Oil is arguably the single most important commodity for the global economy. Oil is unique because it is not simply an input into one industry. It is an input into the entire system that allows the global economy to move. A shortage of copper might disrupt electrical infrastructure. A shortage of wheat might create a food crisis. But a severe shortage of Oil would simultaneously impact transportation, agriculture, manufacturing, trade, and military logistics. The scary thing is that the price of oil continues to go up, and from what I can see, there is no panic about it. Positioning in oil does not show any extreme whatsoever:

I spoke about the possibility of a “double bluff” move in the oil market back in August. The idea here was that since those who got long the oil market when the Iran war first broke out ended up being bag holders, so they would not want to make this same mistake again. And from a contrarian standpoint, if they were not going to get long this time, the chances of an up move in oil were more sustainable increased. To this point, that appears to be what is happening. And there continues to be no signs of buying by speculators.

In the meantime, just last week we heard these things:

Chevron CEO Mike Wirth said yesterday that the inventory and other market buffers that had prevented a much larger price spike have largely been used up.

China had reduced oil imports and relied on its strategic reserves, helping moderate the initial price impact. But Chinese imports are now increasing again. Commercial inventories have also been drawn down.

It would seem the way to solve this issue lies in politics, since it’s pretty clear the war in the middle east is the main driver. This is why politics and the competency of the people in charge are very important right now. More on this below.