Transcription
There's a report that the Department of War has a minimum threshold. They want to see 243 million barrels left in there and you have to make some assumptions about what that means. There's only 331 right now. So that only leaves 88 million barrels to go at current draw downs rate. That's 10 weeks.
But they always have to leave 10% in there. So when you subtract the 10% which is of the total capacity, which is 713 million barrels, that's another 71 missing. That means there's only two weeks left. um that they can draw down at current rates of about 9 million barrels per week. If the Department of War has a say and says, "No, we have to leave something in reserve just in case." Right, for true emergencies, not gas approaching $4.50 a gallon, that's not an actual emergency. I mean, going to war with China, that would be an emergency, right? So, that that's one level.
Um, if the Department of War doesn't have a minimum floor and doesn't really care, and I can't imagine that they wouldn't, uh, then we'll we probably go to about October 4th. So the actual number we can manage here in the United States is somewhere between those two numbers, two weeks, 14 weeks, you pick um, you know, what assumptions you want to make. Now they could always draw that down more slowly or even more quickly. It's max draw down rate is about 4 million barrels a day and we're doing about 1.4ish right now. 1.3. Are we still drawing it down now or we've slowed, we've stopped, we still? We'll see what the next report is. Last week was a pretty hefty draw down. Um, so it looks like it's going to start slowing down because they've had fewer bids for the oil that they wanted to release from it. Um, so we'll see how that how that plays out. But I think that's the ticking clock in this story. Iran can wait. They know they can wait. All they have to do is make sure that, you know, some x million barrels per day is missing coming out of that strait. And the pressure is now on the United States side of the court.
Yeah. Well, a good time now is to talk about the massive drop in the price of oil. Um, it seems to have given Trump a bit of breathing room. Um, the ability to take more risks again. You know, when the when the price of oils at $100, $110, you know, $105, $110 a barrel. Trump just wants to do anything he can to deescalate and would think twice and thrice before deciding to to escalate in any way. When oil goes below $70, you know, that leeway is there. So, a few questions. First, do you agree with this point? But more importantly, why do you think oil is at that level? And let's talk about the elephant in the room, China. The reason that oil dropped so quickly and the reason that oil didn't hit $150, $200 a barrel is because of the drop in Chinese demand. What did China do? Did they use their strategic reserves? Why did Trump convince them in the meeting they had um the the Trump meeting in this China visit? What happened there? And what's happening right now? Why are they still not buying up a lot of that oil that is floating for such a cheap price?
All right, [snorts] two issues here. So, let's talk about the Chinese situation first. So, they didn't reduce their demand, they reduced their imports. So, their domestic demand was probably unchanged, right? They continued to burn through stockpiles and and it's they don't really have a strategic stockpile. That's the government's and then, you know, corporations or industries, commercial inventories uh on the other side. It's all one thing, right? So, uh, when we talk about their inventories, I've always assumed it's just all adding up all the stuff they've got there because it's all kind of belongs to the state, right? Um, so but they did take their imports down 4.4 million barrels a day in the last month and that's a huge amount. And we know that Trump went over there with a bunch of dignitaries from our corporate world and and so they must have been some quid pro quo. The quid will reduce our imports.
They must have gotten something for that. We don't know what yet, but they have to have, right? Taiwan that wasn't free to do with Taiwan. Something to do with Taiwan. Maybe. Yeah. Yep. Probably. What else could it be? So, we Well, we saw just a week after that trade delegation that the United States suspended arm sales to Taiwan, whatever that's worth. Exactly. Right. Exactly. So, we'll see. So, that's on one side.
The other side is that um uh right now when you look at the structure of the oil market, all of our markets here in the West, that would be London, New York, um, you know, what we're really looking at is they're paper markets, right? So it's entirely possible for people who have deep pockets and who are willing to sell short paper barrels of oil to drive the price down. They do this with every single commodity out there. They've done it for years with gold, with silver, but I didn't think they could do it with oil, but the data is pretty clear right now. So, managed money is a group of participants, and they are now the most bearish on oil they've ever been. They hold about $19 billion of shorts on the Brent contract alone when the normal number would be bouncing between two and five, right? So, it's like this massive increase in that. Our prime ETF for oil, USO, has 93% of its total outstanding float. All the shares out are short right now. This isn't just like kind of short. We're talking GameStop level short. Like this is like if it goes the other way, mad scramble. So the question is, well, who's doing all this shorting? How do
I miss it? What are they? Sorry to interrupt you. What what are they shorting? I didn't understand.
