Please see the previous game plan articles:

August 25, Sept 1, Sept 8, Sept 23, Sept 30, Oct 12, Oct 19

Wow, the oil market is changing fast. It’s only been a week since I wrote my last game plan article, and the bullish price action I noted in oil has translated into reality. Brent hit a new high on Friday at $117.41, and while prices have pulled back over the last 2 days, I don’t see that trend persisting.

In the last game plan article, I issued two (not) trade alerts in the chat (personal portfolio). One trade was to go long BNO Nov 6 $70 strike calls for $1.70. I bought 230 of them and subsequently sold 80 of them last Friday (also alerted to paid subs in the chat) at $3.57. I sold them to recover 73% of the original cost basis and let the rest ride.

It was a good short-term trade, and as Le Shrub always says, “We should give thanks.”

So why am I writing another oil trading game plan article just a week after the last one? Because I think we are approaching a critical juncture in the oil market. I want to share what I’m hearing on the oil front and how it could affect the oil trade. I also want to share my thinking on how this oil trade unfolds.

Read more

I honestly don’t know what I’d do without open-source intelligence these days. The Iran War so far has been filled with fake news, fake peace deal headlines that without OSINT accounts keeping track of tankers, flight data, and military movements, it would be difficult to have any conviction.

For that, I’m grateful for X and the information shared there by the numerous contributors that I follow. It is incredible what a few individuals with the ambition to find truth can get these days.

With that said, the intel I’ve seen over the past week points to imminent escalation.

Read more

Please see the previous game plan articles:

August 25, Sept 1, Sept 8, Sept 23, Sept 30, Oct 12

Every morning, I look in the mirror and remind myself that the market will always be smarter than me. We rarely get an opportunity so disconnected from reality that we can profit from it.

For anyone attuned to the price action in oil, the trading over the past week has been nothing but amazing to watch. Every day after the CME closed, oil would grind lower, usually 1-2%, and then finish the next day in the green.

I haven’t seen price action this bullish in all my years following oil. I am sure other veteran traders can tell you the same, and it speaks volumes about how tight the setup is going forward.

Now there are a few reasons why I’m writing another game plan article just a week after the last one.

• I put on new “not trade alerts” trades (personal portfolio).

• My strategy is shifting slightly with new signals to watch for.

New Trades

Read more

At HFIR, our approach is to develop a thesis, test it, set post-mortem signals, and then pivot if needed.

In April, when I wrote the breaking point article on the oil market, I said that it was impossible to know where oil prices peak because 1) we are not certain about the sensitivity of demand to rising prices and 2) how long the conflict would last.

Now that we are nearly 8 months into this Iran war, we have a glimpse of just how well US oil demand is holding up:

There is something quite remarkable about this implied US oil demand figure. For those of you not attuned to the data, product supplied is used as a proxy for demand, but it reflects not just US oil demand, but the rest of the world.

Given the petroleum product shortage we are seeing across the globe, US refineries have been operating as close to max as they can. As a result, anything that’s not being used domestically is being exported. And as I’ve said before, there has to be demand for there to be exports.

Looking solely at this metric, which is better at capturing implied US oil demand better than anything else in the market, it’s hard to come to the “demand destruction” is here thesis.

In fact, I would urge you to look at this 2008 implied US oil demand chart to see the stark difference:

For all of the complaints people have about the EIA, it is truly the only energy agency in the world that provides these transparent datasets to the investment community.

Based purely on historical analogs, we are nowhere near any “demand destruction” levels, at least for the developed economies. IEA seems to think that the world has already lost 2.5 million b/d, and China is 0.73 million b/d of that.

Source: IEA

Source: IEA

I would partially agree with the IEA’s assessment here given that we know ~0.75 million b/d of 2025 demand came from China’s SPR buying. But to say that the rest of the world lost the same amount of demand as we did during the 2008 to 2009 great financial crisis is a bit of a stretch.

What does this say about how high oil prices can go?

