The Derivative - Oil, War, and the Strait of Hormuz: What current events look like through the eyes of an energy trader

Episode Date: April 2, 2026

In this episode, Jeff Malec sits down with returning “resident oil guy” Brent Belote of Cayler Capital to unpack one of the wildest stretches in energy markets since COVID and Russia/Ukraine. They dig into recent oil volatility, geopolitical tensions in the Middle East, and why the Straits of Hormuz still matter more than most people think. Brent breaks down how traders are actually navigating this market, from tracking physical flows to managing extreme option volatility, and what could come next. Jeff and Brent also explore how EV adoption, data centers, and grid constraints collide with the energy transition narrative, and what “up $50” or even “up $100” oil scenarios actually look like from a real risk perspective. SEND IT!Chapters:00:00-01:18=Intro01:19-04:08= Fluky Winter: Snow, Melt, and the Tetons’ Weird Season04:09-18:24= Israel/Iran, the Strait of Hormuz, and the New Oil Shock18:25-29:55= Closing Hormuz? Tail-Risk Scenarios, Oil Volatility, and $150 Crude29:56-37:49= Oil’s Binary Future: Hormuz Off-Ramps, $150 Risk, and 24/7 Prediction Markets37:50-48:25= Beyond Peak Oil: Shale, Venezuela, EV Myths, and an All-of-the-Above Energy FutureFrom the Episode:Whitepaper- A Crude Awakening:  How Oil Prices Ripple Through the Global Economy Crude Oil goes Negative… What^%$# on The DerivativeOpenSnow’s Joel Gratz built a Pod Shop for Powder Days: the PMs are Meteorologists and the Returns are FaceshotsGoing Nuclear: How Uranium is Powering Portfolios with Trevor Hall & Justin HuhnFollow along with Brent at LinkedIn and on X @brentbelote - be sure to check out Cayler Capital on LinkedIn and at caylercapital.comDon't forget to subscribe to⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠.Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠⁠⁠⁠

Welcome to the derivative by RCM Alternatives. Send it. Hello there. You found the derivative brought to you by RCM Alternatives, where we just put up a new white paper called Accrued Awakening. So go check that out. Given all that's going on, we look at why oil prices are such a big deal, everything from jet fuel to juice boxes,

what the recession odds and inflation numbers look like if we have extended $100 oil, $150 oil, $200 oil. So go check that out at RECD fuel. R-C-M-A-Lts.com slash whitepapers. R-CM-Aultz.com slash white papers. On to this pod, that oil paper is a handy go-along with today's guest. We've got Brent Belote, who's been on the pot a few times before. He's kind of my resident oil go-to guest.

He also makes me jealous every time I talk to him since he lives in Jackson Hole and gets to ski all the time. That's for another pod. It was last week, actually. But we're not talking skiing this week. We're talking oil. Iran. Straits, islands, pipelines, boats. and all the rest, as we see just what this world looks like

through the eyes of an energy trader. Send it. All right, everybody. We're here with my resident oil guy. Brent, below. Brent, how are you? Doing great. How are you all yourself?

I'm great. You're starting to climb the ranks of, like, top derivative guess. I think this is your third time, maybe fourth time? I think it's my third. And it's usually, I think the other time we talk is, I think we talk during COVID the first time, Russia, Ukraine the next time.

So it's every two or three years when we have an oil spike or an oil trash, one of the two. Yeah, we'll put that one because that was fun. When oil went negative, we hopped on and talked because what? How does oil go negative? Yeah, so obviously wanted to get you on a lot going on in the world of energy markets. We're not going to talk performance on here, but you've got a smile on your face from last month. Yep, yeah. Let's say that.

We had a great month, which was all we can ask for. and I noticed the monthly update came out really quick. It was like before 10 a.m. on the good one. It's funny how that works out. Yeah, it's always like the bad quarters. We'll get that next week. I'm out of town. Yeah, take extra time writing the careful ones and make it go.

So, yeah, it's been very embarrassing times. The only market to say the least. Before we get into all that good stuff, we're both skiers. You've made the wiser choice to move to Jackson Hole. I'm sitting here in Chicago without any mountains, but a really bad snow year in the Rockies? Really bad snow year, but it was still good. My kids are young enough where it's still fun no matter what we're doing.

So it's a win-win either way. Nice. You came on the heels. Last pod was with Joel Gratz of Open Snow, the founder. You know the app where you track the snow totals? So he was saying it's just a fluke that this is just reversion to the mean and we were due for one of these. And there was,

temperatures are rising, but precipitation's been steady. Yeah. So you're getting more rain on the shoulder seasons, but generally it was the same precipitation. I was looking at the overall snow totals. And like for where we are,

the snow totals were actually right on par. And even on the higher elevations of the teetons, it was above last year, the last couple years. But we just, it was one of those years where it would snow two feet. and then the next day it'd be 50 in raining, and then snow would be gone,

and then it was just a constant snow and melt, snow and melt cycle, so. Well, let's hope he's right. So I can come back and visit you one day. That's like, your kids doing like flips and stuff yet, or they're still young enough? They're pretty crazy serious at this point.

I think the kids put in 40 or 50 days this year. They're definitely on their way, but that's also why we live here. I love it. So take us back the war, what was it, a Friday night? What was the start? Yeah, yeah, I was right at the end of February, and it kind of started off the month with a bang.

