Here We Go Again
Key Extract
Full blockade, bombs away, and the promise of zero crude through Hormuz. Why an MOU is not a treaty, why crude grades matter for diesel, and what a structurally uptrending commodity market means for producers.
Well, there you have it folks. We're back on again, full war with Iran. Trump announces restoration of the blockade. Iran swears no more crude will go through without their say so. And bombs away for both sides.
The thing to know about the MOU is that it is not a treaty, agreement, contract, or anything of that nature. It's a document stating that the two sides acknowledge they should be talking, instead of unproductive alternatives.
This is not a political statement, only pointing out a legal technicality that will affect our industry: oil and gas.
You may or may not know, crude oil is not all equal. The blend coming out of the Persian Gulf has its purpose in a refinery. Your light sweet crude, which the US has a ton of, isn't really useful for producing diesel — the fuel that actually keeps the world running (think trucking, shipping, heavy industry).
At the same time, even during the ceasefire, inventories were still being drawn down. Ships transiting the Strait of Hormuz reached about 30 or so, a far cry from the usual 100+.
This means, fundamentally, supply has not been solved for, no matter what the futures price tells you, or how low the oil price gets hammered in the paper markets.
If you're one of our investors, expect more volatility, but ultimately we will get paid handsomely for producing a product that keeps the world going round. Our view is that we're in a structural uptrend in commodities, especially oil and gas.
Bull market runs don't go up in a straight line, so: relax and get a hot beverage, watch the markets and updates like this one, and get paid each month until the market realizes what we see.
Your Oil and Gas team, Mike Qu, on behalf of CrownForge Energy.