Read more

Please see the chronological order of the oil trade game plan write-ups:

August 25, Sept 1, Sept 8, Sept 23, Sept 30

In my last game plan article, I explained that:

• All intervention policies were exhausted (US and Europe SPR, and fake peace-deal headlines).

• I noted that the possibility of a deal was very low, and if the US did not concede to Iran’s demands, we would see escalation in the Oman Lane. We are seeing that now.

• Finally, from a technical perspective, Brent and WTI have finished the technical consolidation and are now moving higher. I alerted readers that I bought more BNO January calls.

In today’s report, I will be a bit more extensive. I want to give you a high-level overview of how I think this oil trade will play out. Because this conflict is all-or-nothing, I think it is reasonable to assume a longer timeline and what that means for oil.

Let’s get started.

What’s the latest?

Read more

Stationary tankers have not been attacked since the start of the Iran war. Why? This is a dramatic step up the escalation ladder. Following the heightened attacks on tankers transiting the Oman Lane in the past few days, Iran has now attacked two stationary tankers: one near Qatar and one near the Fujairah ship-to-ship hub.

According to MerruX, whom I highly recommend you follow for real-time intelligence on the Strait of Hormuz situation, a large oil spill was observed near Fujairah.

He also created a pretty cool site called overwatchx.app.

The latest escalation matters because it is one step closer to escalation in Fujairah. Like the Strait of Hormuz card, an escalation to Fujairah is a card you can’t use again. Once you play it, you have to play it to the end.

The oil market implication here is that with the Oman Lane now contributing to ~14 million b/d of crude + product flow, any disruption here will immediately impact physical oil balances. Interestingly, if inefficient tanker transits shift from the oil shuttle trade to delivering crude elsewhere, tanker rates will fall, giving crude more room to rally.

At HFIR, we are also fortunate to have subscribers who are actually involved in the Oman Lane shuttle trade themselves, and based on the information they have shared with us, the current situation is completely unsustainable.

Read more

On Sept 28, I wrote an article titled, “The Oman Lane Flow Is Giving The Oil Market A False Sense Of Stability.” Market participants began pointing out that Oman Lane flow was reaching “pre-war” levels. Instead of asking why oil prices remained so elevated or why the physical market remained in distress, most market participants attributed elevated oil prices to persistent tanker-attack risks.

That was the wrong read.

To add salt to the wound, I think the worst market take so far this year is that Iran is losing control because transit flows increased. Never mind the fact that China intervened to allow the Saudis to export more barrels from the East, but this diplomatic intervention somehow translating into a loss of control by Iran is beyond me.

What’s clear from the geopolitical developments over the past week is that control is being “reasserted” in the Strait of Hormuz. OSINT accounts point to a significant increase in tanker attacks. In fact, UKMTO reported that since the beginning of October, 10 tankers have been attacked.

More importantly, if you pay attention to the tanker market, old VLCCs have seen a material price increase. Why? Countries like the UAE are buying old tankers and hoping to use them for the shuttle runs. In the event of an attack, cheaper and older tankers can be discarded, while the new ones will be reserved for longer hauls.

But what’s clear from this phenomenon is that it’s unsustainable. Iran is escalating the tanker attacks, which will bleed the available fleet dry. Based on preliminary Kpler data and loading, it is clear to me that we’ve already seen peak Hormuz.

Read more

China announced today that it is canceling all petroleum product exports outside Hong Kong and Macau, effective immediately. No duration for the export ban was announced.

If you went through the trauma of March to July, you may remember that China’s lack of crude buying and the start of the oil shuttle trade marked the beginning of the big drop in crude.

I mean, who can forget? Everyone went through the mental exercise of why China wasn’t buying crude. Why are China’s crude inventories not dropping?

Yes, it was a painful period for sure, and this announcement is bringing back some bad memories.

But this isn’t March and China’s elevated product inventories, one of the key reasons for the lack of crude buying, are no longer there to support the domestic market.

Please keep in mind that accurate Chinese petroleum product inventories are sparse. China does not disclose its commercial or SPR inventories to the rest of the world. This is likely due to national security reasons.

