In this episode, Jeff Malec sits down with returning “resident oil guy” Brent Belote of Cayler Capital to unpack one of the wildest stretches in energy markets since COVID and Russia/Ukraine. They dig into recent oil volatility, geopolitical tensions in the Middle East, and why the Straits of Hormuz still matter more than most people think. Brent breaks down how traders are actually navigating this market, from tracking physical flows to managing extreme option volatility, and what could come next. Jeff and Brent also explore how EV adoption, data centers, and grid constraints collide with the energy transition narrative, and what “up $50” or even “up $100” oil scenarios actually look like from a real risk perspective. SEND IT!
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From the episode:
Whitepaper- A Crude Awakening: How Oil Prices Ripple Through the Global Economy
Crude Oil goes Negative… What^%$# on The Derivative
Going Nuclear: How Uranium is Powering Portfolios with Trevor Hall & Justin Huhn
Check out the complete Transcript from this week’s podcast below:
Oil, War, and the Strait of Hormuz: What current events look like through the eyes of an energy trader
Jeff Malec 00:12
Hello. There you found the derivative brought to you by our RCM Alternatives, where we just put up a new white paper called a crude awakening. So go check that out. Given all that’s going on, we look at why oil prices are such a big deal, everything from jet fuel to juice boxes, what the recession odds and inflation numbers look like if we have extended $100 oil, $150 oil, $200 oil. So go check that out at rcmalts.com/whitepapers, rcmalts.com/whitepapers. Onto this pod. That oil paper is a handy go along with today’s guest. We’ve got Brent Belote, who’s been on the pod a few times before. He’s kind of my resident oil go to guest. He also makes me jealous every time I talk to him, since he lives in Jackson Hole and gets to ski all the time. That’s for another pod was last week, actually. But we’re not talking skiing this week. We’re talking oil, Iran, straits, islands, pipelines, boats and all the rest. As we see just what this world looks like through the eyes of an energy trader. Send it you. All right, everybody, we’re here with my resident oil guy, Brent. Below. Brent, how are you doing?
Brent Belote 01:31
Great? How you doing yourself?
Jeff Malec 01:34
I’m great. You’re starting to climb the ranks of, like, top derivative guess. I think this your third time, maybe
Brent Belote 01:43
fourth time. I think it’s my third and it’s usually, I think the only time we talk is, I think we talked during covid, the first time, Russia, Ukraine, the next time. So it’s every, every two or three years when we have a an oil spike or an oil crash, one of the two.
Jeff Malec 01:55
What? Yeah, we’ll put that one, because that was fun. When oil went negative, we hopped on and talked. Because what? How does oil go? Negative? Yeah, so obviously, wanted to get you on. A lot going on in the world of energy markets. You’ve, we’re not going to talk performance on here, but you’ve, you’ve got a smile on your face from last month, yep,
Brent Belote 02:13
once, which was all we can ask for.
Jeff Malec 02:17
And I noticed the the monthly update came out really quick. Was like, before 10am on the good one.
Brent Belote 02:23
It’s funny how that works out.
Jeff Malec 02:24
Yeah, it’s always like, the bad quarters. Get that next week I’m out of town.
Brent Belote 02:30
Yeah, take extra time writing the careful ones and make it make it go. So, yeah, it’s been very embarrassing times. The only market to say the least.
Jeff Malec 02:38
So before we get into all that good stuff. We’re both skiers. You made the wiser choice to move to Jackson Hole. I’m sitting here in Chicago without any mountains, but a really bad snow year in the Rockies,
Brent Belote 02:51
really bad snow year, but it was still good. You know, our kids, my kids, are young enough where it’s it’s still fun no matter what we’re doing. So it’s
Jeff Malec 02:59
a win, win, either way. Nice. You came on the heels. Last pod was with Joel Gratz of open snow, the founder, I know the app where you track the snow totals. So he was saying it’s just a fluke, that this is just reversion to the mean. And we were due for one of these, and there was a temperatures are rising, but precipitation has been steady, yeah. So you’re getting more rain on the shoulder seasons, but generally it was the same precipitation.
Brent Belote 03:27
I was looking at the overall snow totals, and like for where we are, the snow totals were actually right on par. And even on the higher elevations of the Tetons, it was, it was above last year, last couple years, but we just, it was one of those years where it would snow two feet, and then the next day it’d be 50 and raining, and then snow would be gone. And then it was just, it was just a constant snow and melt snow and melt cycle.
Jeff Malec 03:51
So what? Let’s hope he’s right, so I can come back and visit you one day. Your kids doing like, flips and stuff yet, or they’re still young enough.
Brent Belote 04:00
They’re pretty crazy skiers at this point. I think, I think the kids put in 40 or 50 days this year. They’re definitely on their way. But that’s also why we live here. I love it.
Jeff Malec 04:18
So take us back the war. What was it? A Friday night? What was the Yeah,
Brent Belote 04:25
February, and it kind of started off the month with a bang. You know, the Israel, Iran conflict with us and everyone it. It really shocked the system. And it’s funny, because everything is every oil person knows about the Straits of Hormuz, but not that was probably the most mainstream this has ever been in the world. So obviously, you know, at Kayla capital, and even before this, at Jake Morgan, we were tracking a lot of ships. We’re looking at where they’re loading, where they’re going, and what the choke points are. And the Straits of Hormuz were always the most, you know, critical choke point. Of oil in the world. So it was always something that we were aware of and something that we were monitoring daily. And to be honest, I didn’t think, you know, we had not a similar war start, but kind of last summer we, you know, we fired a bunch of missiles into Iran. And I thought oil would be 150 at that point, and it kind of sorted itself out in 10 days, and we ended up back to it. This one really is a little bit different. In the number one, it was obviously still ongoing, but looks to be like there’s kind of an end in sight. But this one was interesting because it more had a lot of ramifications that I think will have a lot of investing implications towards the future, from fertilizer to plastics to kind of feed stocks. We really seen it across all the commodity space here. So, you know, I think it’s something that was very interesting, you know. And you saw that right away when we spiked $119 in Brent, and then we were back at 85 that same day, you know, that was a that was a pain. Was a crazy one. I was like, did I miss that? And I was like, Wait, it seems like it’s still really bad. So, you know, didn’t, didn’t have any risk changes, didn’t have anything kind of wrote it up, wrote it down, and then it just was a constant grind.