You know, the Israel-Iran conflict with us and everyone, it really shocked the system. And it's funny because everything is, every oil person knows about the Straits of Hormuz, but not, that's probably the most mainstream this has ever been in the world. So obviously, you know, at Caler Capital, and even before this at Jake Morgan, we were tracking a lot of ships.

we're looking at where they're loading, where they're going, what the choke points are, and the Straits of Hermuz were always the most critical choke point of oil in the world. So it was always something that we were aware of and something that we were monitoring daily. And to be honest, I didn't think, you know, we had not a similar war start, but kind of last summer, we fired a bunch of missiles into Iran.

And I thought oil would be 150 at that point, and it kind of sorted itself out in 10 days. and we ended up back to it. This one really is a little bit different. And number one, it was obviously still ongoing, but it looks to be like there's kind of an end in sight. But this one was interesting because it more had a lot of ramifications that I think will have a lot of investing implications

towards the future, from fertilizer to plastics to kind of feedstocks. I've really seen it across all the commodity space here. So, you know, I think it's something that was, very interesting. You know, and you saw that right away. Would we spike to $119 in Brent? And then we were back at 85 that same day. You know, that was a, that was a painful one. I was like, did I miss that? And I was like, wait, it seems like it's still really bad. So, you know, didn't have any risk changes, didn't have anything, kind of wrote it up, wrote it down. And then it just was a constant grind. So a few things there. Take us through. One, when you're

mentioned tracking the boats, just makes me think back, like even to 10 years ago. what would that look like versus today? There's like an app or right, the flight aware for boats. You can see where all those ships are. Every boat that needs to load it, you know, usually has GPS tracking on it. So you can actually see it in Bloomberg or different third-party softwares. There's a great guy on Twitter. It's actually tanker trackers.

And he kind of does what we do, essentially, where we're looking at every boat, where it's loading, where it's parked, is it moving through the straight? And you can see really real time where it's going and how it's kind of, funneling through the streets of four moves. So it's a very, very powerful software from that perspective. My dad and grandpa were in the Navy, and so they would take offense to calling it a boat, it ship. But I've noticed a lot of oil traders call it boats, right?

Even Trump was like, hey, we got six boats of oil. Like, actually, they're ships. Tankers is probably the right word. But then if they're smuggling oil out of there, they turn the GPS off and all that. So you don't know the black market or the off market? Yeah, that's kind of, that's always been a weird one, is how much floating oil they have, you know, which is on the market anytime. And what they actually do is they'll load it on a ship. And then they'll get off, you know, off kind of into the dark area and they'll transfer it. And then they'll be like, ah, this one, the ship's empty. You know, like, that's interesting. Funny how that works. So yeah, I mean, it's an interesting thing. I was always, I would say about, you know, most of the month, I was fairly, fairly bullish. And about 10 days ago, I started to get. a little bit more on the bare side of things. Not to say we still can't have some, you know,

fireworks to the upside, but I think about 10 days ago, I started sending emails to friends and kind of chatting with different industry people saying. It really felt like there was a shift globally. It started with, you know, a lot of the, I think it was the EU. There was an EU referendum that came out

and they were discussing and they were like condemning it. And then you started seeing it more in the news about, hey, maybe there's an off ramp here. and then he starts seeing the taco trade word to come out. And so it was interesting to kind of feel that dynamic. And when the EIA did their coordinated release of, I think it was four or five hundred million bears oil, it really kind of brought to light the fact that we have a lot of oil in the world. I think it's more of the products that are going to be a problem for the foreseeable future.

You know, we have, you can solve a lot of problems with SBR releases, floating storage. Oil can get back out pretty quickly. but I feel like the damage that was done to, you know, jet fuel, distillate, and gasoline markets is going to kind of trickle its way through the foundation for pretty much the whole summer, in my opinion. And is that a, right, the same as in the rest of the commodity space? Like copper mines haven't been upgraded in dozens of years. Like, is the infrastructure just hasn't been upgraded? No, it's more just that there's been a lot of damage to it, you know?

So when we look at, it's hard because you can turn oil back on fairly quickly. But I think I saw something that the LNG facility is going to take three years to get back online. So there's all these ones where it just takes a long time. And, you know, when you look at here in the United States, they have refinery outages, and they'll plan them months in advance because you've got to mobilize a lot of engineers, a lot of stock, a lot of different things to keep it right. So it just takes a long time to get it organized and get it flowing through the system properly again. And the LNG is interesting, right?

if I pull up a chart of Henry Hub of U.S. natural gas, like it basically didn't move, right? Through this whole thing. I mean, well, that's a, well, that's a bad proxy, first of all. Right. But that's what you're saying. Like, that doesn't matter because in that side of the world, they need that net gas to make these products and plastics and things like that. Absolutely. You know, and when you look at the United States, we're an exporter at this point just because how much, pretty much every oil field drilled nowadays is productive.

predominantly, there's so many light ends to it. There's a lot of natural gas to it, and it just ends up being a, like most of the shale plays that are now pretty prevalent in the United States have a huge natural gas component, which is going to put a cap on that no matter what. But if you look at UK gas prices or, you know, for example, even the jet fuel in the United States versus jet fuel over there, you know, jet fuel in Europe was, I think it was over $200 a barrel at one point. So they've had a massive spike way more than we had. But it's going to have, like I said, a long lasting effect. because we can export a lot of our products, that's probably where they're going to head for the foreseeable future. What does Jetfield run at typically? Over, like, oil normally or... Yeah, per barrel. And typically that spread can be anywhere

from $25 to $30 over oil, the price of oil. So seeing it over there when it's almost double the price of oil is pretty wild. Super crazy. And then I want to go back. So you're out on a Friday night Maybe you're sitting at home with all those kids, but whatever, it's Friday night. You're an oil trader.

