Cushing at 19 million barrels and a $0.55 front spread can't both be right. The spread says supply is meeting demand. The delivery point says there's nothing left to deliver. The reason both numbers exist at the same time is that the spread reflects the national aggregate and the stress is at the physical hub. The spread can stay flat while the delivery point breaches operational minimum, right up until the scheduling failures and blending problems at Cushing get large enough to force the national number to move. That move won't be gradual.
The two-spike structure is what most people will miss because the market is pricing one event: Hormuz reopens, relief arrives, crisis over. It hasn't priced what happens when every country that drained reserves during the crisis needs to restock at the same time, competing for the same barrels, through a Strait that's still operating below pre-war capacity because demining, tanker repositioning, and refinery switching take physical time no signature can compress. The relief rally is pricing the headline. The restocking wave is the second bill, and nobody has budgeted for it yet.
A unique current reality with the disconnect between stock and flow from causal loop effects on complex system dynamics. Entropy is always the bridesmaid waiting in the wings.
Cushing at 19 million barrels and a $0.55 front spread can't both be right. The spread says supply is meeting demand. The delivery point says there's nothing left to deliver. The reason both numbers exist at the same time is that the spread reflects the national aggregate and the stress is at the physical hub. The spread can stay flat while the delivery point breaches operational minimum, right up until the scheduling failures and blending problems at Cushing get large enough to force the national number to move. That move won't be gradual.
The two-spike structure is what most people will miss because the market is pricing one event: Hormuz reopens, relief arrives, crisis over. It hasn't priced what happens when every country that drained reserves during the crisis needs to restock at the same time, competing for the same barrels, through a Strait that's still operating below pre-war capacity because demining, tanker repositioning, and refinery switching take physical time no signature can compress. The relief rally is pricing the headline. The restocking wave is the second bill, and nobody has budgeted for it yet.
And the trading algorithms react only to headlines. Not to the real world.
A unique current reality with the disconnect between stock and flow from causal loop effects on complex system dynamics. Entropy is always the bridesmaid waiting in the wings.
July 15-25 "should" be the breaking point at Cushing.
I have a long position in Oil