Jeff Malec 06:13
So few things there take us through. One, when you mentioned tracking the boats, just makes me think that, like, even to 10 years ago, what would that look like versus today? There’s like, a app or right the flight aware for boats,
Brent Belote 06:25
you can see to load. It usually has GPS tracking on it, so you can actually see it in Bloomberg or different third party softwares. There’s a great, a great guy on on Twitter. It’s actually tanker trackers, and he kind of does what we do, essentially, where we’re looking at every boat, where it’s loading, where it’s parked, is it moving through the straight and you can see really real time where it’s going and how it’s kind of funneling through the Straits of four moves. So it’s a it’s a very, very powerful software from that perspective,
Jeff Malec 06:57
my dad and grandpa were in the Navy, and so they would take offense to calling it a boat. It’s a ship, but I’ve noticed a lot of oil traders call it boats, right? Even Trump was like, Hey, we got six boats of oil. Like, actually, their ship tankers defy the right word. But then if they’re smuggling oil out of there, they turn the GPS off and all that. So you don’t know the black market or the off market, yeah, that’s
Brent Belote 07:18
kind of that’s always been a weird one is how much floating oil they have, you know, which is on the market anytime. And what they actually do is they’ll load it on a ship, and then they’ll get off, off, you know, off, kind of into the dark area, and they’ll transfer it, and then they’ll be like, Ah, this one, the ship’s empty. You’re like, that’s interesting. Funny how that works. So, yeah, I mean, it was, it’s an interesting thing. I was always, I would say about, you know, most of the month I was fairly, fairly bullish. And about 10 days ago I started to get a little bit more on the bare side of things. Not to say we still can’t have some, you know, fireworks to the upside. But I think about 10 days ago, I started sending emails to friends and kind of chatting with different industry people saying it really felt like this. There was a shift globally. It started with, you know, a lot of the I think it was the EU there was an EU referendum that came out, and they were discussing, and they were like condemning it. And then you started seeing it more in the news about, hey, maybe there’s an off ramp here. And then you start seeing the taco trade were to come out. And so it was, it was interesting to kind of feel that dynamic. And when the EIA did their coordinated release of, I think it was four or 500 million bears of oil, it really kind of brought to light the fact that we have a lot of oil in the world. I think it’s more the products that are going to be a problem for the foreseeable future. You know, we have, you can, you can solve a lot of problems with SPR leases, floating storage oil can get back out pretty quickly. But I feel like the damage that was done to, you know, jet fuel, distillate and gasoline markets is going to kind of trickle its way through the foundation for pretty much
Jeff Malec 08:56
the whole summer, in my opinion. And is that a right, the same as in the rest of the commodity space, like copper mines haven’t been upgraded in dozens of years. I guess the infrastructure just hasn’t been upgraded.
Brent Belote 09:08
And, no, it’s more just that there’s been a lot of damage to it, you know. So when we when we look at it’s hard, because you can turn oil back on fairly quickly. But I think I saw something that the LNG facility is going to take three years to get back online. So there’s all these, there’s all these ones where it just takes a long time. And you know, when you look at here in the United States, they have refinery outages, and they’ll plan them months in advance, because you got to mobilize a lot of engineers, a lot of stock, a lot of different things to keep it right. So it just takes a long time to get it organized and get it, get it flowing through the
Jeff Malec 09:42
system properly again. And the LNG is interesting, right? If I pull up a chart of Henry, hub of us, natural gas, like, it basically didn’t move right through this.
Brent Belote 09:53
I mean, well, that’s, that’s a, well, that’s a bad proxy, first
Jeff Malec 09:57
of all, but Right, but that’s what you’re saying. Like, that doesn’t matter, because. Is in that side of the world, they need that net gas to make these, these products and plastics and things
Brent Belote 10:07
like that, absolutely, you know. And when you look at the United States, we’re an exporter at this point, just because how much, pretty much every oil field drill nowadays is predominantly there’s so many light ends to it. There’s a lot of natural gas to it, and it just ends up being a city like most of the shale plays that are now pretty prevalent in the United States have a huge natural gas component, which is going to put a cap on that no matter what. But if you look at UK nag gas prices, or, you know, for example, even the jet fuel in the United States versus jet fuel over there, you know, jet fuel in Europe was, I think it was over $200 a barrel at one point. So they’ve had a massive spike, way more than we had, but it’s going to have, like I said, a long lasting effect, because we can export a lot of our products. That’s probably where they’re going to head for the foreseeable future.
Jeff Malec 10:53
What? What is jet fuel run at, typically
Brent Belote 10:57
over, over, like oil normally or spread. And typically the can be anywhere from 25 to $30 over oil, the price of oil. So seeing it over there when it’s almost double the price of oil is pretty
Jeff Malec 11:11
wild, super crazy. And then I want to go back. So you’re out on a Friday night, maybe you’re sitting at home with all those kids, but whatever, it’s Friday night, you’re an oil trader, you’re an energy trader, and you see the news like, what happens? You can’t trade it. You can’t trade it. Yeah, right. So it’s like, a weird Do you think they did that on purpose? Like, two questions, what goes through your mind? Are you like, waiting for Sunday night? Of like, shut I
Brent Belote 11:32
gotta do something Sunday night. I’m sitting there at my at my terminal trading screen open, ready to do something? Thank Thank God, I didn’t, but there was one of those things that opened up 10, then it opened up 17, and it just kept going higher. So it was interesting. You know, you’re not really seeing where it’s going and how it’s moving.
