Late last week, oil features dropped as the  president confirmed productive talks with  

Iran over an ongoing resolution to the straight  of Hormuz. But of course, sure enough, at a new  

record pace just 3 hours later, there was a fresh  wave of strikes on tankers, causing oil prices to  

bounce back up again and end the week higher. As a  surprise to absolutely nobody, this also happened  

just 15 minutes after financial markets closed.  A week before that, talks were set up in Doha.  

Prices fell. 6 days later, the talks were called a  waste of time and prices rose. A week before that,  

prices were pushed down on positive announcements  of great progress in negotiations and then rose  

again when that too fell apart. Prices rose,  prices fell, rose again, fell again, rose again,  

fell again just after a conveniently timed trade,  rose again, and this has all happened at least a  

dozen times as of when this video is published.  Oh, and side note, in the three days that it  

has taken me to write the script, the war has  apparently been resolved and renewed another two  

times, which is kind of a little bit embarrassing,  right? And I mean, not just geopolitically  

embarrassing, but also financially embarrassing.  These oil futures markets manage billions of  

dollars every day in one of the world's most vital  resources and are apparently run mostly by massive  

institutions with teams of highly skilled analysts  at their disposal to piece together information  

you and I just don't have access to. Which does  raise a pretty obvious question. How many times  

are these oil markets going to keep falling  for this? If we are being incredibly generous,  

all of these announcements have clearly been  premature. Realistically, it's fairly clear that  

some level of market manipulation is going on here  with several instances of significant trades being  

placed just minutes before major market movements.  So, why are these supposedly highly informed,  

highly sophisticated market participants still  following along with a pattern that basically  

everybody can see? Oh, yeah, and I guess we should  probably also look at why oil prices are just  

going ahead and falling anyway. The US and Israel  unleashed a massive joint strike on Iran. First  

time in history, Iranian officials say the country  has closed the Straight of Hormuz. The US and Iran  

have agreed to a temporary two-week ceasefire.  President Trump cancels the US delegation's trip  

to Pakistan. President Trump says the US Navy  will begin blocking Iranian oil shipments in the  

Strait of Hormuz. Today, how President Trump is in  Europe for the G7 summit where he's talking about  

a signed memorandum agreement to end the war in  Iran. Iran has once again disrupted traffic in the  

straight of Hermoose carrying out a drone attack  on a container ship. One of the most notable  

comments that the president made though came at  the end when he was asked if the ceasefire with  

Iran is over and he said, "I think it's over.  They are scum. As far as I'm concerned, it is  

dead." US Central Command said they hit dozens of  targets. is aiming to degrade Iran's ability to  

continue attacking international shipping flowing  through the straight of Homies. Okay, so there are  

a few reasons why despite very clearly being  meaningless at best or manipulation at worst,  

oil futures specifically are almost forced to  play along with this geopolitical hoke pokey of  

announcements. The first is that these are real  markets with real participants who actually have  

real operations that depend on the price of oil.  This might come as a surprise to a lot of people,  

but commodities futures markets are actually  not built from the ground up to be a casino  

of speculation. They do in theory serve a  real purpose. Oil futures markets like West  

Texas Intermediate and Brent are there for real  businesses to lock in prices for well the future.  

This is useful for actual participants like oil  producers and shippers because they can be sure  

of the price they will get for goods and services  before they deliver them. And on the other side,  

it's also good for refiners because they can  lock in a fixed quantity of this input at a  

fixed price. Now, I'm not going to do the full  derivatives deep dive, but oil futures, unlike  

a lot of purely financial options and futures,  are actually physically settled. So, if you hold  

an oil future on the day of expiry, you physically  have to make arrangements for it to be delivered.  