You're an energy trader and you see the news. Like what happens? You can't trade it? You can't trade it. Yeah. Right. So it's like a weird. Do you think they did that on purpose?

Like two questions. What goes through your mind? Are you like waiting for Sunday night? I'm like, shit, I got to do something. Sunday night I'm sitting there at my terminal trading screen open, ready to do something. Thank God I didn't. But it was one of those things. It opened up 10.

Then it opened up 17. and it just kept going higher. So it was interesting, you know. Yeah, the text messages were flying. You're not really seeing where it's going and how it's moving. But that whole weekend is shot? You're like, or do you manage it well? I mean, he does that every time.

If you look at this pretty much every Friday, there was a news announcement that would have affected the markets on a Wednesday or Thursday. Yeah, and end of the month. It was a nice little, hey, someone said like, hey, if we're going to do this, let's do it over the weekend. let people digest, maybe the market won't crash. Trump is very, very cognizant of the price of stuff. He is definitely watching.

He is definitely 100%. He is very aware of where it is and what that ramifications are. Some might say because he's trading it. Yeah. We'll leave that for another. There was rumors on one big down day that the Fed ended up that Scott Besson actually sold a bunch of oil as a hedge. Yeah.

Which I thought was interesting. I'm like, you know, if he's trying to push the market down by selling a couple million barrels of oil, that's kind of fascinating. Super fascinating. Yeah. We can't, we can't take this press. So take me through. So then you're in that Sunday night opens.

You had already seen this building up. You didn't know missiles were actually going to fly. But like, where were you at coming into the month, coming into this event? We're fairly constructive anyways. Yeah. You know, distilled market was strong. Gasoline was strong. to start the month. We were long going into it. So it was a, you know, it was a good, it was a good

Sunday open and all of Monday was just, you know, kind of staring at the screen watching the P&L drip away after that first one. But it was still a good day, you know, it just wasn't up 9% on one day type of event that we had. But then it just continually go, you know, as this was going through, it was very apparent that there wasn't really an off ramp that was good for anyone at that point. And it just kept increasing the rhetoric and keep, you know, the missiles, were flying on both fronts. And it was very clear that, you know, Trump would come out and say, oh, yeah, we're having talks.

And then it'd be Iranian news source says, no, we're not. And it was. So it just seemed to very hit or miss. And that's kind of where we're at right now. I mean, even as it is today, it was a great example, right? Like, you know, you're hearing all these things. It says Trump, Trump in his speech says the war could be over in two to three weeks. We will do, we will negotiate a ceasefire as soon as the straight is open.

And then you see a headline from Iran that says, we will know, we will, never opened the straight. And so I think everyone's trying to think of everyone's, no one really believes anyone at this point. So I don't think it's necessarily over. Definitely could go both ways, but, you know, the U.S. has gone out of their way to not really damage infrastructure. If we took out Carg Island, it'd be a big problem. But they're also a large exporter of Potash and other fertilizer products and pet chem products. So it would have a very, very severe. If we took out that entire island and the energy infrastructure, it would be less of an oil story and more of a, almost putting us into a reception story just because the feedstocks that are required to come

out of there. And those were an importer of in the U.S.? Uh, U.S., yeah, pretty much everywhere, Europe, all of them. So that's a secret hidden story and all this, right? Of like there's oil sanctions on Iran, but not feedstocks, not nitrogen. Exactly. Exactly. Yeah. So, yeah, it's interesting to see, like, what they decided to attack and what they didn't and, you know, where they would kind of draw the line per se. Yeah. Have you, the whole time, has this been a purely this much supply got taken out? Is it more math or art?

Or of like, this is a conflict. Both. I need to, yeah, I need to think of how this is going to react, how the market's going to react or look at how they're reacting. Yeah, I mean, that's what I'm saying. Like, I think it's, you know, this has been a lot of psychology as well in terms of, okay, it feels like sentiment is shifted. There's a lot more pressure on Trump to get a deal done.

The American public is not as thrilled with this. as they were, if they ever were. So, you know, I think a lot of people are still wary just from Iraq and the different, the different Middle Eastern events we've been a part of. So I think people were a little less excited about this one as it continued to linger. Yeah, and it seems like on the Zinbo, like, you know, I, the first week I was leaning in the camp of this will end quick. And then the next two weeks where, oh, God, this isn't going anywhere.

