A Glut of Supply: Gaslighting the Market

May 31, 2026

So I got into a car accident yesterday.

Nothing major, just a minor fender bender. Stopped in the middle of a parking lot, waiting for a young lady to back out. She backed out, then kept backing . . . then backing . . . then . . . oh this is gonna be close . . . and

Bonk.

Doh. Oh well. It’s minor, no one’s hurt, stuff happens. A few scratches and dents, let’s trade insurance info.

She said sorry, and I said no worries, everyone’s fine.

Insurance adjuster calls and says . . . she said she was stopped after backing up and you drove into her.

Which then made me question my recollection. Was I really not stopped? Was I moving? Fortunately, my son who was with me in the car started laughing after I told him.

So I think this is what the kids call “gaslighting” these days. It’s a term that comes from the eponymous play Gas Light, where a manipulative husband slowly dims the gaslights in their home, but continuously lies to his wife, insisting that she’s imagining the creeping darkness.

It’s something we seem to be doing much of these days. Served so casually and frequently, sprinkled with a dash of deception. Problems are never anyone’s fault, it’s yours. You’re overly sensitive. Your analysis is wrong. Your judgment? Way off.

My facts are right, and I’m living the truth. You? You’re confused at best, and delusionally wrong at worst.

Really? Is this really how life works today? Because for a split-second even I’m doubting myself. Was I really not stopped, even though I was the one honking, knowing that she was about to hit me? Did I really just decide to whimsically truck someone in a parking lot? Why’d I do such a thing . . . wait, but did I?

The Jedi mind trick is REAL I tell ya, and none of us are even Jedis.

Yet that seems to be my life these days. One where my real life mirrors my investment reality, because guess what?

The Strait of Hormuz (“SoH”)?

Yeah . . . apparently that doesn’t matter either.

We actually don’t need 15% of our world’s energy supplies. You can cut it off and nothing misses a beat. We don’t need buffers, we don’t need healthy inventory levels, and we don’t need a material supply response. We’re Just Fine.

Once a peace deal is signed, everything will be awesome. Scratch that, right now? EVERYTHING IS AWESOME!

Why wouldn’t it be?

$87/barrel . . . WTI

$91/barrel . . . Brent

That’s the price of oil today. Makes sense. Frankly there is no shortage, at least not one that’s visible in prices. There’s no real shortage because none of this matters. We’re losing only 8-9M bpd. Sure it’s much more than that, but Strategic Petroleum Reserves help paper over 2M of the losses, demand destruction another 2M bpd, and voila, we have “only” an 8-9M bpd loss. A loss, mind you, that will quickly disappear soon when peace breaks out.

Soon meaning, whenever the US/Iran finally agree to reopen the SoH. To be honest, this seems likely. Eventually both sides will need to reopen. Iran to solidify diplomatically the military gains its made on the battlefield, and for the US, a detente so it can put this entire folly of an excursion to bed.

The non-stop jawboning and messaging from both sides means nobody can really stomach the trade. You can’t take a position in the prompt when the volatility and unpredictability works against you. As you bounce from headline to headline, you financially bleed from the thousand of knicks and tweets. Hence oil prices not only tread water, but start to sink even though the SoH remains closed. Besides, any CTA program worth its “momo” will tell you a flat to down line pales in comparison to this lunar moonshot of a line.

People go where the momo goes, and the momentum has achieved orbit. Whether that’ll be around the moon or Mars, it’s still to be determined, but it’s sure better than this . . .

So there you have it. One unconstrained and another forced into a predetermined channel. A tale of two charts. Not just that, but a tale of two narratives.

The Tidal Wave

Surely once the SoH reopens, the oil will flow. Not just flow, but it’ll be a tidal wave of supplies. First, OPEC and OPEC+ will surely ramp right, I mean they have been since they were removing all the quotas right before the war began, right? Well yes, but that actually didn’t result in any higher production.

Other than seasonality (i.e., increasing production/exports in the fall/winter), the above chart seems pretty flat doesn’t it?

Okay, then what about Venezuela and a few of the underpeformers, they’ll pump right? Didn’t we “take over” (oh sorry “free”) Venezuela to ramp its oil production? Other than a minor bump, there hasn’t been much change. Maybe the experts were right, maybe boosting the country’s production will require material capital investments, which’ll take awhile.

Hmm. Okay then the US . . . they’ll react, right? That’s the quickest and most price sensitive barrel. Drilling is about to go through the roof . . .

Oh yeah, now we’re talking! Look at that blip! 3 months into this. Up. Yet, despite that, we’re down YOY in rigs, frac spreads, and rigs in the prolific Permian basin?

Go figure.

It’s amazing really because what’s happening is that the SoH closure stemming from the conflict is inducing only a few suppliers to produce some incremental supplies. Sure oil is up from $60/barrel to $86/barrel, nearly 40% more, but really there’s been no step change in drilling.

The administration has done such a successful job in numbing oil prices, that the analgesic’s worked on the supply side. In other words, by suppressing the potential price spike, they’ve also neutered the supply response. What producer would willingly overproduce if the prices are so uncertain? Sure, on the fringe, you’ll get some supply response, but on the whole? Not much. The anemic response we’re seeing stems directly from the uncertainty they’ve created.

So then ripple that logic even further. If it’s not responding at these higher prices, what the likelihood production increases when peace arrives and you try to jawbone it lower even more? Exactly . . . nada.

Nonetheless that’s not what the narrative currently screams. Once the SoH reopens, supplies will increase. Increasing supplies mean recovering inventories, and that means lower energy prices going forward. In turn, that’ll create deflationary pressures, allowing the Fed and other central banks to lower rates, benefitting stocks.

Again, all of that’s predicated on supplies returning. Not just returning, but returning to their peak, and then some, and recouping the 1.5 billion barrels that were, or will be lost. The excess will also quickly refill all our coffers.

Really? 1.5B? Look you can quibble with that figure. Maybe not as much production was lost, maybe it was more, or will be more . . . or less. What matters really is the directionality.

The market is expecting that. Despite removing 20% of the world’s supplies and consuming 20% of the world’s inventories, will we quickly revert back to the lower prices we’ve had at the beginning of the year? Call us extremely skeptical.

Unfortunately for us, that’s the expectation and it’s ALREADY PRICED INTO THE MARKET as oil has already started its drift lower with the impending peace treaty/cease fire/negotiation to negotiate that’s coming soon.

The stock market is at an all-time high, and the bond market has stabilized. If either steps out of line, then expect another jawbone. We’re already into June now and Trump’s in “no rush” to negotiate. Well publicly at least.

We don’t think that’s anywhere near true as reports of his various and constant overtures are most likely true. What we do know is that inventories continue to drain, producers have been non responsive, and once the SoH reopens, production is even more likely to wallow further if prices decline. Who’s going to refill our inventories? Collectively? No one.

In fact, there’s a greater chance that we’ll have lost some production with the prolonged shut-in. Regardless, jawbone away. Keep telling us those lies. Keep telling us the room’s getting darker, and that we’re most assuredly wrong.

We’ll just sit here and hope that they’ll stop shortly, otherwise it’s really lights out for everyone.

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