Jeff Malec 11:53
So yeah, and then, but that whole weekend is shot. You’re like, or do you manage it?
Brent Belote 11:58
Well? I mean, he does that every time. If you look at this, pretty much, every Friday there was a news announcement that would have, would have affected the markets on a Wednesday or Thursday,
Jeff Malec 12:10
yeah, and end of the month, it was a nice little Hey, if we’re gonna someone said, like, hey, if we’re gonna do this, let’s do it over the weekend. Let people digest maybe the market won’t very, very
Brent Belote 12:18
cognizant of the price of stuff. He is definitely watching markets. He is investments 100% he is very aware of where it is and what that ramifications are,
Jeff Malec 12:30
some might say, because he’s trading it.
Brent Belote 12:34
Yeah, we’ll leave. There was rumors on one big down day that the Fed ended up that Scott Besson actually sold a bunch of oil as a hedge, yeah, which I thought was interesting. I’m like, you know, if he’s trying to push the market down by selling a couple million barrels of oil, that’s kind of fascinating.
Jeff Malec 12:55
Super fascinating. Yeah, we can’t, we can’t take this press. So take me through so you then you’re in that Sunday night opens. You had already seen this building up. You didn’t know missiles were actually going to fly. But, like, Where were you at coming into the month, coming into this event? We’re fairly connected.
Brent Belote 13:10
Anyways, yeah, distiller market was strong. Gasoline was strong to start the month. We were long going into it. So it was a, you know, it was a good, it was a good Sunday open, and all of Monday was just, you know, kind of staring at the screen, watching the P and L drip away after that first one. But it was still a good day, you know, just wasn’t up 9% on one day, type of, type of event that we had, but then it just continually go, you know, as this was going through, it was very apparent that there wasn’t really an off ramp that was good for anyone at that point. And it just kept increasing the rhetoric and keep, you know, the missiles were flying on both fronts. And it was very clear that, you know, Trump would come out and say, Oh yeah, we’re having talks. And then it’d be Iranian news source says, No, we’re not. It was. So it just seemed a very hit or miss, and that’s kind of where we’re at right now. I mean, even as it is today, was a great example, right? Like, you know, you’re hearing all these things as Trump, Trump, in his speech, says the war could be over in two to three weeks. We will do we will negotiate a cease fire as soon as the Strait is open. And then you see a headline from Iran that says, We will never open the straight and so I think everyone’s trying to think of everyone’s no one really believes anyone at this point, so I don’t think it’s necessarily over. Definitely could go both ways, but you know, they’ve the US has gone out of their way to not really damage infrastructure. If we took out Carg Island, it’d be a big problem. But they’re also a large exporter of potash and other fertilizer products and pet Chem products, so it would have a very, severe. If we took out that entire island and the energy infrastructure, it would be less of an oil story and more of a almost putting us into a recession story, just because the feed stocks that are required
Jeff Malec 14:51
to come out of there, and those were an importer of in the US,
Brent Belote 14:55
US, yeah, pretty much everywhere, Europe, all of them. And so that’s a
Jeff Malec 14:58
secret hidden story. And all this, right? Of like, there’s oil sanctions on Iran, but not feed stocks, not exactly, yeah.
Brent Belote 15:06
So it’s interesting to see, like, what they decided to attack and what they didn’t, and you know where they would kind of draw the line, per se, yeah,
Jeff Malec 15:15
have you the whole time? Has this been a purely this much supply got taken out to is it more math or art or of like, this is a conflict both. I need to, yeah. I need to think of how this is going to react, how the market’s gonna react, or look
Brent Belote 15:29
at how they’re reacting. Yeah. I mean, that’s what I’m saying. Like, I think it’s, you know, this has been a lot of psychology as well in terms of, okay, it feels like sentiment has shifted. There’s a lot more pressure on Trump to get a deal done. The American public is not as thrilled with this as they were, if they ever were. So, you know, I think a lot of people are still wary just from Iraq and the different the different Middle Eastern events we’ve been a part of. So I think people were a little less excited about this one as it continued to linger. Yeah, and it seemed on the same boat. Like, the, you know, I the first week I was leaning in the camp of, this will end quick. And then the next two weeks were, oh, God, this isn’t going anywhere. And then the last week has been, yeah, I think this is kind of ending again. So I kind of kind of went back and forth two or three times on this. But yeah, it’s a lot of math too, because you need to understand where oil can go, you know, one of my old mentors used to always say, like, the price of oil is just a number, right? Like, it’ll it can go to 300 and there’ll be ramifications on supply, demand of that, but it can go as high as it can go. And in a war event, or when someone actually needs it, it’s kind of like negative. People didn’t think oil could go negative. But when you have too much put it, kind of have to deal with it. So, you know, there could have been a scenario where people got stuck holding on to barrels or holding shorts, and they got stopped out, and it goes to 300 so, you know, you had to be really aware on the upside. But it was a, you know, I’ve been trading volatility in this market since 2008 and this was the craziest I’ve ever seen. You know, you had calls that were $75 out of the money. And they were trading for like, $4 which is insane. They should be like 12 cents. So they were really, it really extendies.