And then the last week has been, yeah, I think this is a skimbo. kind of maddening again. So I kind of went back and forth two or three times on this. But yeah, it's a lot of math too because you need to understand where oil can go. You know, one of my old mentors used to always say like, you know, the price of oil is just a number, right? Like it'll, it can go to 300. And there'll be ramifications on supply demand of that, but it can go as high as it can go. And in a war event or when someone actually needs it, it's kind of like negative. People didn't think oil could go negative. But when you have too much or put it, kind of have to deal with it. So, you know,

there could have been a scenario where people got stuck holding on the barrels or holding shorts and they got stopped out and it goes to 300. So, you know, you had to be really aware on the upside. But it was a, you know, I've been trading volatility in this market since 2008. And this was the craziest I've ever seen. You know, you had calls that were $75 out of the money and they were trading for like $4, which is insane. They should be like $12. So it really, it really expens. Teenies that became dollars. Yeah. Exactly. It really expanded the whole Volker. You saw everything kind of do it. But it also gave a lot of opportunities in that. Like when there's different things that are expensive or cheap, and you can kind of play it on a couple different sides.

And then talk, like, if this had happened, pick a number 15 years ago, are we, the spike is worse. The spike is higher. Like one, US wasn't as energy independent probably. Definitely. And maybe you could. Right. So like, tell me about that of like, what was part of the,

and you can't get in the war department's brain, but was part of the math of like, hey, we're energy independent. This is the time to do this. Yeah, there was two or three things that floated around in it. The U.S. said they were considering a oil export ban. And you started to see the global price of oil even stretched farther away from where we were. But that turned, they made it out. It's been like 24 hours later.

I was like, oh, no, we're not going to do that. But you could really suppress the United States versus the world for a good amount of time, especially on the oil front. But there's certain things where, like I said, we're the taker of a lot of stuff in this world. So if you want to really do an export ban on the price of oil, then it's going to have trickle down effects for what other countries are probably going to do

on an export ban to us as well, which would be pretty painful. Right. We won't be able to ship anything or build anything here, but gas will stay at $3 a gallon. You can drive wherever you want, but, you know, there's no chips to build cars. Yeah.

So it's a slippery slope, and I think that was why they did that. When you were back on the trading desk at the bank and whatnot, was there always like, hey, was this the far right tail event or far left tail event in oil? Yeah, I mean, that's something that kind of stayed with me was we always run scenario analysis on the books. Like at JP Morgan, it was, okay, if we wake up and oil is up $10, if oil is up $20, if oil is up $50, because it's not just oil in a lot of these portfolios, It's oil, it's the price of gasoline, it's the price of, you know, the volatility that goes up. And you saw a really interesting thing, occurrence here, where on a big up move and oil, the vol actually expanded. Typically, it contracts on an up move, and it'll expand on a down move. So big down moves usually expand volatility, volatility increases.

But on this one, it was like a double factor. So I'm sure a lot of books were caught off guard in that when they run it versus their portfolio. But it's always something that I took with me is, hey, shock the. shock your overall portfolio to see what it would do in an up-50 scenario, an up-a-hundred scenario, you know, to make sure that you're not in, technically blow-up risk or you can properly risk-manage it. Up and up $100. So that was always thinking like if that happens, boom.

And what, what's the, not to, you're making you put your like commander head on a few times? How do they actually close the straight? They can't, right? There's not a gate. They're just saying if you come through there, we're going to shoot missiles and we got mines and that. Pretty much. You can also mine it, which they have said they haven't done, but they said they wouldn't rule it out, you know, and that can take, that can take weeks, months, depending on how

good they do. It could be closed for a long time. But it's like we're right there. It seems like we could prevent them from laying mines. I'm not, I'm not a military guy and I can't answer that, but it's not a huge, it's really not a huge area that they have to hold or cause problems in. Right. I think it's 20 miles. And I think, you know, if you, we've already seen what they're drone capabilities are and it would take, you know, one drone to sink one of these. I mean, yeah, and they don't have the defense shields and whatnot. Got a million barrels of one of the more flammable liquids on earth. You know, so pretty much one, one missile would sink it.

And if you sunk two or three those in the right spot, that's a massive cleanup to get those out of the way to be able to keep traffic moving through there. And then it's good. And now it just comes down to the perception and the insurance, right? Like, cool. Maybe the threat's not really there. but I'm going to charge you a shit ton of insurance to send that boat through there

because I'm worried about this stuff. Yeah, yeah, exactly. You know, and I think, I mean, for me, the shooted drop that I've been looking at is, are we going to attack any of their actual infrastructure and oil? And are we putting boots on the ground? Because boots on the ground is a pretty big escalation in terms of the United States,

especially with Iran. And it wasn't something that, you know, that was the oil to 150, that's a very, very, you know, if we flattened Carg Island and we put boots on the ground, that's a big problem for the rest, because then there's no off-ran. Once you've destroyed, you know, Carg Island is really their lifeblood in terms of revenue. And if you got rid of that, it'd be a very big problem for Iran to ever come back from for a long time. And they would, that would be a serious.

And if that happened, if we attacked that, their first reaction is start to, you know, there'd be missiles into Saudi oil fields. every missile into refiners, which is, like I said, those can take years to fix. And then it's, right, you get into Quagmire territory of like, and now we need troops there to protect Carg Island as we rebuild it and yada, yada, yeah. Yeah, it's, it's, I think as this progressed, I think Trump saw that, that he is like, my two choices are to either hold Carg Island or destroy it or get boots on the ground in some way, shape, or form.