Since the start of the Iran war, China’s refineries have throttled back meaningfully as crude imports fell. With persistently low refinery runs relative to the past and nonexistent demand destruction, China’s product inventories are now sitting at decade lows.

China has exhausted most of the levers it used at the beginning of the war. As I have detailed in the past, China is the only place on Earth with excess refining capacity, so the export ban will make an already horrendous global product situation even worse today. If the US announces a diesel export ban on top of that, it would send global diesel prices through the roof.

From a high-level perspective, the timing of this export ban, coupled with additional attacks from Iran on the Oman lane, signals that no deal was reached with the US.

Read more

Please see the chronological order of the oil trade game plan write-ups:

Here’s My Game Plan For The Oil Trade (August 25)

Here’s My Game Plan For The Oil Trade (Sept 1)

Here’s My Game Plan For The Oil Trade (Sept 8)

Here’s My Game Plan For The Oil Trade (Sept 23)

The final TACO is complete. The Department of Energy today announced it will release the remaining 40 million bbls from the SPR for November and December delivery.

As I wrote in my previous game plan articles, the timeline to push oil prices lower was the end of September into early October. In addition to the SPR release, the Trump team has attempted 3 consecutive VaR shock strategies at precisely 11:45 AM EST. While crude oil did move lower today, I think it is temporary, and I will explain why.

In essence, everything we planned is playing out, and the technical reset is almost complete.

What am I doing?

Read more

Then we reached the June MOU, when another group thought the war was over and that the Strait of Hormuz would return to normal.

Wrong, and once again, that group vanished into the abyss.

Now a new group has emerged: the Iran-has-lost-control group.

They are equipped with tanker data ready to dispel any nonsense about the oil math. “Look at my data,” as they shout loudly from the mountaintops.

Yes, anyone with eyeballs can see how much the Oman lane shuttle trade is flowing.

Yes, it’s no surprise to anyone who actually followed the data, as I wrote 2 weeks ago, that the Saudis are going to ramp up exports in the East, so the Oman lane is going to flow ~12 million b/d.

But as Mark Twain famously said, “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.“

Beware of people equipped with data. That warning goes for me as well. If there’s one thing I’ve learned the hard way in investing and trading, it’s that an overreliance on data does more harm than good.

Yes, I understand that the steady increase in oil flow in the Oman lane despite daily tanker attacks implies that Iran is losing control. But when you actually look at the data and see how much of that oil flow from the Saudis is going to China, you have to pause and wonder: did they?

Let me enlighten you.

They did not.

Read more

• Global oil product inventories are near operational minimums. It’s low everywhere.

• Global ex-China crude oil storage is falling and will reach operational minimums by year-end.

We are now almost 7 months into this Iran war; global crude exports are currently down 3.2 million b/d y-o-y.

Based on the implied crude storage deficit, we are currently seeing a 3 million b/d deficit.

In simple terms, the drop in crude exports is translating almost directly into a drop in onshore crude oil inventories.

To better understand the crude oil math, we look at these 3 variables:

Read more

The Saudi and Houthi situation is escalating. Crude oil prices spiked following last week’s East-to-West pipeline attack by the Houthis. On Friday, oil traders learned that shipments were being canceled to Europe, and Reuters reported it today.

So what’s going on?

• East-to-West pipeline is rumored to be out for a few weeks (4-6). Shipments as late as early November have been canceled.

• Tankers set to load Saudi crude have started moving toward the US.

• US crude exports are about to surge just as refineries go into maintenance season. US commercial crude storage will hit operational minimums in mid-November if no SPR release is announced.

• Yanbu crude loading will drop to zero by the end of this week as onshore storage runs out. Saudi will prioritize crude exports in the East (using the shuttle trade through the Oman lane).

Geopolitical Situation

The current geopolitical backdrop is very tense. I have followed an OSINT account called MenchOsint, and he is excellent. I highly recommend him.

In his latest update, you can see how many territories the Houthis have gained.

