Grinding Through Oil

August 14, 2026

Grinding.

That’s what we’re doing.

Grinding lower, grinding down, grinding away.

Sure, we’ll pretend like we don’t need it.

We’ll pretend like we don’t want it.

We’ll straight-up lie to each other about it.

It’s what we do when we can’t do anything.

It’s what we do when we can’t say anything.

That it’s all been for naught, or that there’s not enough.

This can’t last though, can it?

We’ve been hanging on thanks to China.

Look at those cuts to imports in May, June, and July. China though is returning, or was . . . or maybe it’s not . . . .

What’s certain though is it can’t stay away forever. If demand hasn’t materially fallen off (note: it hasn’t) then that means we’re drawing inventories, and the big dogs (i.e., the US and China) are bearing the brunt.

The US has to continue their draws since this is their war to lose. China though? That’s optional, it’s more . . . strategic, and would depend on their inventories (declining), and their inclination to put pressure on the US in the Middle East. Again balance all of that against the strength of their economy, which becomes wobbly if everyone else gets wobbly. You can’t manufacture what other’s can’t afford to buy. Tides though, could already be changing. You can’t draw your own inventories down too materially.

And if it does, that’s millions of barrels per day of incremental demand appearing suddenly, at a time when inventories (i.e., those that can be seen) are already drawing at >6M bpd.

Don’t expect demand destruction to do the heavy lifting though to offset.

By Goldman estimates it’s only down 1% for the year (i.e., ~1M bpd). We think it’s near that.

For example, just take a look at the number of total flights and total commercial flights worldwide. They’re up 2-4% for the year. TSA traveler throughput is down about 1%, so if we assume slightly less people are traveling, and that eventually translates to slightly less flights, even that drop-off would be immaterial given the production/supply outage. Read it again though, and in real time we see that flights are still up YOY, which means demand at the leading edge of energy consumption? Up.

So we grind.

We grind lower.

We grind lower because we’re A) we simply like our lifestyles and are unwilling to cut back, B) the US is unwilling or unable to escalate kinetically (because of a shortage of defensive munitions and/or each air campaign has become less effective), and C) we’ve shifted to an economic game, ratcheting sanctions to extremes. Less Operation Epic Fury and more Operation Economic Fury. As Secretary of Treasury Scott Bessent commented yesterday in a Newsmax interview:

“Watch this space for more announcements coming next week because we are going to apply measures like have never been seen in the history of economic isolation on a country,”

So it’s economic warfare we’re preparing eh? It’s an economic siege. My blockade vs. your blockade, and my sanctions vs. your ability to endure. It sounds tough, it sounds great, but even if it works, all of this takes time.

It takes time, patience, and resolve. Can the Iranian’s hold-out? We think so as they’ve been living in turmoil for quite awhile, making do with sanctions all this time. There’s also indications that the UAE has been sending billions to Iran to convince the latter to refrain from attacking if war intensifies. Such payments would help the regime prolong its ability to function even with the US blockade and ratcheted sanctions.

All along we’ve said that the physical market will eventually/inevitably discipline the paper market. You can’t burn paper barrels in your cars. You can’t consume paper barrels in your trucks.

If the production outages are real, and they are, then eventually we’ll see it in draws. What the US lacks more than munitions at this stage is time. We’re nearly 6 months into this conflict, and lost production now exceeds 2B barrels. Where are the draws? What was unseen may now be becoming clear. Hidden by all the fog of war has been an a figure, and it draws near.

It’s an inventory figure, and it’s grinding.

Grinding lower.

Grinding away.

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