But, yeah, I had never really looked at it, but a topography map of Iran, it was, really is a fortress. It's like the whole country is mountains. I was actually pretty wide. Afghanistan. I never looked at that before and I spent spent a couple hours looking at that a couple weeks ago. It's interesting. Well, then I'm going to make you put your geologist engineer hat on of like why what's with Carg Island. It's in the middle. It's so they don't have to come into the shore to load oil. Yeah, exactly. So it's just pipelines that connect to it and they're able to export. So all these ships are obviously massive. They need huge drafts to be able to get in there and load up and it's just as one of their primary export facilities.

And then you mentioned Saudis. I read they have a pipeline system that bypasses the whole thing. They go to the other way. They do not enough to materially change it. You still have a lot of exports to that straight. And do you think this like them in particular and others will be like, all right, we need to start building? I don't really know.

I mean, I saw something about paying Phil Mickelson $300 million. How about build a new pipeline? Yeah. You say that, but I can't even imagine the cost. But yeah, if it's going to get ugly, then yeah, they probably will. But now I think it's a situation where Iran knows that I think, I think this may have emboldened Iran to the negative side. You know, they know that they can hold this now. They know that they can impose a pain on the world pretty substantially via this.

So, you know, you're right. It might trickle down, but those pipelines will take a long time to build, talking years. And Europe has no good, right? Okay, turn on the pipelines from Russia again. No, that's it. Yeah, I mean, the real big winner in this entire thing is definitely Russia. You know, I saw, you know, we've already waived. I think Trump waived a bunch of sanctions on Russian oil to try to get it in to keep it down.

So they have a lot of level to try to keep the price of oil down and manageable, but none of them are really great. So let's backtrack if U.S. net gas isn't a good, marker and was WTI even like as how are people hedging all this right yeah yeah yeah TI and Brent kind of were insulated if you look at some of the other grades Dubai specifically oil and was substantially higher you know you were seen it in the 160s one these range so you know the rest of the world kind of decoupled from the actual physical barrel for a lot of these proxies do you trade that like those other middle east not really I mean, I track them from a standpoint of a lot of times

they're very important for where the arbitrages are and how you can move oil around the world. But no, I don't trade those, particularly just WTI and Brent are the two. And even that, you saw a WTIBrent widen substantially, but nothing like you did the other grades. And then are they even tradable, right? They've like tried to make that a thing.

You got to trade OTC though, and they're very can be illiquid, especially in times like this. There's some, rumors out there that some very large trade houses got caught on the wrong side on two or three of these. So I'm curious to see where the, you know, the blood in the streets actually trickles out from. I heard those rumors here in Chicago. Was it a very large?

Was it a vote firm? I don't know, actually. But I mean, with how much things moved, it just killed, it killed all risk systems. There was no risk system or risk people that could have prepared you for that, especially over there. which is back to your point though but like why because it's a known thing like as soon as the u.s attacks i ran but we were lulled to sleep with the past thing and the missiles went in and yeah smp was up that day i think and i can't remember what well i did find it interesting because there was all these things and you know when you're running through kind of the worst case scenario

analysis in your mind it's if the united if if iran ever shut down the straits of four moves were two hundred dollars immediately yeah no or not yeah no or not yeah so It's interesting because that's... Right, we were 85 that night. Yeah, that was the weird thing. People didn't think it was going to get shut down. They're like, oh, we got air superiority. Everything's happening, like, back to 85 because the straights.

I kind of agreed. I thought I didn't think it would be as big a deal as it was for long. And it's, again, still going. But it can still get worse. You know, if this is a prolonged thing and people were really digging in their heels and saying, hey, we're going to go in there. We're going to do this. and they're battling and we're battling.

It's a tough one. And then we mentioned the liquidity talk through what you were seeing in like these U.S. WTI brand, like what was it? What was up on each side? How many millions could you get done? I mean, still incredibly liquid in both fronts. So no issues at all in any oil or U.S. product.

Right. It wasn't trading like $5. No, I mean, it's more just the speed at which it was. you know, I've never seen that much. I haven't ran an analysis. I should. But it was, you know, there was times I'd wake up and, you know, oil's down a dollar. And then I look at the high, low and the chart.

And I'm like, oh, my God, it was, we were down seven. Like, what? You know, or even, you know, even the other day. Like, I think it was, it was Monday. You know, Monday was up, you know, $3. And then something came out, it was down three. And it was a $5 range before, you know, 9 a.m. And what kind of true ranges that you're seeing in the high lows is unheard of?

$10, you know, it's crazy. And then so what's that, you're looking at the options too? So the option VAL went from like a 20 to a 40? What's that look like? More. Yeah. Yeah. Yeah.

And it was all a call skew too. So it was all the calls were way, way more expensive. Yeah. Just incredible. You know, the way I like to think of it is to normalize their cross. And you think of it in terms of a break. even rate and that is essentially the amount that the delta of the underlying has to move in order to pay for the theta or cost of the option on an on a daily basis typically oil break

evens are around a dollar 30 to a dollar 45 we were seeing them around seven to nine dollars so that was saying that your theta you're getting paid enough where oil has to move seven to nine dollars the next day every day it has to move seven to nine dollars in order to pay for your actual like the cost of holding the option. Yeah. But the problem is is, you know, most risk systems, you can't hold short options. Just, you just can't.

