Transcript of THE SAUDI PIPELINE BLIND-SIDE: Why $108 Oil Just Destroyed the Hormuz Bypass!
Wall Street Truthbombs
0:00The world spent 40 years building a0:02backup plan for its oil supply. Last0:05Friday, somebody flew a drone into that0:08backup plan. By the end of this video,0:10you're going to understand exactly why0:12crude oil went down on the day that the0:14world learned its only major Hormuz0:16bypass had been shut. Why that price0:19move was a misread, and what it means0:22for the number on your gas station sign0:25and the Fed decision landing on0:27Wednesday afternoon. this very day.0:30There is a building across the street0:32from my office with two fire escapes on0:35it. The original iron one from whenever0:37the place went up. That was a long time0:39ago. And a newer one bolted on about 200:42ft to the left. Two ways out. Very0:46responsible. I've walked past it a0:48thousand times and never thought about0:50it until last week because both of them0:52are bolted into the same brick wall. Two0:55exits, one wall. If the wall goes, well,0:59you don't have two exits. You have a1:02decoration. That is the oil market right1:05now. And almost nobody priced it1:07correctly last Friday. Here's what1:09actually happened. On Thursday and1:10Friday, the 10th and 11th of September,1:13drones hit pumping stations on Saudi1:15Arabia's East West crude oil pipeline in1:19Riyad and Medina regions. a pumping1:22station that is the muscle actually that1:25keeps crude moving over long distances1:27and up and down up elevations and things1:30like that. Knock out enough of these1:32things and a pipeline is a very1:34expensive well think of it as a big1:36metal empty tube. The Iraqi uh prime1:40minister's office later confirmed that1:42the drones launched out of the Mysan1:45province in southeastern Iraq and1:48dismissed the commander who ran1:50operations there. Nobody has claimed the1:52attack as of yet. On Friday, the Saudi1:55energy ministry shut the whole line down1:57as what it called a precautionary2:00measure. That pipeline has a name in the2:03trade. It's called Petrol Line and we2:05talk about it here on Wall Street Truth2:07bombs quite a bit uh especially at the2:09beginning of the conflict. 1,2002:12kilometers of steel running from uh2:14Abkai in the eastern province across the2:18desert to Yanbu on the Red Sea which2:20we've talked about fairly recently. It2:23has a name plate capacity of 7 million2:26barrels a day and it doesn't exist for2:29efficiency. I can tell you that it2:31exists for exactly one reason, to get2:34Saudi crude onto a tanker without that2:37tanker ever going anywhere, anywhere2:39near the straight of Hormuz. So, the2:42world's only real hedge against Hormuz,2:44well, it pretty much went offline. And2:47crude oil, it went down, down, not up.2:51WTI settled last Friday at 100 bucks 5.2:55That was off 2.4%. Brent settled at2:58$104.61.3:00That too was down, but it was down 2.8%.3:03Now, some of that is fair because crude3:06had already ripped about 6% on Thursday3:08and the week still finished up strong.3:11WTI up 9.4% and Brent up 8.7%.3:15Friday had profit taking in it for sure,3:18but part of it is something completely3:21different. See, the market has been has3:24seen so many drone headlines out of the3:26Gulf that it's built up what I would3:28call muscle memory. Attack on Saudi3:31infrastructure. Nod. Next. What it3:34hadn't processed is that this one was3:37categorically3:39different. Now, let's dig in a little3:41bit further, but before we do, please3:43click like and don't forget to3:44subscribe. It's really important to be3:46know about this stuff, and this is3:48exactly how you do it. Um, now here is3:52the part that is sitting in plain sight3:54that almost nobody is saying out loud.3:57Every headline that you read uh that you3:59read last weekend said the same thing4:02that Petrol Line was moving 4 to 54:04million barrels a day, 4 to 5% of the4:07global supply. That number is very real.4:10It's also actually a memory because the4:13four to five million figure describes4:15the first five months of the conflict4:17the spring when the Saudis pushed that4:20line to the wall. It's not what the pipe4:22was doing uh last week. According to4:25ship tracking from KPLR, remember that4:28we talked about that at the beginning of4:30the conflict as well. The firm that4:32actually watches the tankers load,4:34westbound flows were not running uh or4:37excuse me, they were running at roughly4:392 million barrels a day in August.4:41That's the lowest since January. You got4:43to sit with that for just a second. The4:45bypass was already broken before the4:48drones smashed them last week. Houthi4:51pressure around the Red Sea and Bob4:53Eland Debb had already cut Yamu loading4:56by more than a half. And this is4:58something that I reported to you earlier5:00on. The suspenders, as I like to call5:03them, were not