The Oil Shock Is About To Explode
In a Nutshell
The Strait of Hormuz closure has cut 8-13 million barrels of daily global oil supply (15-20% offline), far exceeding spare capacity, creating a massive paper oil price ($100/barrel) vs. physical ($130-160/barrel) gap that will soon converge as contracts force buybacks at real-world rates. Asia faces immediate shortages with emergencies and shutdowns, followed by Africa/Australia/Europe, then the US by late April, triggering inflation, food/fertilizer crises, bond yield spikes, and recession worse than 1973/1990 oil shocks. Markets remain disconnected with stocks at highs despite consumer sentiment lows; physical reality will dominate, draining reserves and hiking gas/grocery prices.
These notes were generated by AI and may contain inaccuracies.
Somebody shorted the oil market by hundreds of millions of dollars exactly 20 minutes before Trump announced everything was going to be great. This has happened at least three times since the war began, forming a pattern. The back-and-forth about the Strait of Hormuz being open or closed manipulates stock markets. Last Friday, the Strait was said to be open, causing paper oil prices to drop and markets to rally to a new all-time high. Over the weekend, it was revealed the Strait remains closed, with ships routed back and no ships allowed to pass.
A virus is infecting the world's gas infrastructure. Dozens of energy pipelines have caught fire or exploded since March across the world. Due to restricted energy flow, warnings of a bad recession emerge. The International Monetary Fund warns of a worldwide recession if the Middle East war doesn't end soon, with energy and food prices spiking and stunting global economic growth.
The US imports more crude oil than it exports: 6.3 million barrels per day in, 4.1 million out, net importer of 2.2 million barrels daily. This confusion causes oil prices to show two numbers: paper price and real-world physical delivery price, with a $35 gap—the biggest ever recorded.
Brent futures (paper price) at around $100/barrel. Dated Brent (physical delivery 10-30 days out) over $130/barrel, up to $120-160. The gap exists because those needing oil now pay whatever it takes, while paper markets pretend everything is fine. Paper markets suppress psychological impact, per JP Morgan chart since 2008 showing prices usually $1-5 apart, now massively divergent. Last similar gap was during COVID demand collapse; this is a supply emergency.
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