Jeff Malec 17:08
That became dollars. Yeah, exactly. It really
Brent Belote 17:10
expanded the whole vol curve. You saw everything kind of do it. But it also gave a lot of opportunities in that, like, when there’s, there’s different things that are expensive versus cheap. You can kind of play it on a couple different sides,
Jeff Malec 17:22
and then talk like, if this had happened, pick a number 15 years ago. Are we? The spike is worse. The spike is higher. Like, one US wasn’t as energy independent, probably, then maybe you could, right? So, like, Tell me about that. Of like, what was part of the and you can’t get in the war department’s brain, but was part of the math of like, Hey, we’re energy independent. This is the time
Brent Belote 17:45
to do this. Yeah, there was two or three things that floated around in it. The US said they were considering a oil export ban, and you started to see the global price of oil even stretch farther away from where we were. But that turned they made an announcement, like, 24 hours later, that was like, Oh no, we’re not going to do that. But you could really suppress the United States versus the world for a good amount of time, especially in the oil front, but it’s there’s certain things where, like, we’re the taker of a lot of stuff in this world. So if you want to really do an export ban on the price of oil, then it’s going to have trickle down effects for what other countries are probably going to do on an export ban to us as well, which would be pretty
Jeff Malec 18:27
painful, right? We won’t be able to ship anything or build anything here, but gas will stay at three, $3 a gallon. You can drive wherever
Brent Belote 18:35
you want, but, yeah, there’s no chips to build cars. Yeah, so it’s a it’s a slippery slope, and I think that was why they did that.
Jeff Malec 18:52
When you were back on the trading desk at the bank and whatnot. Was there always like, hey, was this the far right tail event of like, our far left tail event in oil. I mean, that’s
Brent Belote 19:02
something that kind of stayed with me, was we always run scenario analysis on the on the books, like at JP Morgan, it was okay if we wake up and oil is up $10 if oil is up $20 if oils up $50 because it’s not just oil. In a lot of these portfolios, it’s oil. It’s the price of gasoline. It’s the price of, you know, the volatility that goes up. And you saw a really interesting thing occurrence here, where on a big up move in oil, the vault vol actually expanded. Typically it contracts on an up move, and it’ll expand on a down move. So big down moves usually expand volatility. Volatility increases. But on this one, it was like a double factor. So I’m sure a lot of books were caught off guard in that when they run it versus their portfolio. But it’s always something that I took with me is, hey, shock the shock your overall portfolio, to see what it would do in an up 50 scenario and up 100 scenario, you know, to make sure that you’re not in technically blow up risk or you can properly risk manage it.
Jeff Malec 19:59
Yeah. Up and up $100 so there’s always thinking like, if that happens, boom, and what? What’s the not to you’re making you put your like, Commander hat on a few times. But how do they actually close the straight they can’t, right? There’s not a gate. They’re just saying, if you come through there, we’re going to shoot missiles. And, yeah, she can
Brent Belote 20:19
also mine it, which they have said they haven’t done, but they said they wouldn’t rule it out, you know, and that can take, that can take weeks, months, depending on how good they do. It could be, can be closed for a long time,
Jeff Malec 20:31
so they could, but it’s like we’re right there. It seems like we could prevent them from laying minds.
Brent Belote 20:35
I’m not a military guy, and I can’t answer that, but it’s not a huge, it’s really not a huge area that they have to hold or cause problems in, right? You know, if you we’ve already seen what their drone capabilities are, and it would take, you know, on drone, to sink one of these. I mean,
Jeff Malec 20:55
yeah, they don’t have the defense shields.
Brent Belote 20:56
Got a million barrels of one of the more flammable liquids on Earth, you know, so, so pretty much one of the one one missile would sink it. And if you sunk two or three of those in the right spot, that’s a massive cleanup to get those out of the way, to be able to keep traffic
Jeff Malec 21:10
moving through there. And then it’s that’s and now it just comes down to the perception and the insurance, right? Like, cool, maybe the threats not really there, but I’m going to charge you a shit ton of insurance to send that boat through there, because I’m worried about this stuff.
Brent Belote 21:24
Yeah, yeah, exactly, you know. And I think, I mean, for me, the shoe to drop that I’ve been looking at is, are we going to attack any of their actual infrastructure and oil, and are we putting boots on the ground? Because boots on the ground is a pretty big escalation in terms of the United States, especially with Iran. And it’s wasn’t something that, you know, that that was the oil to 150 that’s a very, very, you know, if we flatten Carg Island and we put boots on the ground, that’s a big problem for for the rest, because then there’s no off ramp once you’ve destroyed, you know, Carg Island is really their lifeblood in terms of revenue. And if you got rid of that, it, it’d be a very big problem for Iran to ever come back from for a long time. And they would that would be a serious and that. And if that happened, if we attacked that, their first reaction is start to act. And you know, they there’d be missiles into Saudi oil fields. There’d be missiles into refiners, which is, like I said, those can take years
Jeff Malec 22:21
to fix, and then it’s right, you get into quagmire territory of like, now we need troops there to protect Carg Island as we rebuild it and yada yada. Yeah, it’s,
Brent Belote 22:30
it’s, I think, as this progressed, I think Trump saw that, that he is like, my two choices are to either hold car guy land or destroy it, or get boots on the ground in some way, shape or form. But, yeah, I had never really looked at it, but a topography map of Iran, it really is a fortress. It’s like the whole country is mountains, actually pretty
Jeff Malec 22:51
wide. Afghanistan,
Brent Belote 22:53
I never looked at that before, and I spent, spent a couple hours looking at that a couple weeks ago.
Jeff Malec 22:57
It’s interesting. Well, then I’m going to make you put your geologist engineer had on of like, why? What’s with Carg Island? It’s in the middle. It’s so they don’t have to come into the shore to load oil. Yeah, exactly.
Brent Belote 23:06
So it’s just pipelines that connect to it and they’re able to export. So all these ships are obviously massive. They need huge drafts to be able to get in there and load up. And it just is one of their primary export facilities.
Jeff Malec 23:20
And then you mentioned Saudis. I read they have a pipeline system that bypasses the whole thing, goes the other way, not
Brent Belote 23:27
enough to materially change it. You still have a lot of exports to that straight.
Jeff Malec 23:32
And do you think this like them in particular, and others will be like, All right, we need to start building I
Brent Belote 23:38
don’t know. I mean, I saw sort of paying Phil
Jeff Malec 23:41
Mickelson $300 million how about build a new pipeline?
