Publications: Notes at the Margin

Yet Another Disruption (June 16, 2025)

 

Call it a perfect storm. When Israel attacked Iran, oil industry firms were caught with low inventories due to their efforts to protect themselves from falling oil prices. These efforts were matched by others taking very large call positions as bets on higher prices or insurance against them. The resulting increase in price volatility dictated that those writing call options on oil prices purchase more futures in a market with few sellers. A substantial price rise was inevitable. Further increases could follow.

 

We add that the standard “risk premium” explanation for the current price increase is nonsense. Those offering it do not understand oil market dynamics. As we explain, refiners are rushing to build up inventories now because they were caught with low stocks as Israel bombed Iranian nuclear facilities, military targets, and oil and gas fields. That, combined with the rising volatility described above, created the perfect storm.

 

To receive the full report along with future issues of Notes at the Margin, please Contact Us or send us an Information Request for subscription information.