I think oil is set to drop.
The market is currently focused on disruption in the Strait of Hormuz, through which roughly 20% of global oil shipments normally pass. With exports constrained, a significant amount of oil has continued to be produced while waiting for a path to market. Even before a reopening agreement was reached, prediction markets generally viewed a reopening before year-end as the most likely outcome.
What interests me is not the disruption itself, but what happens when it ends. Once oil begins flowing normally again, I believe the market will shift its attention from supply fears to excess supply. Producers have strong incentives to keep oil moving, and there is substantial investment underway to create alternative export routes that reduce dependence on the Strait over the long term.
My play is SCO, a double-leveraged inverse oil fund. In simple terms, it moves opposite oil prices at approximately 2x the daily change.
My current target is $60-70 per share.
My main concern is timing. I believe the Strait will inevitably reopen, but there is no predictable timeline for when that happens. Until then, oil prices could remain elevated and volatility could remain high.
Let's see how it goes!
-Matt