Brent Belote 23:44
Yeah, you say that, but I can’t even imagine the cost. But yeah, if it’s gonna get ugly, then yeah, they probably will. But now I think it’s a situation where Iran knows that. I think, I think this may have been bold in Iran to the negative side. You know, they know that they can hold this now. They know that they can impose a pain on the world pretty substantially via this. So, you know, you’re right. It might, it might trickle down, but those pipelines will take a long time to build, talking years and
Jeff Malec 24:12
Europe has no good, right? Okay, turn on the pipelines from Russia again. No, that’s, yeah.
Brent Belote 24:18
I mean, the real big winner in this entire thing is definitely Russia. You know, I saw, you know, we’ve already weighed we waived, I think Trump waived a bunch of, bunch of sanctions on Russia, on Russian oil, to try to get it in, to keep it down. So they have a lot of lever to try to keep the price of oil down and manageable. But none of them are really great.
Jeff Malec 24:39
So let’s backtrack, if US nat gas isn’t a good marker, and was WTI even like as how are people hedging all this?
Brent Belote 24:49
Yeah, Ti and Brent kind of were insulated. If you look at some of the other grades Dubai, specifically oil and was substantially higher. You know, you were seeing it in the 160s one. These range. So, you know, the rest of the world kind of decoupled from the actual physical barrel. For a lot of these proxies.
Jeff Malec 25:08
Do you trade that, like those other Middle East?
Brent Belote 25:10
Not really. Yeah, I track them from a standpoint of a lot of times, they’re very important for where the arbitrages are and how you can move oil around the world. But no, I don’t, I don’t trade those, particularly just w 10 Brent are the two. And even that, you saw w 10 Brent widen substantially, but nothing like you did the other grades.
Jeff Malec 25:28
And then, are they even tradable? Right? They like tried to, you got
Brent Belote 25:33
to trade OTC, though. And they’re very can be illiquid, especially in times like this. I There’s some rumors out there that some very large trade houses got caught on the wrong side, on two or three of these. So I’m curious to see where the, you know, the blood in the streets actually trickles out from,
Jeff Malec 25:51
because I heard those rumors here in Chicago was very large. Was it a vote firm?
Brent Belote 25:57
I don’t know, actually, but I mean, with with how much things moved, it just killed you. Killed all risk systems. There was no risk system or risk people that could have prepared you for that, especially
Jeff Malec 26:09
over there, which is back to your point, though. But like, why? Because it’s a known thing. Like, as soon as the US attacks Iran, but we were lulled to sleep with the past thing. The missiles went in and, yeah, s, p was up that day, I think. And I can’t remember what.
Brent Belote 26:21
Well, I did find it interesting, because there was all these things. And you know, when you’re running through kind of the worst case scenario analysis in your mind, it’s if the United if, if Iran ever shut down the streets of four moves were $200 immediately. Yeah, no, we’re not. So it’s interesting because that’s,
Jeff Malec 26:41
right, we were 85 that night. Yeah, that was the weird thing. People didn’t think it was gonna get shut down. They’re like, Oh, we got air spirit. Everything’s happening. Like, back to 85
Brent Belote 26:51
I kind of agreed. I thought, I didn’t think it would be as big a deal as it was for long. And it’s again, still going. But it’s, it can still get worse. You know, if this is a prolonged thing, and people were really digging in their heels and saying, Hey, we’re going to go in there, we’re going to do this. And they’re battling, and we’re battling. It’s a it’s a tough one.
Jeff Malec 27:13
And then we mentioned the liquidity. Talk through what you were seeing in like, these us, WTI rent. Like, what was it? What was up on each side? How many millions could you get done?
Brent Belote 27:25
I mean, still, still incredibly liquid in both fronts. So no, no issues at all in any oil or US product, right?
Jeff Malec 27:32
Wasn’t trading like five, no.
Brent Belote 27:35
I mean, it’s more just the speed at which it was. You know, I’ve never seen that much. I haven’t read an analysis, I should, but it was, you know, there was, there was times I’d wake up and, you know, oils down $1 and then I look at the high, low in the chart, and I’m like, Oh my God, it was, we were down seven. Like, what, you know, or, or even, you know, great, even the other day, like, I think it was, it was Monday, you know, Monday was up, you know, $3 and then something came down. It was down three, and it was five. It was a $5 right range before, you know, 9am and that kind of true ranges that you’re seeing in the high lows is unheard of, $10 you know, it’s crazy.
Jeff Malec 28:15
And then, so what’s that? You’re looking at the options too. So the option ball went from like a 20 to a 40. What’s that look like?
Brent Belote 28:23
More? Yeah, yeah. And it was all call skew too. So it was all the calls were way, way more expensive, yeah, just incredible. You know, the way I like to think of it is to normalize it across. And you think of it in terms of a break even rate, and that is essentially the amount that the delta of the underlying has to move in order to pay for the theta, or cost of the option on an on a daily basis. Typically oil break evens around $1.30 to $1.45 we were seeing them around seven to $9 so that was saying that your theta, you’re getting paid enough where oil has to move seven to $9 the next day. Every day, it has to move seven to $9 in order to pay for your actual, like, the cost of holding the Option. Yeah. The problem is, is, you know, most risk systems, you can’t, you can’t hold short options. Just, you just can’t, like, in this market, yeah, can’t do it like it you get a copy. Yeah, you’re getting a call from above, and they’re like, Hey, you’re you’re short the 170 calls. And you’re like, Yeah, okay, sold them for $8 and they’re like, Yeah, but before it goes to 250 you know, you’re gonna lose $80 million you’re like, oh yeah, oh yeah, okay, I guess they should get that, you know, even though the trade probably was right. So there’s probably was some out people that, you know, got hammered on this. I think you actually won the I don’t know if you saw the PIMCO thing. They were down. I don’t know what they finished the month on yet, but you know, PIMCO is a historic vol seller. Their continual, their whole thesis is, you’re just constantly selling small vol every day across a number of across a number of commodities. And realize vol will come in below the basket. And this was the first time it’s ever, you know, they got really hurt on that so,
Jeff Malec 30:07
whoops, selling vol. And they got hurt, no way,
Brent Belote 30:11
in their defense. And they, you know, they probably made billions and billions getting shorter for the last decade.