Source: MenchOsint

In particular, the Houthis gained control of the port of Mokha, which gives them more coverage of the Bab Al-Mandeb. This was a vital port, as it now gives the Houthis more visibility and operational dominance over the Strait.

For the Saudis, they have relied on their air force, conducting 58 airstrikes on September 13, 54 airstrikes yesterday, and 52 airstrikes today.

So far, the back-and-forth has only led to further escalation, which is likely to continue. It is anyone’s guess whether more energy infrastructure will be targeted, but the eastern side of Saudi Arabia is heavily guarded, so it will be difficult to penetrate the defenses.

That’s where we are on the geopolitical front.

What about the oil math?

Read more

Crude, gasoline, and diesel are all starting to squeeze into the “wall” territory. The market, rightly so, is starting to price in prolonged supply disruption as the geopolitical backdrop escalates.

But as we have seen time and time again throughout this conflict, “they,” or the Trump administration, is a real adversary to higher oil prices. From jawboning with fake news about an imminent peace deal to releasing the largest SPR in history, they will try yet again to suppress oil prices.

Why? Polymarket now has a potential Democratic sweep at 50%.

A Republican sweep is now 13%, and a Democratic victory in the House is at 87%.

Time is ticking against Trump.

So how will they do that this time around?

Read more

I’m going to stick to the tradition of updating you all on my real-time thoughts on the oil trade. Please see the write-ups from August 24 and Sept 1:

August 24: Here’s My Game Plan For The Oil Trade

Sept 1: Here’s My Game Plan For The Oil Trade (Sept 1 Update)

As many of you may know, I had significant exposure to the September 18 $55 strike BNO calls. A lot, so my updates focused on those near-term call options.

With 10 days left on those options, the margin for error was close to zero. BNO is currently trading at $57.44, which means the call options are in the money. So even a small decline would materially reduce the options’ value. Given this backdrop, the precarious timing on the sentiment front was a cause for alarm:

Jim Cramer, infamously known for being so bad that you can make money trading the opposite of his calls, wrote that there’s nothing to stop the oil trade.

My goodness. This is on par with The Economist’s headcover.

But all sentiment (jokes) aside, this is how I’m thinking about it.

The oil long trade is far from over. That’s the starting point in understanding why I took the September call exposures off. I want to be in the November BNO strikes. Those are currently unavailable.

Read more

However, something alarming showed up in both the May and June EIA petroleum supply monthly data.

In April’s PSM data, US crude oil production registered a staggering 13.967 million b/d with a positive adjustment of 0.35 million b/d. This put the “real” US crude oil production figure at 14.317 million b/d.

But immediately in May and June, the “real” US crude oil production figure fell to 13.456 and 13.512 million b/d, respectively.

This puts the rolling 3-month US crude oil production figure at 13.76 million b/d.

Here’s where things get interesting...

The 3 months leading up to the end of 2025 averaged 13.836 million b/d.

We are currently down versus the end of 2025. This is with crude oil prices doing materially better than everyone’s expectations at the start of the year!

Wow, what’s going on?

Gas-to-Oil Ratio

We know from individual producer data that Exxon was a key driver of US crude oil production growth in 2025. In particular, the Delaware Basin was the No. 1 reason it showed meaningful growth in the Permian.

But that growth story may be behind us.

Looking at our more granular model, associated gas production growth is clearly outpacing crude oil production growth. EIA reported that June Lower 48 gas production averaged over ~112 Bcf/d, which is ~2 Bcf/d higher than our expectations for June.

And using our real-time US crude oil production chart, it is evident that we have not seen any material growth since H2 2025. In fact, I would argue that we are actually rolling over despite my disbelief.

Now, could this be bad data?

Yes and no.

Yes in the sense that we should wait for more data to confirm the disappointing US crude oil production trajectory.

No in the sense that we’ve already had 8 months of data that’s showing a material slowdown in US shale.

