By: Wilson
I don’t know about you, but I have never seen a more polarizing commodity than oil today.
Ok, maybe I lied: silver, gold, uranium...
Commodities tend to bring out some of the more extreme personalities in the investing world. But then again, commodities with loyal followers who eat bouts of shit every few months tend to do that. I guess you can say that with stocks as well.
But not to digress, my point is that with the current oil rally, I have never seen the bears and bulls so at odds. If you take a step back, and you told anyone a year ago that the Strait of Hormuz has been semi-closed for 6 months and asked them what the price of crude oil would be, they wouldn’t have said $100-$110. Unless, of course, that person is a bear like Robin Brooks, who just doesn’t know what he’s talking about half the time.
The point is that the oil long trade was obvious, but markets have a way of tormenting those who treat it as such. Unlike previous oil rallies that fizzled away, like the 2022 Ukraine/Russia war, this oil trade refuses to fizzle away.
Why?
Because the Strait of Hormuz issue is an all-or-nothing affair. Either Iran controls it, or it doesn’t. But then again, we are kind of living in this weird world right now where Iran is firing at tankers, and the US continues to escort tankers out.
So I guess there is a middle ground? Sure, but it’s not sustainable.
What is clear to me is that this oil rally is extremely hated. I think by this point, everyone who watches price action can probably figure that if oil continues to rally from here, the broader market won’t do well, and Treasury yields will continue to rise. At some point, if the oil rally gets too intense, the global economy will go into depression, and oil demand will fall.
The Trump administration has done every conceivable maneuver thus far to tamper with the oil rally. It first resorted to fake peace-deal headlines, then SPR releases, then more fake deal headlines. Now, it is out of ammo on the TACO tactic. The last remaining one is to use what remains of the US Strategic Petroleum Reserve. After that, if the conflict still isn’t resolved, it’s either more escalation or total capitulation.
But what’s funny about the sentiment I’m seeing on social media today, and among my subscribers, is that even the bulls just hate oil with a passion. Never mind the oil bears that are getting their faces pounded in. The bulls themselves are hating the very trade that was obvious to everyone at the start.
Speaking purely from a sentiment standpoint, I have seen more people quit oil trading in the past week than before, not because the oil trade went wrong, but because they have made money and never want to touch it again.