Jeff Malec 30:16
But exactly you
Jeff Malec 30:28
so let’s talk moving forward. What are your What are you looking at? What could be a couple different paths that wind this thing up and or like, who cares about this? What’s the rest of the world look like for I think if
Brent Belote 30:41
I ran opens Hormuz, it’s done. If they come out and say, we’re gonna, we’re gonna, we’re, we’re committed to opening the Strait of Hormuz and, and I was just kind of a Bloomberg alert. I was like, that’d be great if they did it on here. And no, if they open the Straits of Hormuz, I think Trump will figure out a way to get a deal done if they you know, he’s really given them a very, very good off ramp right now, and it’s a question of whether they’ll take it. You know, he basically said, Hey, we will. We will honor a cease fire as soon as the straits open. It’d be very easy for them just to do that. But the problem is, is, I don’t believe they trust him, and they think he’s just trying to buy time to do something else. That’s sneaky. I actually think he wants an off ramp. So, you know, if that happens, I think, I think we can probably fall another five to $10 but I think the floor is, I think we’re structurally in a bull market at this point. I don’t think we’re going to end up in a scenario where we’re back to $50 or $60 oil. I think, I think we’re going to be, you know, north of 70 for the rest of the year. And they’re, you know, the ongoing ramifications of that. Again, I mentioned it. Our distillate markets are still very under supplied, and we’re going to have a problem catching up to that and gasoline. So with summer driving, driving season already kind of starting in here in the United States, it’s going to be hard to get a lot of the feed stocks necessary to blend a lot of gasoline and keep it going. So, you know, I think, I think we are in a bull market, even if that happens, if they did that now again, the boots on the ground scenario, I think we’ll probably see, I think the highs are in jeopardy at that point. At that point, if we put some troops on the ground, or, you know, we’re in involved in combat there, I think you’ll probably see $150 oil. So right now it’s fairly binary, which is why, you know, there’s not a lot of great trades. It’s time to, time to get a little smaller, and everyone’s, you know, roll farther out the curve and just stay out of the front, because right now it’s all headline risk. So are you?
Jeff Malec 32:37
Do you get on Cal, she, or any of those, and look at the prediction markets. What they say about all this.
Brent Belote 32:43
You know, what’s funny is this actually forced me to do a pretty deep dive on Poly market. Cal she and there’s actually one out there. I should get sponsored by them, hyper liquid, and they launched an oil perpetuals, so you can actually see what the price of oil is predicted to be on that time, and it’s actually enough volume to where it’s kind of a material benchmark. So, you know, I think last weekend, I was curious where we were going to open up oil, what this was going to look like. And I went on and kind of was playing around, looking at the correlations between this price and the price of WTI, how much it correlates to the Sunday opening is pretty, actually good. It’s pretty dead on for where we actually opened on Sunday night, the Globex session, versus where the Saturday night hyper liquid did. So it’s very interesting. But yeah, it’s definitely something that I haven’t thought about as much, and I am thinking more
Jeff Malec 33:35
about, yeah, well, helps. And I’ve talked with a few hedge fund managers and whatnot, who are like, Yeah, as soon as soon as it becomes more liquid, we’ll get in there, right? You could, in this example, put on some $150 calls and sell the prediction that we won’t have boots on the ground or vice versa.
Brent Belote 33:52
For sure, for sure. Yeah. I mean, there’s definitely
Jeff Malec 33:55
the only they’re highly manipulatable, right? That’s yeah, I would,
Brent Belote 33:59
I would agree with that. Yeah, yeah, yeah. I played around with it, looking at it, seeing how, you know, like they do, they do the they do. Like, will oil be above 150 on this doll on this day, right? Yeah. And, you know, you can call that. It’s actually an ad expre Digital in the like, option trading world. And you can actually replicate it with the WTI, with a WTI call spread, or your Brent spread, so you can see, actually, like, Okay, here’s what the W here’s what the actual market is, pricing the probability as, here’s what Cal share poly market as, is there an arbitrage there to kind of do it, but you’re tying up so much capital, and it’s, it’s a, it was a tricky, tricky one.
Jeff Malec 34:37
I thought when you saw that, you can see their spread basically, pretty much, yeah. I’m sure they’re charging a healthy Yeah, healthy sprint. And then that tells me the CME, all the exchanges, are going to adapt and be like, we have to offer 24 hour like, seven days a week, right? We need, people need to be able to trade on Friday night when this happens.
Brent Belote 34:55
Yeah, yeah. I mean, that’s, isn’t that the whole point of tokenization and bring. Exactly, yeah, gain, is it? It’s yeah. I that. To be frank, there really isn’t a reason why the Globex closes other than the fact that it was just, you know, used to be, it used to be a pit.
Jeff Malec 35:11
Yeah, someone’s in there like, hey, we need a weekend. Still, come on, yeah, yeah, exactly, because it essentially doesn’t close. Yeah, that’s some fit. I don’t
Brent Belote 35:19
know what the difference is between me waking up at 1am and trading versus Saturday at 10am this pretty much same thing.
Jeff Malec 35:25
Yeah, exactly. Cool. And then what say? This whole thing didn’t exist. Didn’t happen. Where were you at with with the overall energy markets? Where were you thinking we were You were still bullish. I was
Brent Belote 35:37
still fairly constructive. Coming in in summer. I think it was an interesting market where distillate, again, still, was kind of historically under supplied, and gasoline as well, was looking strong. So talk to
Jeff Malec 35:47
me, where I’ve been get under supplied. Where I was
Brent Belote 35:50
wrong was I was thinking that we would probably be in a structural over supply of oil for the first call up this summer. Balances looked very frothy, and we looked like we were gonna have too much oil this summer. So it really kind of took the wind out of the sails on that one, and it flipped.
