WTI Climbs 1.48% as Iran War Escalates, OPEC+ Holds Back and Spec Positioning Builds

This is the largest energy disruption since 1979.

Iranian state media confirms the death of Supreme Leader Ali Khamenei. The IRGC has declared the Strait of Hormuz closed. Major tanker operators have halted shipments of Oil and Natural Gas. OPEC+ has approved only a 206,000 bpd increase despite earlier speculation of up to 500k+ bpd.

This is no longer about export risk. It is about transit, insurance, succession stability and duration. The oil market has entered full price discovery mode in the most sensitive regime possible.

Macro & Geopolitical Backdrop

A large part of this war situation was priced in. China has been building storage since mid-2022, as discussed in prior reports including “Pump Now, Pay Later.”

The strategic game is three-fold:

• China–Russia squeeze: Control Venezuelan and Iranian oil flows to curb China’s crude buying and reinforce dollar dominance via controlled DXY devaluation under the Mar-a-Lago framework.
• Israel’s regional objective: Escalation aligns with long-standing geopolitical ambitions.
• Increase global trade in US oil & gas: A structural shift that began post-Nord Stream.

Short to medium term instability. Long-term structural bull case.

A large part of this war situation was priced in. Just look at China stores since mid 2022. They were ready, something I have discussed here in several reports over the last 7 months- read ‘Pump Now, Pay Later’. It is 100% my view that the real game is 3 fold from US/Israel.

1. China-Russia squeeze: Control Venezuelan and Iranian oil in order to curtail Chinas crude buying spree massively. This also helps with Dollar hegemony throughout the implementation of the Maralago accords plan. In short, how to have a controlled devaluing of DXY rather than a wholesale drop. Squeezing the market on China has a built in trigger to also put more pressure on Putin to come to the negotiating table.
2. Israel: For Israel to further realise its long held ambition for the greater Israel plan. It is only recently that US Ambassador to Israel Mike Huckabee told Tucker Carlson that Israel are ‘‘Welcome to it all’’. Snippet video here. For 30 years Netanyahu has told the world that Iran is weeks away from Nuclear weapons launch capability. It has never transpired.
3. Further increase global trade to US Oil and Gas grades. This really started with the sabotaging of Nord Stream 2. US exports of Gas to Europe have increased

So that all accounted for, what does this matter for oil?

Short to medium term instability, long term bull case.

We are in a situation whereby the main structural bull case for oil is now masked by this Iranian war. There is a high-demand call on ‘mainstream’ barrels, ie. non-sanctioned oil.

If there was no Iranian situation, the bid to underpin prices would be general trade tariffs. Let me explain. No one wants to take this ‘illegal’ sanctioned oil from Iran, Russia and less so now Venezuela, for fear of invoking the tariff king’s rath. In a now multipolar world, I see that China are now cornered. The only place left for them to press their existing mining advantage is in Africa. They can move to ramping up investments in Oil and Gas E&P in African to replace the dwindling places they can continue to import from. I’m going to be looking more at these flows- African to China over the next 2 months.

OPEC+ on Sunday at a planned meeting were to hike by 137k bpd. Many were talking that they would hike up to as much as 500k+ bpd, however, this did not come to pass. The group is withholding it ramp up capability to see how things progress. Link to statement here.

Commitment Of Traders Report

Legacy report

Notes: The Specs bought this ahead of time as of last Tuesday. Will be interesting to see how they reposition now that we have reopened and continue to be in price discovery mode for the market. The big boys -specs/ Swaps customers will stay long until there is an obvious mean reversion catalyst/ softening of the situation.

• Open interest +15,212 Total 2,102,705 +0.73%
• Commercials Long -27,500 Total 827,868 –3.21%
• Commercial Short +7,644 Total 1,044,651. 97% 2yr +0.74%
• Non Comm Long +30,920. Total 352,565 76.2% 2yr +9.61%
• Non Comm Short -449. Total 179,853. – 0.25%

Swaps got super short WOW change. Swaps take the other side of orders from their clients who are large players, banks and a lot of the time, oil companies both E&P with large exposure. The swap dealers clients are LONG LONG LONG. Next week, I’ll have a detailed disaggregated report for WTI.

Commercials

Comm shorts are at very crowded levels here. I don’t see this as being too significant as a tradeable signal. What I would take from this is that they are going to continue to crowd here at these elevated priced by selling inventory forward.

Non Commercials/ Specs

Swap Dealers

Moved from 59% short last week, to now 77.1% short.

What’s The Next Move?

This is a very sensitive price regime. THE most sensitive you can possibly get in oil. With that, so swing position trades, I’m keeping the guidance wide. In intraday and order flow trading, we are like hunters sitting quietly in our huts, waiting for deer and other appealing sized animals to pop their head into our sights. We know specifically what the setups look like, but where they happen and when they happen is a dynamic moving picture. This is why we have a live trading environment where we are constantly in communication.

A mean reversion spike to lower prices is one comment away and I want to be able to buy into that under the right macro environment. So best of luck traders. You don’t have to trade any of this action. The no.1 trading tool -is in the waiting.