Making Hay Monday – October 27th, 2025
Making Hay Monday
Oil’s (Not) Well
“We had a decade where people didn’t explore. It’s going to have an impact. Eighty to 90 per cent of growth came from shale. If you look at the next 15 years, shale is most likely to plateau and decline. Where are you going to bring the additional barrels to meet demand?” -Saudi Aramco’s chief Amin Nasser as relayed by The Financial Times; his company is the world’s largest oil and gas producer.
Oil’s (Not) Well
Mere days ago, it appeared as though oil prices were heading to $50/barrel, or even lower. It was acting much like an unofficial member of Team Haymaker, a 110-pound massive breed dog, when he swallowed a tennis ball, whole, many years ago. That precipitated an emergency trip to UC Davis, the famous vet hospital, where they cut it out of his gut. The ball was blocking the passage from stomach to intestine so he couldn’t even keep down water. As a result, he was quickly dying from dehydration.
The good news is that was over eight years ago and this big boy is still running – literally – as he approaches his 14th birthday. Justifiably, we call him the “super-dog”. But there hasn’t been anything super about the doggy behavior of oil prices, other than super-bad. Unlike with the super-dog, there didn’t appear to be any relief on the horizon. That is until last Wednesday, when word of increased sanctions by the U.S. on Russian oil crossed the newswires. Almost simultaneously, India indicated it might cut back on its Russian crude purchases.
These developments, combined with one of the most bearish speculative positioning readings ever – meaning there was a massive short position – was enough to trigger an 8% price spike between last Wednesday and Thursday.
Cornerstone Analytics’ Mike Rothman, no stranger to Haymaker readers, is often viewed as a perma-bull on oil. Yet, he was clear late last week that he didn’t believe the Russia/India news was consequential. However, he is convinced the increasing stress that Russia’s energy infrastructure is under due to persistent Ukrainian drone strikes is very significant.
He also has long suspected most investors, with their bearish inclinations toward crude prices, are overlooking Putin’s problems with maintaining his vital (for his regime) oil production and exports. As you can see, these are off about 800,000 barrels per day (bpd) in recent years. That’s a big deal in a market where spare capacity is much tighter than popularly believed (more on that shortly).
Cornerstone Analytics
A prime reason the investment community has such underlying negativity toward oil is a result of that chronic source of misinformation on the crude market, the International Energy Agency (IEA). Its multi-decade track record of being inexcusably off-the-mark, requiring it to make enormous revisions to its contemporaneously reported data, is becoming the stuff of legends. The egregious nature of its miscalculations has now attracted the attention of the current U.S. Secretary of Energy, as this newsletter has previously pointed out.
One would think this type of scrutiny from such a high level of the U.S. government would cause the IEA to refrain from confidently and continually disseminating such erroneous data. Yet it just keeps coming. This is of more than passing interest because, for some bizarre reason, the IEA continues to be THE authority on the oil market.
Rather than reforming its dissembling ways, it is doubling down. It is now forecasting a 3.3 million bpd excess of supply over demand next year. That is truly a ginormous glut… if it was in the general proximity of being accurate. To put this in perspective, such an oversupply would exceed what was seen in 2020 when the global economy was largely shutdown. Accordingly, it’s time to cue John McEnroe: Are you serious?!!
As a reminder, Cornerstone has been vindicated with its contra-IEA stance again and again over the years. Presently, its views on the state of the oil market couldn’t be more diametrically opposed to what the IEA is asserting. Here’s a brief snippet Cornerstone put out on Thursday: “October oil demand is absolutely surging, global inventories are drawing (yes, the IEA’s math makes no sense), and Russia’s output remains in a structural decline.”
Lending credence to their view is the following chart of U.S. oil inventories. Only the IEA would be able to find evidence of a glut in this Ninepoint Partners chart:
Further, here’s a chart of the current level of the Strategic Petroleum Reserve (SPR). As you can see it’s not far off its 2023 trough. That was the lowest level in 40 years. Considering how much global oil demand has risen since the mid-1980s, almost double, that should warrant some concern versus the current ultra-complacent mindset. Basically, had the SPR not been drawn down to alarmingly low levels, what is already a scary situation would be downright terrifying…
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