Jeff Malec 36:09
Yeah, but So explain that to me of how dislikes can be under supply, right? Because if you have enough oil, you have enough to make the distillates, or it’s all refining
Brent Belote 36:18
capacity, all refining capacity,
Jeff Malec 36:21
and choices, whether they choose to make diesel or jet, yeah,
Brent Belote 36:25
yeah, exactly, exactly.
Jeff Malec 36:27
So what in the US, we’re mainly making retail gasoline and diesel?
Brent Belote 36:33
Yes, yeah. I mean yes, though that’s pretty much the two primary products of all refiners. A lot of times, what happens is, you’ll have, you know, something happen globally. So we’re Russia, Ukraine was a great example. That was a big distillate disruption that we kind of took a year, took almost about 18 months to get through and for us to catch back up with where we needed to be. And for this one, it just looked like we just didn’t have enough going at coming out of coming out of winter. And granted, it was a very warm winter, probably would have changed my opinion with how low demand was, but the you know, looking at the forward balances and where we had refinery outages, and now what’s happened is gasoline cracks and distillate cracks have gotten so expensive that a lot of these people defer their maintenance. So you had maintenance that would have been occurring this spring, and now people are just not going to do it because they’re just making too much money. So you get, like, you know, the exxons, the chevrons, the P 66 they just defer it. They say, okay, yeah, we’ll refinery offline for two months. But then they’re making too much money, so then they’re like, yeah, we’ll do it in full.
Jeff Malec 37:36
So, and that does that usually turn bad. Something breaks something. I mean, it’s,
Brent Belote 37:41
it’s it’s just opportunistic. You know, a lot of times they can run it, run it hard out or run it, run it, run it stronger. So it’s just a way for them to maximize.
Jeff Malec 37:58
You mentioned Russia. What’s the Russia story?
Brent Belote 38:04
Still sanctions, still a problem, but you know, they had to waive some oil we waived period it was the United States, waived some oil sanctions, so a lot of different places could buy Russia oil or Russia grade products. So yeah, they’re doing everything they can to try to keep the price of oil down here in the States. Russia is No Trump. Trump particularly, yeah, Trump is maybe different, you know. And then he came out and said that he’s gonna, you know, any Iranian oil that’s already on the water can be sold to America so, you know, or can kind of find a home. So those, all of a sudden, the black and gray area that we were talking about can now be, you know, acquired. I thought that was interesting.
Jeff Malec 38:45
And that’s probably a pretty loose, yeah, already on the water, like, well, it got on the water eventually, yeah. And then so walk through the rest of all the big players, China. What are they doing? Did they got a lot from Iran? So they are pivoting Russia? Yeah, we,
Brent Belote 39:01
I think the biggest, you know, the last couple months with the Venezuela stuff, with Iran. You know, it’s, in my opinion, it’s fairly clear to me that this is more of a China proxy than anything, and that’s how we decide to kind of attack them. You know, Venezuela does a lot of heavy crude, which should be going to our Gulf Coast, and instead it was always going to either China or India or kind of that way, because of sanctions and how we had structured it. And same with Iranian barrels, you know, yes, we were sanctioning them, but they were still finding a home. They were able to get out. They were still able to get payments. And so just cutting off kind of the spigot for cheap China, cheap Indian Oil has been a big one. I think so. I think this was more of a proxy to kind of cut off that before it gets a little, you know, before it keeps going.
Jeff Malec 39:50
Where does China go? Then they have to buy in
Brent Belote 39:53
the open market. I mean, it’s a different world, right? Like they were able to buy Venezuela oil at like, 50% discount, Iranian oil at 50. Percent discount, and you’re basically able to run your entire country, if you could do that. You know, your GDP takes up dramatically. You get a lot of tailwinds on free energy. It’s a pretty good pretty
Jeff Malec 40:11
and you mentioned Venezuela, we did a pod. Or whenever that happened? It seems like seven years ago. When was that? January? Yeah, yeah, right. It seems forever ago, but you mentioned, like, what? How soon could actual oil be coming out of there? I think we’re already seeing that would make a difference.
Brent Belote 40:29
I think we’re already seeing it. I think it was fairly quick turnaround. And now I think there was a, I think it was Chevron, or someone bought, bought a cargo from there.
Jeff Malec 40:38
Okay, so, but I was like, it’s super heavy, yeah, that’s right in our post.
Brent Belote 40:42
That’s, that’s what we need. And which was the biggest problem is, you know, shale is great and all, but shale is a very light oil, you know, it’s very gassy, a lot of the West Texas stuff, and Permian, you know, everything, everything in the United States that we found is kind of not great for what we need, which is just diesel fuel, which is jet fuel, which is bunker. And we also spent a lot of money, of money on these really expensive refineries, and upgrading our refinery complex to take these heavy, sour grades, you know, like they have in Mexico, and it’s hard when you just lose all Venezuela oil. So I think that’ll start coming back in a major way. It’s, it doesn’t make sense to strip it across the Atlantic when you can come to the Gulf Coast, yeah, right there quarter of the time.
Jeff Malec 41:22
But don’t they have a bunch of infrastructure problems and electricity and, like, just to get those to full, like, to get at those actual huge reserves,
Brent Belote 41:30
there is it? Yeah. I mean, not easy free market. They’re, you’re
Jeff Malec 41:35
not buying into it, yeah? Well, that’s just a
Brent Belote 41:36
free market, right? So, I mean, I had a friend reach out to me and ask, Hey, can you, you know, who should I talk to if it was, if we wanted to do some drilling in Venezuela? And this is not an oil guy, and he’s like, and he’s a guy I really respect. I’m gonna kind of put it out there, you know, it wasn’t like, A, wasn’t a fake call. It wasn’t like, you know, my uncle Sam from Detroit. It was, it was a, you know, he’s a very, very well off investor who is interested in doing this. And so I’m like, Oh, that’s interesting. And he’s like, Yeah, I’ve already got contacts within, you know, government. We’ve done deals down there. We have two or three people who own boots on the ground already, you know, who, who’s the, who’s the guy? And I’m like, why? Okay, it’s like, I don’t know, but I can put you in touch with someone who can, who knows a guy, a guy with a guy.
