George PearkesI see we are getting confusion over why equity markets are not reflecting oil price risk again.
I've said this before but to reiterate, fear of PnL downside is just as significant as reality-based expectations. The perceived upside to betting on calamity is minimal, because it will also mean TACO.
The closure of Hormuz *will* create a physical market dislocation (think $150+) if it continues for another few weeks. But because that dislocation will end the thing that created it (again, bc TACO), there's no point in betting on it playing out.
This is true across a range of asset classes btw - spot Brent, short-term CFDs, Brent/WTI futures, #$USO skew, energy markets, credit, liquid rates.
A physical market forcing event will eventually lead to mechanical selling but nobody wants to pre-position for that because it will be very brief.
There's no real scenario I can see where Trump doesn't completely fold and let Iran have whatever they want with Brent in the high-$100s.
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There are physical limits in the petroleum system. Inventories have been drawn far faster and further than anyone expected, but hopes around resumed flows do not create barrels.
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Estimates have varied but when I say "prices soaring" I mean physical transactions which must balance supply and demand. Inventories have been far more flexible than expected but they are finite.
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