Like in this market, you can't do it. Like, you get a call. Yeah, you're getting a call from above. And they're like, hey, you're short the 170 calls. And you're like, yeah, okay, sold them for $8. And they're like, yeah, but before it goes to $2.50, you know, you're going to lose $80 million. You're like, oh, yeah.

Oh, yeah. Okay, I guess they should hear that, you know, even though the trade probably was right. So there probably was some out people that, that, you know, got hammered on this. I think it was actually one of the, I don't know if you saw the Pimco thing. They were down. I don't know what they finished the month on yet, but, you know, Pimco is a historic VAL seller. Their continual, their whole thesis is you're just constantly selling small VAL every day across a number of, across a number of commodities. And you realize VAL will come in below the basket.

it. And this was the first time it's ever, you know, they got really hurt on that. Whoops. Selling Vaugh and they got hurt? No way. In their defense, they said Kimcoe and they, you know, they probably made dozens of billions being shorter for the last decade. But exactly. So let's talk moving forward. What are you looking at? What could be a couple different paths that wind this thing up? And or like, who cares about this? What's the rest of the world look like for? I think if I ran open Tormuz, it's done. If they come out and say, we're going to, we're going to, we're, we're, we're committed to opening the Strait of Hormuz and, and I was just got a Bloomberg alert. I was like, that'd be great if they did it on here. And no, if they open the streets of Hormuz, I think Trump will figure out a way to get a deal done. If they, you know, he's really given them a very, very good off ramp right now. And it's a question of whether they'll take it. You know, he, he, he, he'd be. He, he, he's really given them. He's, he, he basically said, hey, we will, we will honor a ceasefire as soon as the straight's open.

It'd be very easy for them just to do that. But the problem is, is I don't believe they trust him. And they think he's just trying to buy time to do something else that's sneaky. I actually think he wants an off ramp. So, you know, if that happens, I think, I think we can probably fall another five to $10. But I think the floor is, I think we're structurally in a bull market at this point. I don't think we're going to end up in a scenario where we're back to $50 or $60. oil. I think we're going to be, you know, north of 70 for the rest of the year. And they're,

you know, the ongoing ramifications of that. Again, I mentioned it, our distillate markets are still very undersupplied and we're going to have a problem catching up to that. And gasoline with summer driving season already kind of starting here in the United States, it's going to be hard to get a lot of the feedstocks necessary to blend a lot of gasoline and keep it going. So, you know, I think, I think we are in a bull market, even if that happens if they did that. Now, again, the boost on the ground scenario, I think we'll probably see, I think the highs are in jeopardy at that point. At that point, if we put some troops on the ground or, you know, we're involved in combat there, I think you'll probably see a $150 oil. So right now it's fairly binary, which is why,

you know, there's not a lot of great trades. It's time to, time to get a little smaller and everyone's, you know, roll farther out the curb and just stay out of front because right now it's all headline risk. So are you, do you get on Cal She? or any of those and look at the prediction markets, what they say about all this? You know, it's funny is this actually forced me to do a pretty deep dive on polymarket, calci, and there's actually one out there,

I should get sponsored by them, hyperliquid, and they launched in oil perpetuals. So you can actually see what the price of oil is predicted to be on that time. And it's actually enough volume to where it's kind of a material benchmark. So, you know, I think last weekend I was curious where we were going to open up oil, what this was going to look like.

And I went on and kind of was playing around, looking at the correlations between this price and the price of WTI, how much it correlates to the Sunday opening is pretty actually good. It's pretty dead on for where we actually opened on Sunday night in the Globex session versus where the Saturday night hyperliquid did.

So it's very interesting. But yeah, it's definitely something that I haven't thought about as much and I am thinking more about. Yeah. Well, it helps. And I've talked with a few hedge fund managers and whatnot who are like, yeah, as soon as it becomes more liquid, we'll get in there, right? You could, in this example, put on some $150 calls and sell the prediction that we won't have boots on the ground or vice versa. For sure, for sure.

Yeah. I mean, there's definitely, the only. But they're highly manipulatable, right? That's the problem. Yeah, yeah, I would agree with that. Yeah. Yeah. I played around with it looking at it seeing how, you know, like, they do it.

they do the they do like will oil be above 150 on this dollar on this day right yeah and you know you can call that it's actually an ad expiry digital in the like option trading world and you can actually replicate it with the w t with a w to i call spread or a brent spread so you can see actually like okay here's what the w here's what the actual market is pricing the probability as here's what calchier polymarket as is there an arbitrage there to kind of do it but you're tying up so much capital and it's it's it was a tricky tricky one i play When you saw that, you can see their spread, basically. Pretty much, yeah.

I'm sure they're charging a healthy, yeah, healthy spread. And then that tells me, the CME, all the exchanges are going to adapt and be like, we have to offer 24-hour, like, seven days a week, right? People need to be able to trade on Friday night when this happens. Yeah, yeah, I mean, isn't that the whole point of tokenization and bringing out of gain? Exactly, yeah. To be frank, there really isn't a reason why the Globex closes other than the fact that it was, just, you know, used to be, it used to be a pit.