snapped on on Friday.5:05They'd been fraying since late July, and5:08nobody noticed because everyone was5:10staring at, well, the belt. And that is5:14only half of the shadow data. The other5:16half is sitting in the International5:18Energy Agency September report. If you5:20look for it, it was published last5:22Friday where the cameras typically don't5:24go. That's why we call it shadow data.5:27You know, I love that stuff. Saudi crude5:29production fell to actually 5.97 million5:32barrels a day in August from 8.245:35million in July. More than 10 million5:38barrels a day of Gulf output. Well,5:40pretty much shut in. Global observed5:43inventories are now down to uh down 5705:47million uh 57 million barrels uh since5:50the war started. an effective OPEC plus5:52spare capacity, that's the cushion every5:55model on Wall Street is quietly5:57assuming, is there uh when something6:00breaks, is now uh 0.226:04million barrels a day, right? 220,0006:07in real math. Uh 220,000 barrels. That6:10is not a buffer. That is a rounding6:13error with well a logo on it. So, when I6:16say the belt and the suspenders turned6:18out to be the same piece of leather, I'm6:21not being cute. The bypass was the6:23hedge. The hedge sits inside the same6:25blast radius as the risk. It was built6:28to hedge. It was already running at half6:30speed before anyone flew anything at it6:33or into it. And behind both of them,6:36there is essentially nothing left to6:38call on. One more number and then I'll6:40put the other side on the table.6:42Industry sources put Yamboo at 5 to 76:45days of export inventory. That's not a6:48talking point. That well, that's pretty6:49much a clock. And let me tell you who6:52did uh did figure it out over the past6:54weekend. The physical market, we talk6:57about the difference between physical6:58and futures here all the time. A lot of7:00people don't get that. Hopefully, you've7:02been watching the videos and you get it.7:04Uh by Monday morning, Brent had traded,7:06that was yesterday, uh no, excuse me,7:08two days ago, Brent had traded above 1087:11bucks a barrel in Asian hours and was7:13running near 107 before the US open with7:16WTA back over $12, four months highs on7:20both. But the price isn't even the7:22interesting part. the curve is the7:25prompt month spread uh the excuse me the7:28prompt month spread blew out to about7:30$5.397:32and the three-month spread went to $147:35when the near barrel costs that much7:37more than the far barrel right the one7:40that you purchase for next month's7:41delivery versus 3 months out that's what7:44that means that is not sentiment and it7:47is not speculation that is somebody who7:50actually needs oil this month paying up7:53to get it. The future screen took the7:55weekend off on Friday. The people who7:58move actual barrels, well, they didn't,8:00of course, because they can't. Quick8:02aside on that, uh, because I know8:04somebody is typing it in the comments8:06already. Yes, this conflict didn't start8:09in March. It started at the end of8:11February. March is just when the8:13rerouting became visible enough to write8:15about. that distinguish uh that8:17distinction, excuse me, matter uh8:19matters because it means this bypass has8:22now been carrying the world's energy8:24security for more than 6 months. Can you8:27believe it's been 6 months? It was never8:30designed to do that for 6 months. And8:32let me be honest about the bare case8:34because I'm not in the business of just8:36frightening people. The same IEA report8:39forecasts global oil demand falling by8:422.5 million barrels a day this year.8:46Demand destruction, that's demand8:48destruction that we also talk about a8:50lot, is doing real work. Now, here's the8:52problem. The cure for high prices has8:55always been high prices because prices8:58go up, people stop buying, demand cuts9:01back, and it allows prices to ease up a9:04little. That's why I say that all the9:06time, right? Okay. Now, let's move on to9:09pipelines. Pipelines, my friends, they9:12get repaired. And it's worth knowing9:14OPEC itself disagrees with that demand9:16forecast completely and sees demand9:18growing this year. So, when the two big9:20agencies that are far apart, uh, that9:23are that far apart, nobody has a clean9:25read at this point, including me. And9:27it's very confusing at the moment. But9:29the Millers, you know the Millers, the9:31family I talk about all the time out in9:34suburban Indiana, are not reading the9:36IEA report. They're reading the sign at9:39the local gas station on the way to9:41work. And guess what? It's telling them9:43a different story altogether than the9:46headline numbers are even hinting at.9:49Gasoline, it rose 3.9% in August alone9:52and sits 27.4%9:54above a year ago. And here's the line9:57the Bureau of Labor Statistics put in9:58its own release last Friday. Gasoline10:02accounted for over onethird of