Jeff Malec 42:21
So, but the previous part, he was saying, like, all the majors are owed billions of dollars from when Venezuela, like, kicked him out or took it over. So, yeah, yeah, we’ll see. But that’s interesting private enterprise, like, yeah, let me in there. Yeah, yeah, free, great.
Brent Belote 42:34
I’m ready. Yeah, there’s not, not many, not many places like that that you could get that kind of money and return on it fast. Love it time to buy some oceanfront property there.
Jeff Malec 42:46
Yeah, I’ve never been same.
Brent Belote 42:50
Let’s go chaos on all fronts, you know, I’m curious, instructor. We, where we, where we end up with this.
Jeff Malec 42:58
You know, I give me like, a three or five year outlook, not, I mean, not in price, but just like Peak Oil. Is that all dead and done? I don’t
Brent Belote 43:06
believe oil ever, so it’s okay,
Jeff Malec 43:09
yeah, right. We’ll just learn how to drill better and deeper and
Brent Belote 43:12
sideways every, I mean, in the United States, every time. You know, I think 10, like, when I first left JP Morgan, it was like, Oh yeah, yeah. Like, like, the shale is gonna peak. It’s can’t possibly. And every year you read the 10 ks and the earnings reports of all these places, and they’re like, oh yeah, we increased, you know, we increased our efficiency by 30% How’s it possible? Like, how are you just 30% better at this this year than you were last year. And they it just keeps going, and they just keep getting better and cheaper and better and cheaper. So it’s, it just doesn’t, yeah, I’m not sure how that’s going to
Jeff Malec 43:48
stop electrification, e vehicles, e trucks. You’re not worried about all that. There’s no chance
Brent Belote 43:55
that there’s any. If there’s anything that we just learned, it’s that all of these data centers just absolutely nuked every hope against EV that we’ve ever had. You know, the grid can’t handle the EV power anyways, and if you just have these data centers that they’re talking about, it’s, it’s even more energy that they’re going to need. So it’s just, I’m not seeing it for any,
Jeff Malec 44:16
any, yeah, me, I’m huge. We I’m promoting all our old pods here, but we did a uranium pod. I think uranium is huge answer. But even then, I think you’ll have nuclear is powering all those data centers, oils powering transportation and construction. Yeah? So, like, it’s all hands on deck, right? Like, there’s no way we’re getting the everything’s gonna need electricity, and that’s just gonna keep growing, growing. Like, Yeah, who knows.
Brent Belote 44:41
And you’re also seeing it now, where it went too far. I forget who it was, but there was, might have been Ford, and they canceled a bunch of their, yeah, their EV product projects. You know, I’m curious. I haven’t checked on in a while, but I remember Toyota saying that then they’re gonna have 100% EV by 2050 i think i. But I think they’ve been slowly walking that back. So I’ll be curious. I think
Jeff Malec 45:04
a lot of them had real success with hybrids. So I think the hybrid people like, we’re going to switch totally over to match Tesla. And then people were buying hybrids more than Yeah, EVs, I know Audi, they’re, I think getting rid of the pure Eevee and going to hybrid.
Brent Belote 45:20
I don’t know. I live in Wyoming, so if you’re like, hey, yeah, every 250 miles you have to stop for an hour. It’s like, it’s nothing to rock.
Jeff Malec 45:28
Yeah, come on, man, am I supposed to get to the top of Idaho? Yeah? The but that’s it’ll all change, right? They’ll be like, No, the new range is 500 so what? What’s the number? Till you feel comfortable 1500
Brent Belote 45:42
at least five, like, in a range, at least 500 Yeah, at least Yeah. It’s just all right, man. I mean, it’s just worth it to me to it takes me a minute. Now, you know, it takes you under five minutes to fill your thing with gas, or you have to sit in a parking lot for 50 minutes. We’ll have fast charges.
Jeff Malec 46:00
It’s faster. Now, we got two in this household in Chicago, um, it’s fast. But even in Chicago, doesn’t matter, because it’s just charging overnight, and then we drive around, like, 10 miles during the day, if that, and it charges again overnight. And I would get, I
Brent Belote 46:14
would consider, you know, having one car be fully indeed, but I think you’re always going to need, like, the long the long distance one,
Jeff Malec 46:23
yeah, and then, like, ships, planes, it’s all coming, but all hands on decks. My answer, Yep. Cool. All right, we’ll leave it there. Hope you so. You told me offline, you’re gonna get what, 20 inches of snow tonight. Yeah, I’ll believe
Brent Belote 46:39
when I see it. It’s 15 kind of drizzling right now, so I don’t know how it’s gonna happen, but All right, okay, good winter. I’m ready. I’m ready for golf season and some warm weather. So it’s fine, awesome.
Jeff Malec 46:52
Well, thanks for coming on. Thanks for talking through what’s going on, and we’ll talk to you soon.
Brent Belote 46:57
Great. Thanks, Jeff, appreciate.
Jeff Malec 46:59
Okay, that’s it for the pod. Thanks to Jeff burger, thanks to RCM for sponsoring. We’ll be back next week with an interesting one, talking to a group that puts out trading contests and uses some software to see which of those guys is best and girls is best at predicting where the markets will go or predicting where others think the markets will go. Gets a little complex, but should be an interesting one. We’ll see you next week. Peace.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