Yeah, someone's in there like, hey, we need a weekend still. Come on. Yeah, yeah, exactly. Because it essentially doesn't close. Yeah, that's something good. I don't know what the difference is between me waking up at 1 a.m. and trading versus Saturday at 10 a.m. There's pretty much the same thing.

Yeah, exactly. Cool. And then say this whole thing didn't exist, didn't happen. Where were you at with the overall energy markets? Where were you thinking you were still bullish? I was still fairly constructive coming in in summer. I think it was an interesting market where distillate again still was kind of historically undersupplied and gasoline as well was looking strong.

Talk to me. Where I've been wrong. How does distilat get undersupplied? Where I was wrong was I was thinking that we would probably be in a structural oversupply of oil for the first call up this summer. Balances looked very frothy and we looked like we were going to have too much oil this summer. So it really kind of took the wind out of the sales on that one and it flipped. Yeah. But so explain that to me of how distillates can be under supply, right? Because if you have

enough oil, you have enough to make the distillates or it's all refining capacity? All refining capacity. And choices, whether they choose to make diesel or jet fuel? Yeah. Yeah, exactly. Exactly. So what in the U.S. we're mainly making retail gasoline and diesel? Uh, yes. Yeah, I mean, yes, though that's pretty much the two primary products of all refiners. A lot of times what happens is you'll have, you know, something happened globally. So we were, Russia, Ukraine was a great example. That was a big distillate disruption that we kind of took a year. It took almost about 18 months to get through.

And for us to catch back up with where we needed to be. And for this one, it just looked like we just didn't have enough going at coming out of winter. And granted, it was a very warm winter. That probably would have changed my opinion. with how low demand was, but looking at the forward balances and where we had refinery outages, and now what's happened is there's gasoline cracks and distilite cracks have gotten so expensive

that a lot of these people defer their maintenance. So you have maintenance that would have been occurring this spring, and now people are just not going to do it because they're just making too much money. So you get like the exons, the chevrons, the P66, they just deferred. They say, okay, yeah, we're going to take a refinery offline for two months, but then they're making too much money.

So then they're like, yeah, we'll do it in full. So. And does that usually turn bad? Something breaks? No, no. I mean, it's just opportunistic. You know, a lot of times they can run it,

run it hard out or run it stronger. So it's just a way for them to maximize. You mentioned Russia. What's the Russia story? Still sanctions, still a problem. But, you know, they had to waive some oil. We waived, here it was, the United States waived some oil sanctions.

So a lot of different. places could buy Russia oil or Russia grade products. So yeah, they're doing everything they can to try to keep the price of oil down here in the States. Russia is? No, Trump, Trump particularly. Yeah. Trump is. Maybe different, you know, and then he came out and said that he's going to, you know, any Iranian oil that's already on the water can be sold to America.

So, you know, or you can kind of find a home. So those all of a sudden, the black and gray area that we were talking about can now be, you know, acquired. I thought that was interesting. And that's probably a pretty loose. Yeah. Already on the water. Like, well, it got on the water eventually. Yeah.

And then, so walk through the rest of all the big players. China, what are they doing? Do they got a lot from Iran? So they are pivoting to Russia? Yeah, we, I think the biggest, you know, the last couple months with the Venezuela stuff, with Iran, you know, it's, in my opinion, it's fairly clear to me that this is more of a China proxy than anything. and that's how we decided to kind of attack them. You know, Venezuela does a lot of heavy crude, which should be going to our Gulf Coast,

and instead it was always going to either China or India or kind of that way because of sanctions and how we had structured it. And same with Iranian barrels. You know, yes, we were sanctioning them, but they were still finding a home. They were able to get out. They were still able to get payments.

And so just cutting off kind of the spigot for cheap China, cheap Indian oil has been a big one. I think. So I think this was more of a proxy to kind of cut off that before it gets a little, you know, before it keeps going. Where does China go then? They have to buy in the open market. I mean, it's a different world, right? Like they were able to buy Venezuela oil like 50% discount, Iranian oil at 50% discount. And you're basically able to run your entire country. If you could do that, you know, your GDP takes up dramatically. You get a lot of tailwinds on free energy. It's a pretty good.

And you mentioned Venezuela, we did a pod or whenever that happened. It seems like seven years ago. When was that January? Yeah, yeah, right. It seems forever ago. But you mentioned, like, how soon could actual oil be coming out of there? I think we're already seeing it. That would make a difference.

I think we're already seeing it. I think it was fairly quick turnaround. And now I think there was a, I think it was Chevron or someone bought a card from there. Okay. But I was like, it's super heavy. Yeah, that's right. That's what we need in, which was the biggest problem is, you know, shale's great and all, but shale's a very light oil.

You know, it's very gassy. A lot of the West Texas stuff and Permian, you know, everything in the United States that we found is kind of not great for what we need, which is diesel fuel, which is jet fuel, which is bunker. And we also spent a lot of money on these really expensive refineries and upgrading our refinery complex to take these heavy, sour grades, you know, like they have in Mexico. And it's hard when you just lose all Venezuela oil. So I think that'll start coming back in a major way. It's, it doesn't make sense to strip it across the Atlantic when you can come

to the Gulf Coast. Yeah, right there. A quarter of the time. But don't they have a bunch of infrastructure problems and electricity and like just to get those to full, like to get at those actual huge reserves there? Yeah. I mean, free market. You're not buying into that?