As the name would uh not suggest, if you hold  a West Texas Intermediate futures contract at  

Xpirie, that crude oil is going to be delivered to  you in Cushing, Oklahoma. This is basically a big  

field of oil storage tanks at the crossroads of  some major oil pipelines that also happens to have  

a small town attached to it. Obviously, for actual  refineries, that is the whole point. They want  

actual oil to feed into their facilities. Now,  normally only about 2 to 3% of futures contracts  

ever end up getting physically delivered. Most  participants closed their positions or roll them  

forward before expir. If you agreed to sell me  a barrel of oil on the 30th of February 2027 for  

$100 and then a day beforehand oil was trading for  $140 a barrel, it's possible that we both figure  

out that none of us actually want to deal with  that random barrel. So, you can just pay me the  

$40 difference I would have made by actually  selling the barrel on Facebook Marketplace. Now,  

replace two random nerds with the entire  worldwide speculative commodities market and  

Facebook Marketplace with Cushing. And that's kind  of what happens here. But the fact that they can  

be delivered is what in theory keeps the futures  price tethered to reality. If you were an actual  

oil producer with a barrel in hand and I couldn't  find anybody else to buy this barrel for me,  

I would have to take it and also deal with the  costs that come from properly storing what is  

still a very hazardous chemical. In April 2020,  WTI futures briefly fell to $37 a barrel. CO  

meant that people weren't using as much oil  and Cushing was running out of room to store  

the excess. This led to traders literally paying  people to take their contracts rather than accept  

the physical delivery of oil they had nowhere  to put. Now, because these participants have  

physical operations that depend on delivering or  receiving consistent supplies of crude oil, they  

are exposed to anything that could disrupt their  supply chain. For a refinery that actually needs  

crude delivered to its facility, playing along  with an announcement about the straight reopening  

or closing again is not so much something that  they choose to do as much as it is something that  

they kind of have to accept. Even if the last 12  announcements have turned out to be noise, these  

groups are mostly what are called price takers.  They take what the markets offer because their  

core business is producing, refining, shipping,  or retailing fossil fuels, not speculating on  

price movements. They are also exposed to things  like how much the government taps the strategic  

petroleum reserve and how much downstream buyers  are panic shopping for fuel. So again, they just  

kind of take it. Now, you might reasonably  expect the price of a barrel of oil at some  

point in the future to be worth roughly as much  as a barrel of oil today. And most of the time,  

this is true. But uh not all the time. In April  of this year, the difference between this real  

market and the futures market grew to its widest  level in decades. Especially for Brent, which is  

physically delivered in North Sea terminals and is  more exposed to Middle Eastern and Asian markets.  

The difference between the futures price and  the price to actually buy real oil then and  

there was as much as $40 a barrel. Now, that has  since come back down for reasons we will discuss  

later. But the point here is that the speculators  that were just trying to make money by predicting  

where oil prices would end up in the future were  collectively kind of assuming the disruptions were  

overblown. But the actual oil consumers just had  to pay whatever was being offered for the crude  

that was physically available. Now, I know all  of this is a bit abstract, but the point is that  

these markets are kind of stuck between a rock  and a dumb place at the moment. On one hand,  

the firms that actually need crude oil as an  input into their business operations can't  

accept the catastrophic risk possibility of just  not having supplies available to them. So, they  

pay what they must. On the other hand, speculators  don't want to be exposed to the catastrophic risk  

that oil starts flowing again and they get stuck  holding deliverable oil futures that nobody wants  

to buy and they end up needing to pay someone  to take it off their hands. It's a dumb game.  

The only winning move is to not play. And well,  that's exactly what's starting to happen. So,  

it's time to learn how money works to find out  why people are starting to ignore the oil market  

and why prices are falling anyway despite one of  the biggest supply disruptions in modern history.  

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the real market participants being forced to play  along with the flip-flop oil war does kind of  

make sense. But the second big problem is that the  speculators who normally cushion this market have  

kind of just given up. Derivative traders like to  make this sound more complicated than it is. But  

in normal times, these two groups do technically  each have a role in this market. Actual oil  

suppliers and consumers who are happy to forego  speculative profits to avoid risk and locked in  

guaranteed prices and speculators who are happy  to accept the risk of fluctuating prices to try  

and make speculative profits. So this whole market  is just what the finance bros like to call a risk  

transfer mechanism. Oil futures don't actually  produce anything. They are just a contract. So  

the only way to make money on them is to sell them  for a higher price than which they were bought.  

