics, you'll understand that no matter how much of a hardliner you are, if you sign on to the negotiation team, it's really in your interest for those negotiations to work. If you go back to Tyran and you say, "I'm sorry, that was a load of BS. That was a load of nonsense." Like your your political credibility takes a hit, you know, and he's speaker of the house. So, I'm not I wouldn't take that too far. But I I can't imagine unless the Iranians know something that we don't know that they're not looking at this and going like, I don't think this deal is going to going to last. Maybe I'm wrong. That's a lot, man.
Strange times.
It is. It's crazy. I have a feeling you have a glass of whiskey every day. It's like, what the [ __ ] is going on with all this? It doesn't make sense. something's going on. We're being manipulated and I need to make another big bet.
Yeah. I I mean, as I said, look, I think the oil markets the oil markets by definition have been manipulated for years. And the reason for that is because there's a thing called OPEC, right, that's been around since whatever late 60s, early 70s. OPEC's job was to manipulate the oil market, right? They were a cartel. They're cartel. So they form a monopoly on the price of oil and then they adjust production to manipulate the price. That's what OPEC does. And ever since the 70s crisis in 1973 around another war in the Middle East, another war between Israel and its neighbors, the Yonapour war that um in 1973 and the oil embargo by the Saudis and the OPEC countries. Um the United States has been trying to figure out a way to wrestle control over the oil price away from OPEC and they can't do it through production. The US is an enormous oil producer, but it's also an enormous oil consumer. And in markets for all, what you want to be to control the market is what's called a swing producer. And that's a country that produces a lot of oil, but doesn't consume a lot of oil. Country like Saudi Arabia, which doesn't actually have that much consumption because it's got a limited population. You know, it's rich sort of, a lot of people aren't rich. It's an unusual place, but there's lots of surplus oil to send abroad. Now you're a swing producer. Now you're important. Russia's a swing producer, too. So, uh, Venezuela is too for what it's worth, but smaller. Um, so these swing producing producer as well. Yeah,
Emirates. Yeah, most of those Gulf countries are swing producers. And their OPEC thing was how they did it. And the Americans could never out compete them on production for export. That was never ever going to happen. Like not not in a million years. No matter how much fracking or
because of the massive domestic consumption that the US has
Yeah. Exactly. So it was never going to happen. and it made no sense. So what they've been trying to do to counter OPEG is to figure out a way of influencing these futures and spot markets. And so these debates about um manipulation have been going out right back to 2006 2005. There were hearings in Congress about it. Hedge fund guys would go in, not not the not the guys that were doing speculation, people who were invested in airline stocks. You can go back and read these hearings before Congress. They're really interesting. And around the time I'm showing my age now, just after the 2008 financial crisis, all the people who got mad at the banks, Elizabeth Warren, um uh what was his name? The I can't remember the name of the the act that they put through. All those guys were were getting these people who were saying that there was speculation taking place and they were giving them congressional hearings. And I always thought it was pretty credible, but it was very hard to prove. Um so I think what's happened is there there was a very limited capacity to impact the oil price on the part of the US government for a long time but that changed when these uh trading algorithms came in for example I do not think even as late as 2022 they had this capacity
DoddFrank yeah grad and Barney Frank those isn't it so the even as late as 2022 they didn't have this capacity how do I know that because the oil price went bonkers after the Ukraine war and nobody was able to drive down. They
How high did it go? How high did it go?
Oh, 130 or something, didn't it? It went higher than today. And and that wasn't even that bad. That was just a redirection. Do you remember what happened? The the Russians started sending oil that was going to Europe to India. Then the Indians would like stick an Indian made in India sticker on it and send it to the Europeans for a So that was just a rrooting. We never actually lost any physical oil on the market there. It was just a rrooting around sanctions. Now what did happen during that is the Dutch TTF uh natural gas futures in Europe went absolutely haywire in about April I think of 2022 about month and a half six weeks after the war and people freaked out. I remember that week people in markets were freaking out and then there was this big campaign to talk it down and it kind of worked. Now energy prices in Europe remain
what down
the gas futures price in Europe it went bonkers. If people want to go and look up Dutch TTF and TTF and what happened around the time of the Ukraine war now they talked that down showing that
They they had it. They had some level of control over that, and I think lessons have been learned since then. I, I, I've been saying since the Houthi stuff that the oil price is manipulated. Now, the funny thing about when you say that is people will call you crazy, you know, on Twitter and the press or whatever. They won't call you crazy, but they'll go like, "Oh, you're a Zero Hedge guy. You're like a, whatever, like conspiracy theorist." And then, but do you know who doesn't call you crazy? Traders.
