a personal note to a reader

market vibes

May 29…)

A reader asked me question yeterday, one I have asked myself many times especially since I started writing on Sunstack. He said:

“I read X daily. The narrative is polar opposite to your views. You have been right about oil (in terms of pricing). Can you help us understand why there is gloom and doom forecasted in the OIL reserves and supply by quite a few eminent oil opiners, whereas you are much more sanguine. . . ?”

First, allow me to thank the reader for giving me the opportunity to explain why, not justify or elevate my views, I am often argumentative. I write about trading and trading is an argument. If you don’t think you are correct and you are not willing to measure your conviction with hard cash, you should be listening, not speaking. In trading your opposition is the market, not Jeff Currie or some other erstwhile money center bank analyst. Otherwise said when you trade, your opposition is your inner you.

When I started writing on Substack, a friend and good writer said, “Tell me why you are writing and I will tell you how to succeed in those terms on Substack as a writer.” I have always been a writer. In school I loved writing, in family as a child I always wrote letters, and at work I was a broker who writes. I have written millions of words over the years, most of them never kept. This note is #1017 penned in 2 years… over 1 million words since May 2024… so many words every day I don’t even try to remember what I have written.

I said in reply, “I want to leave what I know behind when I am gone.” It pains me to admit it … I cherish life but I am getting old. So…I continued: “ If I don’t, it will all be forgotten.” I was born in the right place at the right time and given the right tools to do something I love. If I can do that and harvest the fruits of a lifetime, I will do that work. Substack is not a pot of gold. I don’t promote my writing. I don’t upsell or boast about my foresight or lack of it! I don’t pander but I do try to be courteous. There’s a fine line to it. If I have to cross that line in error for my sense of honesty, I do it… and the unsubscriptions scroll down my email!

If you’re going to fight you have to be willing to get hit.

It’s hard. It takes discipline to write with passion and honesty twice a day. I take a lot of shit for it sometimes and I am obliged to take it because what I write bears the same responsibilities as what I trade. If I wanted to be a voice on X I could pay $500 or $1000/day to have my writing promoted. I could post 30 or 40 times a day like Kobeissi or HFI or others and have 100,000 followers or more and charge for influencing. I could have done it when silver was freaking out but I chose to write strident words of caution to my readers.

I said over and over again for years… “you have not met the real silver.” When the bubble popped I said point blank… it’s over. Time to hold physical only… and hodl and wait. I have written over and over again that everyone lies in oil. What we are seeing now among the glitterati X posters is not lying per se, it is a uniform specious construction of facts.

The US is the largest contributor of oil to the IEA emergency release. The US is not selling oil outright at auction like the Biden Administration. The SPR is lending oil to borrowers with a term sheet requiring ratable repayment in barrels that will explicitly increase the total strategic reserve by as much as 200 million barrels by 2028 beginning in 2026. Those notional 200 million barrels are already alive and tradable in the forward curve as new paper supply. This Zero hedge fear porn is incorrect, in my most humble opinion.

Reliable sources like the EIA and IEA have said total commercial and official reserves of petroleum in storage are about 8 billion barrels today. On April 30 JPM penned a note titled “The Illusion of Plenty” in which they opined the operational floor was circa 7.5 billion or 800 million barrels lower than the total petroleum in storage, a very thin margin of safety. In fact, of the 8 billion total reserves, 5 billion to 5.5 billion barrels are crude oil only and 2.8 to 3 billion are refined products.

Of the 5.5 billion crude in storage, 3.5 billion is held in commercial primary upstream storage tanks near the wellhead or in proximity to refiners. Two billion is in strategic reserves. No one really knows how much crude is in storage in China but that alone is around 1.5 billion barrels. US commercial crude in storage is 27 days of consumption, which is historically on the high side. Global SPR crude (2 billion barrels or 20 days of global consumption) is kept in vault-like sequestered storage in tanks and salt caverns and it is readily deployable. Commercial storage is about 35 days of global consumption and readily deployable.

There is the specious argument that this crude oil is required to maintain minimum line pressure and “tank bottoms.” This is bullshit. Crude does move by pipeline from Russia to east and west but Russian production has gone up since the SOH was closed. The US refineries get 77% of oil by pipeline, almost 60% of 77% from Canada, and Canadian production is not going down. The rest of US oil to refineries comes by local pipeline, of which we have a shortage of pipelines! Twenty percent comes by sea. Three percent of crude goes to Europe by pipeline from Russia. So.. for crude oil and the 5+ billion barrels in storage, the line fill fear porn is crap.

The 2.9 billion of products in storage is downstream from refineries, of which there is a teaspoon of global capacity behind the Strait. Right now PADD 3 is running 97% capacity. US refineries are literally cramming refined product into pipelines so they can export it. I don’t know why China is cutting runs and imports of crude but… lol… I doubt it’s because they are suffering a shortage. Europe buys oil and LNG and they get it all by sea.

Line fill from refinery to tertiary distribution, retail, and onsite storage will never be a problem as long as crude can get to refiners, and there is zero chance we are going to run out of crude with 5+ billion barrels of it in storage and at most an 8 mm deficit of daily barrels (which is going down, not up). I think it is much lower and that is why exchange prices cannot hold a rally.

If all metrics remain unchanged for 625 days we will run out of crude. Allowing for unpumpable sludge at tank bottoms of 1 billion barrels, we still have 500 days of runway to settle the SOH issue and go back to work. If trump gets trigger happy and starts shooting again of course oil will rally but with the immense supply of oil in reserve and non GCC capacity to produce more I doubt a rally will hold. We don’t have 5000 DUCs sitting around for nothing.

I have traded crude oil since 1983 when the NYMEX first listed it on the exchange. I was a Day 1 local in Heating Oil in 1978 when Amoco and Hess were the only commercials. I filled for BP and Shell and all the INDEX players from the 90s to the end when they shut the floors. I covered Exxon for 6 years working for a bank. I freely admit I can be wrong and I do…. often. However, when I think I am right, no one can shake me. So I write what I write, read the DMs that criticize me, and try my best to make the same case I have just made here this morning… because you pay me to be honest way more than to be right.

Another friend, a good writer, advised me to choose an avatar or pen name, before I started on substack. So I chose Alyosha, Dostoevsky’s son and iconic Russian hero, the good brother in his masterpiece novel The Brothers Karamazov. I want a spirit guide to sit on my shoulder as I write every day because I know how dangerous words can be at the fingertips of someone skilled at the craft. Perhaps that is why I abhor what I see being ladled on unsuspecting readers by “credible” writers on X. Alyosha was not Jesus, or a messiah. He was a good guy who did good things.

Ty sir… for asking.

JJ