I think with more Permian gas takeaway capacity coming online by the end of the year, I would want to see what happens to crude production. If we still see an overall flattish picture by year-end despite the oil macro backdrop, then we can be much more certain that the end of US shale is here.

But one conclusion we can already draw from the data we are seeing is that there’s not much growth left for the US.

In my forecast, I have ~14.1 million b/d for year-end, +350k b/d vs today.

Either way, this is a rounding error in the grand scheme of things compared with the supply disruption we are seeing in the Middle East. But the end of US shale production growth has an important ramification for the non-OPEC supply growth story.

We are near the end of it, not the beginning.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of USO, UCO, BNO either through stock ownership, options, or other derivatives.

In this update, I will focus only on short-term oil trades. I am not making any portfolio changes to our energy long holdings. We won’t change our oil long ETFs. This article is for those with option exposure over the next 3 weeks.e

In last week’s update, I wrote the following 4 scenarios:

• Scenario 1: more of the same.

• Scenario 2: Iran escalates to Fujairah.

• Scenario 3: Iran attempts to break the Naval blockade.

• Scenario 4: The US or Iran capitulates.

Now that the US has kick-started the military back-and-forth again, this article offers my updated thoughts on how I’m thinking about it.

What am I doing?

I’m looking at this from 4 angles:

• Geopolitical

• Fundamental

• Technical

• Positioning

Geopolitically, we’re back to tit-for-tat military action like what we saw in July, which ended with Brent surpassing $100/bbl.

The US playbook is to keep doing these limited strikes to temporarily knock out Iranian capabilities to stop the shuttle trade in the Oman lane. The strikes will continue for a while longer, which means no one will step in to short the oil market.

For the Iranians, will they tolerate this playbook? Or will they retaliate more than the July strikes?

I don’t know, but the escalation pattern will determine just how much upside we have in crude. If Iran’s escalation dramatically worsens the Oman flow, then yes, crude could surge much higher than we think.

Read more

I don’t know about you, but I never want to eat another taco in my life again. Just the sight of a taco makes me want to puke. I think I’ve had enough TACOs (Trump always chickens out) over the last 5 months.

As I wrote on X today:

The Trump administration has played this playbook over and over again since March, and it’s worked 100% of the time.

Bait speculators to buy into oil long positions ahead of some self-imposed deadline (civilization-ending bombing or the latest all-out economic fury). Announce an extension or a nothingburger like the one we saw from Bessent, then immediately run an “imminent” peace-deal headline from the usual suspects: Axios, Pakistan, Al Arabiya, US officials, and a new participant today, RIA Novosti.

Of course, today’s leaked headline contained the usual language:

Neither Washington nor Tehran has confirmed the agreement, while Oman and Iran separately proposed a temporary mechanism to restore Strait traffic.

But once again, the damage was done. The headline came out after CME closed, and oil fell another $1.50/bbl.

Welcome to oil trading, where the world’s most powerful government is against you.

So the question is: how many TACOs can you eat?

Unsurprisingly, despite Iran and Oman’s announcement proposing a temporary mechanism to restore Strait of Hormuz traffic, Iran’s deputy foreign minister clarified that the US must meet all conditions in the MOU (from June) before the Strait of Hormuz could reopen.

In case you forgot, this includes:

• Lebanon

• Sanctions lifted

• Sanctioned funds returned

Oh, and of course, the Strait of Hormuz remaining in Iran’s control.

How can I forget... Silly me.

But if you are like me, you must be sick of these TACOs. I mean, at some point, the oil math should like... matter, right?

The Shuttle Trade

By this point in the conflict, everyone and their grandma knows about the shuttle trade. Mainstream media describes this as dark transits shuttling crude oil and petroleum products through the Oman corridor under the military protection of the US Navy.

So just how much oil is flowing through this Oman lane?

I have written before that if you track all the increases in OPEC+ crude exports since March, the Oman lane is about ~4.6 to ~5 million b/d.

If you track all of the flows leaving the Gulf of Oman, it’s about ~7 to ~8 million b/d. Now keep in mind this includes Fujairah (1.8 million b/d) and Oman (0.8 million b/d).