So, I'd go and meet people I used to know that work in hedge funds in the city, and I'd say, you know, I think around the time of the Houthi attacks in the Red Sea, 2023, 2024, and they'd I'd say, I think the price has been manipulated, and they go, "It is." We come in on Monday mornings, and there's this huge short position in plays after attacks over the weekend. And they said there's no rationale for doing that. It's the opposite of what you should be doing. There's been attacks on the oil supply. You don't go in on Monday morning and put a giant short in place.
And then I started to figure out they were putting these shorts in place, and it was manipulating the trading algorithms because the algorithms also trade based on the initial short positions at the beginning of the week because that's a big signal for for traders, you know, if because the start of the week determines the the trading of the of the future of the week. So, I've been saying since the Houthi thing that the algorithms have been doing X, Y, and Z, and now everyone's woken up. Well, I'm not saying everyone's woken up to it, but I think it's much more widely, uh, uh, people are willing to think about this now.
>> Yeah, it's been mentioned a lot on my show, but no one's explained it as well as you have, to be honest. Nobody on my show.
>> I'm kind of obsessed. I'm kind of obsessed with it. There is, if you go and dig around, >> if you dig around, there's a Bloomberg article that actually addressed this just after the Houthi crisis. And sometimes the financial journalists are too honest for their own good, and they talk to the to the wrong people in financial markets. And this one said it, they thought it was algorithmic trading. There is an article out there. I It's fascinating.
>> That's wow. Just the concept that algorithmic trading just opens up for the for people that have massive reach and and news outlets and publications to be able to genuinely manipulate the algorithms. That's just a wild thought. That alone is a whole other discussion.
>> I think financial markets are going to break on the back of this. Look, what what was the news out today about Trump's trades, right? Come on.
>> What what news? Sorry.
>> You know, I don't know if you saw that all the today or yesterday, the big financial news is that that Trump has been doing all these trades. 22,000.
>> Oh, yeah. All the money is printed. Yeah, exactly.
>> No, no, but they're trading the market.
>> Yeah. Yeah. Yeah. I know. I I I No, I'm saying I'm not surprised, like he's just printing money through this. But you So, he's just making money.
>> This is going to break the markets. Like people have like financial markets are not going to survive this level of
>> do we know how much money? We know he made a trillion dollars off crypto. Do we know how much he made from these equity trades? All these trades.
>> I don't know. I just saw 22,000 in the first in the first term he did 587 versus 22,000. Who even has time to do 22,000 trades, man? Like what is there a hedge fund running out there or what? Like 22,000 is a lot of trades in what? Two years. He did 22,000 trades in two years.
>> Well, according to the Financial Times headline, I don't know. Maybe I believe them. I mean, I don't
>> just to be clear, this is just his trades, not the not not everyone else is in his orbit. Just to be clear.
>> maybe they're also talking about like his immediate family or something like that. But the level of trading, I mean, the poly the poly market arrests and stuff like that. Like something we something's got really bad. Like I one of my friends who who works in DC um so sometimes says, you know, it's the end of Empire and everything like that, and uh, he says that the the main rule at the end of Empire is to grab everything that's not nailed down. Kind of feels like that, doesn't it?
Man, that's that's fascinating. I really enjoyed this conversation. I'd love to do this again. Um, that was an incredible analysis, and I think your obsession is paying off. I really enjoyed it. I'm I think the audience, I know the audience has as well. I know I know my audience, and these are the discussions they enjoy. Um, that was an incredible explanation, Philip. Really, really enjoyed it, man. Thank you.
>> No, thanks for having me. It's like spread the word.
>> Yeah, I can see I see a relief like way lifted off your shoulders. People are [ __ ] finally after all these years people are waking like a couple of people on Twitter like and our podcast. We have a podcast, Multiplicity. I should probably plug it, but you know, you audience, I hope
>> I hope people, it's a geopolitics and economics, but I just hope people are are yeah, just like this is what's going on, like figure it out, and and something something weird's going to happen. You can't do this forever. This is too weird.
>> Um, just telling my team I want to have you back ASAP. Just one other, I'd love to do an episode talking about um, the way the markets have been not manipulated as how you've just explained it, but the everything that Trump has been doing, all the trades they've been doing, the deals that they've been having. Have you looked into all the different, the Kazakhstani company that they invested in, the deal that they have in Albania? Have you had time to look at all these?
>> I'm familiar with some of them. I mean, some of them are actually quite rational, like from the American interest point of view. The Kazakhstan one is about getting involved in the Middle Corridor and stuff like that. The the physical investment deals are I'm not necessarily opposed to them. I know some of them are controversial in their countries, like the Albanian.
>> The private the private investments, you mean?
>> Yeah, I think they kind of make sense. I I I mean, depending, you know, but there's a rationale to them. No, my issue is that there's some very strange things going on that could literally break the Western financial markets. And we're at a time where the US dollar is like declining, you know, it's really dangerous.