Despite being a zero- sum game, this is still a  massive market with institutions that spend tens  

of millions of dollars doing advanced research  to find slight pricing discrepancies between  

the market and reality. The classic example is  that some of these firms do crazy things like  

launch their own imaging satellites to track oil  production, count the number of tankers sitting at  

anchor, and monitor reflections off crude storage  tanks to estimate how full they are. All to gain  

a slight edge over the market. Other firms just go  allin on trading speed. So they can react to news  

a thousandth of a second before everybody else  does, which is also contributed to the market's  

knee-jerk reaction to news because it often is  a reaction that is processed before any real  

humans actually realize what's going on. This  can be very lucrative, but that trading edge is  

now being evaporated by the far less predictable  announcements surrounding this war. It's a little  

bit like someone counting cards to gain a slight  advantage at the blackjack table. If they are  

very smart and collect the right data in a fair  game, they should be profitable over the long  

term. But if the dealer is cheating by throwing  cards to their buddy at the same table, well,  

then all that hard work is basically pointless.  A desk of PhD analysts could synthesize terabytes  

of proprietary data to ek out a few basis points  of alpha in a normal market. But in this market,  

all that effort can be wiped out by somebody who  got a heads up 15 minutes before a tweet went out.  

Again, for the speculators, this is a zero sum  market. For that uh miraculously timed trade to  

win, someone else has to lose. So, a lot of them  have just been choosing not to play. Typically,  

speculators are attracted to markets with a lot of  volatility. And this did happen at the beginning  

of the war as big swings meant big opportunities  for speculative profits. But trading firms have  

understandably started seeing this as unacceptable  risk and have pulled back. According to data from  

Saxo Bank, net speculative open interest has  dropped towards a 16-year low with the only  

exception of August last year at a time when  typically we would expect more market activity.  

Now, I know what you might be thinking. A bunch  of hedge funds can't make money because the market  

is rigged against them. Outside of glorious irony,  who really cares? Well, unfortunately this matters  

because in theory these firms serve the function  of price discovery and providing liquidity between  

the suppliers and the users. They were obviously  doing this to seek their own profits. But in doing  

so, they cushioned the market a bit. They absorbed  some of the volatility that would otherwise land  

directly on the actual oil companies that just  wanted to offload the risk of oil price swings.  

Without the risk accepting speculators, these  actual participants are left absorbing more of  

the price swing directly, which means the market  has less capacity to absorb shocks and and even  

a moderately sized announcement can move prices  further than it should because there are fewer  

counterparties willing to take the other side and  call these announcements out on their bluff. Now,  

for the record, I just want to say that even with  the exodus, the vast majority of futures trading  

is still done by speculators. But the ratio of  price takers to risk acptors really matters.  

Going from 2% to 5% of the market being physically  settled might only sound like a 3% difference.  

But in reality, it's actually more like a 150%  difference in market buffer. The third factor  

that really needs to be acknowledged is that this  war has become very politically sensitive. There  

are really three regimes staking the reputation  on how much they can control the other two. And  

a big part of that control depends on where  this price line sits. All of that is to say  

that just as much as announcements around this  war have influenced movements in the price of oil,  

movements in the price of oil have also influenced  these announcements. So yeah, it sounds dumb and  

it is dumb. But there is actually some good news  in all of this. Despite everything I have just  

said about the market being more exposed, it  is still slowly starting to ignore all of these  

dumb headlines. Obviously, there has been a  lot of noise back and forth over this war,  

and this is by no means going to be perfect, but  as best as we could, we actually looked at all of  

the major announcements we could find, saying the  war would be coming to an end and announcements  

that the war would be escalated and then lined  them up with the respective daily movements in  

oil prices. And well, the impacts are clearly  declining. Again, obviously, this isn't perfect.  

I can only subject Harry to collecting so many  uh data points as punishment for his crimes.  

But in the early days of the war, a tweet about  bombing Iran back to the stone age made oil prices  

rise by 8%. In late June, there was a similar  post about new strikes on Iran infrastructure,  

and the market just totally ignored it. Prices  actually fell slightly. On the flip side, peace  

talk announcements in April saw the biggest single  day drop in oil prices outside of the pandemic.  

