Geopolitical Overview

Over the course of this week, the conflict between the U.S. and Iran has escalated significantly. Iran carried out missile and drone attacks on U.S. bases in several Gulf states. The U.S. responded by expanding its military strikes against Iranian military infrastructure. Shipping traffic in the Persian Gulf remains disrupted.

Oil Price

$CRUD (+0,88 %) is in a consolidation phase between 78.00 and 81.50 USD. Such phases with such narrow price ranges rarely last long. Generally speaking, we can expect oil to gain further upward momentum in the coming days. The EIA Weekly Petroleum Status Report paint a picture of a tight oil market. U.S. crude oil inventories fell by 1.7 million barrels—more than expected—while refineries operated at a capacity utilization rate of 96.2%. As mentioned in the article Commodities | Long Oil? , CTAs are now positioning themselves accordingly.

Summary

• Extreme short positioning in the oil market.
• The physical market remains tight despite weak sentiment.
• A bullish catalyst could trigger short covering and CTA buying.
• Asymmetric risk-reward ratio on the upside.

Catalyst

During the NATO summit in Ankara, Donald Trump strongly hinted that the Memorandum of Understanding has now come to an end. The MOU had already been struggling for weeks; the 14-point plan failed to gain traction, and now the show has come to an end. $BRNT (+0,96 %) reacted to the news with a 5% rise.

Managed Money

The Managed Money Short (MMS) statistics show that approximately 40% are short on oil, due to the ongoing talks, the ceasefire, and the rhetoric from the Trump administration. If news emerges that contradicts this strategic thinking (as the current news cycle suggests), these short positions must be closed out quickly. This pressure drives the price higher, which in turn forces more short sellers to cover their positions.

CTA Positioning

Current CTA positions also indicate a speculative opportunity. Both $BRNT (+0,96 %) as well as $CRUD (+0,88 %) show a net short level of about -5 billion USD. The CTAs are currently heavily overcrowded and are betting on falling prices. Both have simulated strong “Up Small” and “Up Big” potential. Should a catalyst drive the market higher, the simulations (Conditional Expected Flows) indicate a massive reallocation, as mentioned above. This would mean that, in the event of a price breakout, the CTAs would have to quickly close their short positions and switch to massive long purchases. If, on the other hand, the market continues to fall, there is potential for a “Down Big” move—that is, a further strengthening of short positions.

Physical Market

Additionally, one can focus on the crack spread. A high crack spread indicates that refined products, such as $B4N2 (+1,13 %) and $B4N1 (+1,96 %) relative to $BRNT (+0,96 %) are very expensive. This means that refineries are currently achieving exceptionally high gross margins. Such a spread typically arises when demand for products is high, product supply is tight, or refinery capacity is limited! Currently, refinery utilization stands at around 96%. At the same time, inventories of gasoline and other distillates have recently continued to decline and are below their 5-year average. The high refinery utilization rate therefore suggests that the market is not well-supplied. This is relevant for oil in that a persistently tight product market generally supports refineries’ demand for crude oil.

Trade Rationale

The market currently exhibits a rare combination of:

• extremely bearish positioning,
• a tight physical market, and
• potential geopolitical catalysts

Should the geopolitical situation continue to escalate or market sentiment shift, this could trigger a disproportionately strong upward momentum driven by short covering and CTA buying.

Second oil position liquidated today.

As assumed.

Everything points to the USA wanting regime change in Venezuela.

At the moment, however, they haven't gathered enough troops to carry out a land invasion and I don't think this is likely, I think the US will mainly rely on air strikes and small sabotage/special operations and use PMCs. Therefore I am still very bullish on $CACI (+1,09 %) .

Venezuela also has oil reserves, some of which have been produced by $CVX (+1,13 %) part of the reason why the US wants regime change is the issue of this oil and therefore I think it is potentially a good investment. $CVX (+1,13 %) also potentially a good investment, as well as of course a position in $3LOI (+5,77 %) .

But the idea that I find most interesting so far is that it's not really being discussed much in the markets yet, so there could be a big increase in volatility, so I think it's very interesting. $VIXL (+2,71 %) also very interesting.

It is to be expected that major operations will only be carried out towards the end of November - December, due to the hurricane / typhoon season.

$3LOI (+5,77 %) is on the upswing and will continue to rise due to the political situation. If still invested, I would personally hold on if not increase!