Yeah. Well, it's just a free market. right? So I mean, I had a friend reach out to me and ask, hey, can you, you know, who should I talk to if it was, if we wanted to do some drilling in Venezuela? And this is not an oil guy. And he's like, and he's a guy really respect. I'm who kind of put it out there. You know, it wasn't like a, it wasn't a, you know, my uncle Sam from Detroit. It was, it was a, you know, he's a very, very well off investor who is interested in doing this. And so I'm like, oh, that's interesting. And he's like, yeah, I've already got contacts with the, you know, government.

We've done deals down there. We have two or three people who's boots on the ground already. You know, who's the guy? And I'm like, wow. Okay. It's like, I don't know, but I can put you in touch with someone who knows a guy, a guy with a guy. So.

But the previous party was saying like all the majors are owed billions of dollars from when Venezuela like kicked him out or took it over. So yeah. Yeah. We'll see. But that's interesting. Private everybody's like, yeah, let me in there. Yeah.

Yeah. Free. Great. I'm ready. Yeah, there's not many, not many places like that that you could get that kind of money and return on it fast. Love it. All right. Time to buy some motion from property there. Yeah. I've never been. Same. Let's go. Chaos on all fronts. You know, I'm curious to see where we, where we end up with this. You know, I... Give me like a three or five-year outlook. Not in price, but just like peak oil. Is that all dead and done? I don't believe in peak oil ever, so that's okay. Yeah, right?

We just learn how to drill better and deeper and sideways. Every, I mean, in the United States, every time, you know, I think 10, like when I first left J.F. Morgan, it was like, oh, yeah, yeah, like the shale's going to peak. It can't possibly. And every year you read the 10Ks and the earnings reports of all these places. And they're like, oh, yeah, we increased, you know, we increased our efficiency by 30%. And you're like, how's it possible? Like, how are you just 30% better at this this year than you were last year? And it just keeps going.

And they just keep getting better and cheaper and better and cheaper. So it just doesn't, yeah, I'm not sure how that's going to stop. Electrification, e-vehicles, e-trucks. You're not worried about all that? There's no chance. If there's anything that we just learned, it's that all of these data centers just absolutely nuked every hope against EV that we've ever had. You know, the grid can't handle the EV power anyways.

And if you just have these data centers that they're talking about, it's even more energy that they're going to need. So it's just, I'm not seeing it for any, any. Yeah, me, I'm huge. I'm promoting all our old pods here, but we did have uranium pod. I think uranium's a huge answer. But even then, I think you'll have nuclear's powering all those data centers, oils powering transportation and construction. Yeah. So like it's all hands on deck, right?

there's no way we're getting the everything's going to need electricity and that's just going to keep growing growing like yeah who knows and you're also seeing it now where it went too far i forget who it was but there was might have been ford and they canceled a bunch of their yeah their EV product projects you know i'm curious i haven't checked on in a while but i remember toyota saying that then they're going to have 100% eve by 2050 i think but i think they've been slowly walking that back so i'll be And I think a lot of them had real success with hybrids. So I think the hybrid, people are like, we're going to switch totally over to match Tesla. And then people were buying hybrids more than EVs.

I know Audi, they're, I think, getting rid of the pure EVs and going to hybrid. I don't know. I live in Wyoming. So if you're like, hey, every 250 miles, you have to stop for an hour. It's like, there's nothing around here. Yeah, come on, man. How am I supposed to get to the top of Idaho? Yeah.

The, but that's, it'll all change, right? They'll be like, no, the new range is 500. So what, what's the number until you feel comfortable? $1,500? At least 500. Like in a range. At least 500. Yeah, at least.

Yeah, it's just, all right, man. I mean, it's just not worth it to me to, to, it takes me a minute. And it takes you under five minutes to fill your thing with gas or you have to sit in a parking lot for 50 minutes while it fast charges. It's faster now. We got two in this household. In Chicago. It's fast. But even in Chicago, it doesn't matter because it's just charging overnight.

And then we drive around like 10 miles during the day, if that. And it charges again overnight. I would consider, you know, having one car be fully easy. But I think you're always going to need, like, the long distance one. Yeah. And then like ships, planes. It's all coming. But all hands on decks, my answer.

Yep. Cool. All right. We'll leave it there. Hope. So you told me offline you're going to get, what, 20 inches of snow tonight? Yeah, I'll believe when I see it. It's 50 and kind of drizzling right now, so I don't know.

That's going to happen. All right. It's okay. We have a good winter. I'm ready. I'm ready for golf season and some warm weather, so it's fine. Awesome. Well, thanks for coming on.

Thanks for talking through what's going on. And we'll talk to you soon. Great. Thanks, Jeff. Appreciate it. Okay, that's it for the pod. Thanks to Jeff Berger. RCM for sponsoring.

We'll be back next week with an interesting one, talking to a group that puts out trading contests and uses some software to see which of those guys and girls is best at predicting where the markets will go or predicting where others think the markets will go. It gets a little complex, but it should be an interesting one. So we'll see you next week. Peace. You've been listening to The Deriviv.

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