But last month, the memorandum of understanding,  the one where we would give Iran a $300 billion  

fund, only pushed prices down by 2%. In a  similar reversal of logic, early this month,  

an announcement of the Qatari deal going well  also actually pushed prices up. Now, obviously,  

this is not absolute, and real actions can still  push prices around. Just this past Tuesday,  

Iranian strikes on tankers sent Brent up 3%  and then the ceasefire was declared over and  

prices climbed again. But the general trend is  that the market is taking the words from both  

sides less and less seriously with every false  start. Oh, and there is one more thing. Not only  

is the market taking these press releases less  seriously, it also just seems to be taking the war  

less seriously as well. Despite no real progress  towards a long-term solution, prices are basically  

right back where they were when this conflict  started, which does raise the obvious question of  

why? Well, this is the part of the video that has  the potential to really not age well. But for now,  

there are a few reasons. One is that the world  is simply just consuming less oil. People have  

responded to the increased prices by using fewer  fossil fuels by an estimated 1 million barrels a  

day. China, in particular, the world's biggest net  fossil fuel importer, has seen its crude imports  

drop to an 8-year low of roughly 7.8 million  barrels a day as of May. China has gone big on EVs  

and alternative energy sources. Electric vehicles  hit 62.9% of new car sales in China in May. And in  

the first week of June, that number hit a record  66.7%. Among domestic Chinese brands, the EV share  

is now 81%. In China alone, EVs displaced roughly  1 million barrels of oil demand per day in 2025,  

and that displacement is growing by about  600,000 barrels per day every year. Cenek,  

China's biggest refiner, now says gasoline demand  in China actually peaked back in 2023, and diesel  

demand peaked in 2019. Chinese consumers are also  more price sensitive than richer households in the  

West. So even if they don't have an EV, when oil  gets expensive, they respond faster than a typical  

American family with a higher disposable income to  tank the price bump. This trend with the biggest  

oil consumer on the planet is scaring a lot of  producers into ramping up supplies and selling  

now because if this shift can happen in China,  the rest of the world may not be far behind.  

OPEC Plus has been raising output quotas, adding  roughly 2.9 million barrels per day during 2025,  

with another 800,000 approved so far this year  and 188,000 more just approved for August. The  

IEA is now predicting a surplus of 3.84 million  barrels per day this year, potentially approaching  

4 million. The second thing to remember is that  the price being quoted here actually refers to  

oil delivered to a specific location at a specific  time. A lot of the market is concerned that the  

buildup of oil stuck behind the straight could all  come out at once and lead to a massive spike in  

supply, putting oil facilities above capacity,  even if the oil would eventually find its way  

to real consumers. There is also just speculation  about the midterms. Oil prices were one of the big  

factors in the last election, and both sides of  the conflict as well as both sides of the election  

know it. The government has not been subtle about  trying to bring prices down before voters start  

paying attention. The 60-day sanctions waiver  allowing Iran to sell crude through August  

was widely described as having some uh domestic  political advantages. Research from the Belelfer  

Center found that every 1% increase in crude  oil prices 12 months before an election reduces  

voter intention to reelect the incumbent party  by roughly half a percentage point. On top of  

all of this, there is the fear of one of the most  outlandish economic proposals I have ever heard,  

and that is that countries may just go ahead and  short the market themselves. It hasn't happened  

yet, and it may not happen at all, but it's so  interesting that it's worth talking about. About  

3 months ago, Japan floated the idea that it could  use its $1.4 trillion in foreign currency reserves  

to short oil futures. So, why would they do  that? The idea is that its own currency is  

falling compared to the US dollar, and it wants  to stabilize that slide. Almost all global oil  

trade is done in US dollars. By shorting oil  prices down, it would theoretically mean people  

would need fewer US dollars to settle their oil  deals, which would reduce demand for US dollars  

in international forex markets, which would in  theory reduce the value of the US dollar relative  

to the yen. Now, yes, of course, a big short like  this means that in theory, they might be exposed  

to a GameStop style squeeze and be forced to  buy back all of that oil. But the thing is,  

they were going to buy it anyway. Japan imports  more than 95% of its crude from the Middle East.  

So when oil surges in dollar terms, Japan has  to buy massive amounts of dollars just to pay  

for its imports, which directly weakens the yen  even further. Finance Minister Satsuki Katyama  

blamed speculative crude oil futures moves for  disrupting exchange rates and said the government  

is determined to take thorough action at all times  and on all fronts. It's kind of insane. And again,  

it hasn't actually happened. Honestly, the only  reason I bring it up is because I thought it  

was the most crazy hairbrain scheme I have ever  seen seriously proposed on this kind of economic  

scale. So, I wanted to yap about it. Now, if you  want further proof of just how long markets can  

ignore reality, go and watch this video next  to find out why economic crashes never seem to  

happen on schedule. And don't forget to like and  subscribe to keep on learning how money works.