So there's an ETF out there with a designation USO. Okay. And that tracks the price of oil. It doesn't physically hold oil, but it tracks the price of oil. Um, got it. And so there are people out there who whoever, if we had access to the data, we'd know. But investors, speculators are now have shorted practically the entirety of that. All the shares outstanding. If there were 100 shares outstanding, 93 of those are short right now.
That's wild. Yeah, it's it's massive massive concentration of short. So the question arises, how do you get max bearish oil in this environment? You know, and as we've mentioned before, be incomplete if we didn't mention Russia under a lot of technical difficulties trying to keep its oil going with all these successful attacks by Ukraine on its oil infrastructure. And that that alone, just those attacks alone in prior years would have shot the price of oil up. So there's something else going on. I'm in the camp that believes there's an invisible hand at play here. um that this is something that our government uses markets as signaling devices at this point in time and that they do intervene uh and it's belief I hold but been watching them for a long time. This is odd. How would they intervene? So you're saying that's using what money?
Maybe Elon's magic money machines that we talked about, [laughter] right? So you I don't know there's Go ahead because there's something something just doesn't make sense.
Well, no, it doesn't because we we know demand isn't down. Demand, the price of oil right now or gasoline, petrol, you know, jet fuel at the pump is not high enough right now to drop demand. So demand is staying very, very high as if there was no war going on. But supplies were missing still 8, 9 million barrels a day. We have this little flush of oil that's going to come out of the the Gulf, but that's like a one-time flush. And by the way, a lot of evidence suggests that the tankers that are leaving are heading for China right now, and it's mostly Iranian oil that they've allowed through. Um, so we got that going on, but that's it. So, we're still short many millions of barrels of oil per day. The price should be skyrocketing. Inventories are declining. That should be sending price signals, and it hasn't so far. But if that goes on further, we just sail straight into a shortage uh at max speed at some point.
What's that saying? It's like it it happens slowly but then suddenly or something along those lines like we're like it's like things are just unraveling. Something's just happening slowly, slowly. It's like '08 financial crisis. I remember things are looking bad. Things are looking bad. It's going to happen. It's going to happen. It's going to happen. It's okay. Is it going to happen? Why isn't it happening? Why isn't it happen? And boom, it implodes. I just feel like something similar is happening with with energy markets because the Iranians will probably be looking at the price of oil saying, "What the hell went on? We just opened the strait. We're still attacking ships every few days. On the brink of collapse yet oil prices collapsing. Did we do a shitty deal? There's breathing space for Trump. Something's happening or they might see it being also manipulated. Like let's just hold off for a bit and let things unravel. They might even play a role in letting it unravel. You know what? Let's cause the Strait of Hormuz to close. Let's strike a few ships for whatever reason because they're going through the Omani side and let's see if the price of oil really is going to be below $70 because it doesn't add up or strategic reserves are weeks away or from from just going to zero.
Yeah. Look, what one of the things we know for sure is that one of the things Trump cares about most and really focuses on is the stock market and also the price of oil. I mean, he talks about them all the time. So, it will not have escaped Iranian attention. In fact, it hasn't. Golly has made direct statements about this that, oh, Trump seems to care about his precious market. So, they know that's his his weak point. They know that's what he's focusing on. So, if you're smart and strategic, like we know the Iranians are, I would just let us continue doing what we're doing, holding the price of oil down for political purposes, watching our inventories drain. You just let that clock run as long as possible, and then you pull the plug on the whole thing. And if you do that, the United States really doesn't have any reserves to rely on at that point in time. There's there's nothing to fall back on. It would be silly for us to do that, to drain our reserves down without a clear plan for how we're going to exit. Um, but if we do that, if we drain our reserves down and then re-escalate and the strait gets closed down, I that's going to be very bad for US markets, for um, price of oil, for all kinds of things. Jeff Curry must have echoed this, right? Yeah, Jeff is Jeff obviously he's been very bullish on the price of oil. So, he's a bit stunned by how the price collapsed, but he also feels there's something sinister and he's he's really looking at China. He doesn't know what the hell's going on in China. For him, it just doesn't make sense why China is not buying up importing more oil where there isn't a spike there with these current prices. He thinks they might have used some of their reserves even though it doesn't show show in the satellite images. They're very secretive about these things. They're secretive about most things. So he thinks they use some reserves, I think underground reserves or hidden reserves, something along those lines. But more importantly, he said, "Look, that that one concerns me less on how they were able to not why they didn't buy up the oil when the price was high, but now the price is low. Why are we seeing a spike in imports?