>> What do you mean by this? We're talking about how Trump profited. You know, a lot of people are are are critiquing him for manipulating the price, the the markets, and him benefiting from that, you know, shorting the markets before announcing a deal. Um, and doing the opposite when announcing escalation or or buying up oil futures before striking Iran again, and just playing the markets up, down, up, down. So, that's what people are really talking about. You're saying you're you're concerned it kind of on a deeper level that it could break the entire markets. What do you mean by that?
>> So look, a bunch of people in Trump world messing around with markets, if that's what they're doing, allegedly, as the journalists say, um, that's not going to break markets, right? They only have a limited amount of capital to play with, and they can't truly break the pricing mechanism in markets. I think what it's done though is it's created a culture. It's creating a culture in DC that doing this is okay. And for example, like again, go back to the oil price, right? They're not just I am not accusing the Trump administration of manipulating the oil price to make money, okay? To make money on trades. That is not what's going on. They're manipulating the oil price because they've got themselves into a really sticky geopolitical situation in the Middle East. And the midterms are coming up in November, and they're desperate. That's why. But what has changed is the the culture of this trading and stuff has made them all start thinking like hedge fund managers. And so they're doing these really extreme things that like any economist will tell you that is bonkers, that is going to result in really bad news down the line. And and they're doing it because they it's like short-termism, you know, they've like reverted to full-on short-termist thinking. And who is a more short-term thinking than a day trader? Like no one. The day trader doesn't care about the stock. He doesn't care about GameStop. He doesn't like he doesn't care. He just wants the GameStop stock to go up tomorrow. And so he's reading the Reddit comments on the meme stocks the night before. Now imagine running your economic policy like that. Are you terrified?
>> Yeah.
>> Yeah. Now that's another great explanation. I got it. So they've kind of shifted the entire way foreign policy's conducted and the lenses in which it's conducted.
>> Everything seems super short term, like events driven, like almost like an X algorithm is running things. Scary man.
>> I don't I mean, some of it's kind of like darkly funny, but it's not funny actually. Bloomberg just reported European nations now believe some horm fees are inevitable. Just came in now from Bloomberg. the title. European nations have made peace with the fact that Iran will impose fees in the Strait of Hormuz, viewing it as quote inevitable and urging that Iran does not discriminate regarding which vessels must pay the fee. [ __ ] That's [ __ ] exciting. That's exciting.
>> It is exciting. I mean, you live in interesting, you know, may you live in interesting times. Well, you you got the Chinese curse. Okay, everyone watching got the Chinese curse. So, but you know, it's not the fees. It's not that. It's It's like how long even if they get the strait open, how long does it take to get Middle Eastern oil capacity back up to where it was? That's not simple. It's not simple to turn back on oil wells. Like this stuff is incredibly complicated. We're going to have some sort of an oil shortage. Now, the only question is how bad it is. And here's a really important point to understand. To the extent that the Trump administration succeeds in driving down the oil price with this with this funny money stuff, right? That just increases demand for oil. If the price is lower, demand goes up, right? Everyone's taking an economic spa. So, how what does that do? So, if they get 10%, let's say they get gasoline prices down at the pump by 10%. Then you're going to buy more gasoline than you would if it was 10% higher. But there's limited amounts of gasoline. So, what happens? Inventories, storage. So, what they're actually doing, the SPR, what the US are doing by driving down the the oil price is they're subsidizing the rest of the world with their SPR. They're sending out cheap barrels of oil, discount, double discount, 30% off, sending it out from their SPR for what, a couple of headlines. It's not.
>> Yes.
>> that's goes back to your point. Very, very, very short-term thinking. Like complete opposite of China.
>> Complete opposite. And who wins in that game?
>> Exactly. Exactly. Um, Phillip, love it. We're going to do this again, man. Really appreciate your time. Thank you.
>> Good fun. Thanks a lot, Mario. Cheers.
>> Take care, Phillip. Um, all right, guys. I'll be going live in a few seconds or a few minutes with Alex Christophoru to talk about Ukraine. But, um, do let me know in the comments. U probably these are the comments I'm going to check the most today of what you think of this conversation. Um, I loved it. I really enjoyed it. He's just incredible at um, you know, objectively analyzing things, not in a contrarian way, but in a realistic way. It's probably the best way I could describe it, but explaining it in a very digestible way as well. So, I enjoyed this. Um, I love the way he analyzes geopolitical situations, the lens in which he does these analyses. So, um, I would love to have him back on the show to have these conversations because I learned a lot. So, let me know what you think in the comments. Otherwise, I'll see you with Alex Christophoru in a couple of minutes. Bye guys.