Now, if you paid attention to Chris Wright, the Energy Secretary, you would think it’s around ~9 million b/d.

This is where people are getting confused. Who is right?

I’ll be the first to tell you I don’t know. The US has not been exactly honest up to this point so far in the war. I mean, we literally have the Department of War talking about how all of Iran’s missile capabilities have been eliminated, only to get blasted repeatedly by the very same eliminated missiles in July.

And as for Iran, they have not been honest either. It is clear they don’t control the Strait of Hormuz or at least not to the extent they are describing it to be.

But what I do know is this: visible, trackable global oil inventory figures are showing a draw of ~3 million b/d.

Read more

In this article, I’ll share my thoughts on how I plan to navigate the portfolio. I’m going to break this up into 4 buckets:

• Short and medium-term oil trades

• Longer-term (12+ months) and energy stocks

We will go in reverse order here so you can get a sense of where I’m coming from.

Longer-Term

If you take a step back and look at the broader oil market setup, a few things should stand out:

• Consensus continues to expect a surplus of ~4 million b/d “if” the Strait of Hormuz goes back to normal. Sell-side analysts assume traffic doesn’t need to return to normal. With the Oman lane operating at 5-6 million b/d, Iran lane flow only needs to be ~4 million b/d (or 2 VLCCs a day) for the flows to resume to normal.

• In a +4 million b/d surplus, the loss in global oil inventories will take ~550 days to replenish (~2.2 billion bbls lost). If you assume half of the surplus will make its way to visible oil inventories, it will take 300 days to replenish (2 million b/d on 600 million bbls). And that’s assuming we go back to the 2025 highs.

In essence, if you assume some path back to normality, it would take 1-2 years to replenish inventories to the level that will push Brent back into the $60s. If you assume a long enough time horizon, this explains in part why the consensus remains so bearish on oil and why people think this is a transitory event.

But it’s not transitory... obviously

Read more

I’ll try to make your life as easy as possible with this article. There’s a lot of information out there, and I don’t want to waste your time.

For those of you who want a deep dive into the macro oil thesis, I recommend you read the two-part publication by Jon Costello, head of research for HFIR:

(Public) The Oil Shortage The Market Is Still Underpricing, Part I

The Oil Shortage The Market Is Still Underpricing, Part II

Here’s a brief recap of the oil math:

• Draws are currently concentrated in oil-on-water and China onshore crude inventories.

• Global product inventories remain low and are drawing counterseasonally.

• OECD crude inventories are seeing builds but will reverse to draws.

• Oman Lane is transiting ~5 million b/d of crude, or 2.5 VLCCs a day.

• The global oil deficit is clocked at ~3 million b/d, with visible oil inventories drawing ~1.5 million b/d.

On the geopolitical side, I have argued the following:

• We are at a turning point. Maximum political pressure could be applied today if Iran escalates.

• Oman Lane transits remain an issue for the Iranians as the ~5 million b/d of crude flow is dampening the potential crude draws.

• Either Iran can escalate the Oman Lane (more tanker attacks) or it can escalate to Fujairah.

• UAE announced yesterday that it is cutting off all diplomatic ties and trade relations with Iran. It’s now or never.

My Thoughts

Read more

By: Jon Costello

Please read Part 1, “(Public) The Oil Shortage: The Market Is Still Underpricing, Part I.”

In Part I, I argued that the global oil market is considerably tighter than current crude prices suggest, with the shortage so far concealed by inventory withdrawals, strategic reserve releases, reduced Chinese imports and other temporary buffers. If that shortage persists, its consequences extend well beyond the price of oil.

In this second and final part, I examine four of the most important consequences I believe could follow from a prolonged disruption: a shift in power within the global oil market, a lengthy and potentially expensive process of rebuilding depleted inventories, the possibility of an oil-shortage recession, and the implications of such a downturn for the stock market. I then consider what these risks mean for investors and how I believe they should be approached.

Read more