Crude Joke - Episode IV

What if Jabba the Houthi enters the room?

Remember those pesky desert people from Star Wars IV … errrr … Shrubstack Jan III ("Crude Joke" )?

Seems things are properly heating up in the Middle East. In case you live on Tatooine, the UK and US have now entered the room and are attacking locations in Yemen.

Reminder why I bought Crude Calls:

• Geopolitical risk was mispriced

• Oil was at the bottom of the range ($70-$90 is what I believe to be the range)

• Speculators (polite name for “monkeys”) are the least long they’ve been since 2011

• Favourable Seasonality

I made another important point that was missed by some so I wanted to flag again:

“I usually prefer to own Oil producers but, in this case, I think Oil itself could be a better trade for the purpose I’m looking for.”

I wanted to play a SPIKE in oil due to geopolitical events. So it would be better to just own Oil outright instead of producers, because I assumed that the market monkeys are still concerned about a recession and OPEC spare capacity, so they wouldn’t rush to buy the producers.

And lo and behold, Crude outperformed the Producers (XLE ETF below).

IF Crude stays above >$75 for a while, you can expect the E&P and Oil Services stocks to also catch a proper bid.

So the question is, how long will this mess last?

I’ll keep it simple as always:

The US, the UK and their allies sent warships in the region, which is the closest thing to the Death Star that we have on this planet.

The Houthis on the other hand are engaging in guerrilla warfare with $1k drones and BB guns. Their whole aim is to create disruption. The US warships can shoot down as many drones as they want, they’ll just keep coming back, financed by Iran’s Oil.

I made this amazing graphic below to show the Red Sea and the Houthis. It’s almost as good as if it was AI-generated. I wanted to highlight the Persian Gulf there for a reason: the real BOSS level move for Oil will be IF IRAN or any of their sidekicks (portrayed by Jabba the Houthi) enters the room and causes disruption in the Strait of Hormuz in the Persian Gulf. Would just a few drones be enough? Probably.

IF that happens, then just buy everything Oil-related with both hands.

But it won’t happen, because <insert your own biased conclusion>.

Basically, the Oil equation is pretty simple right now:

• If trouble stays in the Red Sea —> Oil is in a $70-80 range

• If trouble expands to the Persian Gulf —> Oil is in a $80-100 range

I bothered to write this because I want to be prepared for any scenario. I also wanted to highlight how easy it is for the situation to escalate.

So even If you don’t have any Energy exposure, any escalation will still affect your portfolio, so plan accordingly.

Because I’m sure there will be as many episodes of Houthi Wars as Disney has planned for poor Star Wars (RIP).

Disclaimer:

This isn’t financial advice.

This is the trading blog of a shrub.

By now you should know: Don’t be Stupid.

Like, seriously … Don’t be stupid …