the10:04entire monthly increase in that CPI that10:07we got on Friday. One item, one-third,10:10you could watch it land in Friday's10:12University of Michigan survey. We also10:14got that on last Friday. That sentiment10:17was down another 3.9 points to 47.8.10:21That is actually the second lowest10:22reading in the history of that survey.10:26And year- ahead inflation expectations10:28jumped from 4.0% to 4.6%.10:32That's a scary one which lands on uh10:35which lands us on uh Wednesday and a10:39genuinely uncomfortable box. Strip the10:41barrel out of the Fed. And the Fed10:44actually has essentially, well, they've10:46run this thing, right? Because if you10:48look closely at CPI, a CPI, the core CPI10:51is running 2.4% year-over-year. That's10:55actually the lowest since March of 2021.10:58It's the headline number stuck at 3.4%.11:02And it's stuck there because of a11:03commodity currently being priced, well,11:06it's being priced by drones. that the11:08futures market closed Friday, pricing11:10roughly an 87% chance of a quarter point11:13hike. Uh, which could have happened. Um,11:16that was up from 72% the day before and11:1950% a week earlier. Okay. This morning,11:22my friends, excuse me, the other day in11:24the morning and three Fed officials have11:26already dissented in favor of a hike11:29back in July. That was Hammock, Cash,11:31Gary, and Logan. So the question I want11:33to put to you uh to chair wash this day11:36is you know what exactly does a rate11:38increase do to a drone right whether11:40they tighten or they don't tighten it11:42doesn't matter but it unfortunately is11:44not going to affect a drone tightening11:46can't reopen the pipeline that's the big11:48challenge I have with this Fed moves the11:51defensible case for hikes is not about11:53demanding at all it's about expectation11:56about keeping a supply shock from11:59hardening into a wage price spiral,12:02which we also talk about all the time.12:05And evidence of that is occurring as12:07people's expectations stay high for12:11future uh inflation, just as we learned12:13from last week's Michigan number. And12:16with expectations jumping like that, it12:18deserves to be taken very very12:21seriously. But it makes the hike12:23insurance rather than a cure. And12:26insurance carries a premium. As you12:28know, I said on Friday to watch the long12:30end of the verdict, and the long end12:32answered yesterday morning. On Friday,12:35the 2-year jumped seven basis points to12:38463, while the 10-year moved exactly 112:41to 4.96%.12:43The entire day's move sat at the front12:46end of the curve. Uh then earlier the12:48other day, the 10-year traded through12:505%. We have a video on that for the12:52first time since October of 23. And the12:55curve, well, it steepened. That is not12:57the bond market applauding a hike. That12:59is the bond market demanding more13:01compensation to hold duration through an13:03inflation it does not believe the Fed13:06can even reach with any of their tools.13:08And here's my favorite detail of the13:10entire weekend. Goldman Sachs flipped13:11its call to a hike and said the change13:14was driven primarily by market pricing13:17uh rather than by a change in its13:18economic outlook. Yeah, exactly. The13:21market's pricing a hike because it13:22thinks the Fed is going to hike. The13:24banks are forecasting a hike because the13:26market priced one somewhere in that13:29circle. There's supposed to be well an13:32economy. So where does this leave all of13:34us? Well, it means the energy line in13:37your budget is now a monetary policy13:39variable. It means every bond fund you13:42own is being repriced by a pumping13:44station in the middle of the desert. And13:46it means the thing to watch this week is13:48not the decision that the Fed comes up13:50with this afternoon. Everyone knows the13:52decision. It's whether the 10-year keeps13:55climbing after the decision. Because if13:57the Fed tightens and the long end goes13:59up anyway, that's the market telling you14:01it doesn't think the medicine matches14:04the disease. The market was never14:06pricing the straight of horm. It was14:07pricing actually the detour around the14:10straight of hormuz, you know, the14:12pipeline. And you don't own a hedge if14:14the same drone can reach both of them.14:17That's the one that you got to focus on14:19right now. So, your truth bomb for today14:21is this. The oil market didn't mispric a14:23pipeline attack last Friday. It14:25mispriced the fact that the backup had14:27already been running at half speed for 614:30weeks. And a hedge nobody checked is not14:33a hedge at all. It is a decoration14:36bolted to the same wall just like those14:38two fire escapes that I told you about.14:41Join me every day for Wall Street Truth14:43Bombs, where I drop them right here14:44before the market figures them
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