Oil on the Boil

Six years ago, on Sunday, March 8, 2020, Saudi Arab decided that it has had enough with its OPEC partners and declared that it will flood the world with oil. Brent crude which was already under pressure at around $45 a barrel opened at around $36 on Monday, March 9, 2020 and in a week, the WTI crude traded negative which means, people were being paid to buy oil!

Cut to today. March 7, 2026, same weekend. On Friday, we saw oil finally catching up with the destruction in the middle east and raced towards the $95 a barrel, closing just around 93. The world is bracing for a complete shutdown of Strait of Hormuz and Qatar and Kuwait have either cut off or about to cut off their entire oil and gas production. Trump tried to talk oil down by unleashing everything- unsanctioning Russian oil, shorting futures by the US treasury, offering US naval escorts through the Strait but oil fell marginally to 80 on Thursday before racing towards the 90s. We don’t know what happens on Monday, March 9, 2026!

If you look at the above closely, oil is showing an absolute mirror image of its behaviour in the past market crash. It went down from 45 to 0 in no time because the world was gutted with supply and the buyers were loaded with inventory and couldn’t find ships or tankers to keep any more oil and thus, fall in prices did nothing for incremental demand. Today, the world production is dwindling, people are desperate to buy oil but the physical supply is choked so even if the price is rising, there is no incremental supply and if my hunch is right, we might just see oil above $130-140 barrel the next week or so, as Qatari Energy minister predicted.  History is not simply repeating itself, it is playing itself in the mirror! 45 to 0, 90 to 135- same to same, in opposite direction!

2. So where we are in the cycle:

I had, in my January post- Sell, Regret and Get Rich, mused that the world was getting into a dangerous place. It was nothing but my muscle memory which made me get to a 70% cash position by the 20-25^th of the Janaury, 2026, like I mentioned in my previous post as well. I then spent about a month and a half agonizing as to how my body didn’t feel right while the world kept moving up and then, in late February, I realized that the current cycle is a cocktail of 2000 dot com valuations colliding with the sub-prime meltdown of 2008. I was sure that the two are sufficient in itself to take this market down to 30-40% below the ATH and then, Trump happened!

Imagine there was a party of two bears- the AI valuation along with the private credit meltdown which has ignited a chain reaction in the basement of the building. These two bears are silent and are trying hard to suppress any noise before the one final blow-up which takes everyone down suddenly. These two ensured that even though there were blowups and meltdowns in multiple assets- Bitcoin, Silver, individual sectors such as Software, etc., the overall index was unaffected which trapped people in believing that everything is hunky-dory and they can buy the dip. 

Now thanks to Iran, we are now joined by the third bear who is loud, boorish and violent like no other. This is the imagery of Dubai being bombed, Strait of Hormuz being blocked, Airports being hit, empty hotels, people dying, people lining up to fill their tanks, etc. Now funnily, oil did behave very well on the first four days of the last week which made everyone believe what Trump was saying but on Friday, when the markets could not ignore the physical reality of 20-30% of global production going off, it shot up to 90s. This bear has now taken center stage and is doing all it could to bring the house down.

Here is the line which matters- the first two bears are inter-related and are silently working while the third bear destroy everything. Once the war is over and there is a rally, it doesn’t stop the first two bears from continuing what they were already doing in basement! The third has only accelerated the pace downwards and there is a real possibility that what we thought the first two could achieve in 9-12 months, the trio will take half of that!

3. The correlation on the way down is always 1:

Kospi went down 8 and 12% on Tuesday and Wednesday before recovering 11% on Thursday. European markets fell well over 3% on single day in the week while Nikkei also went up and down 3-5% on two-three days. Add to this the behavior of Silver, Gold, Bitcoin, multiple sectors such as software, private equity, metals, etc and they are all showing violent swings on the slightest of the news, both on the way up and down. This, my friends, is the truest sign of a crisis. In no normal circumstances, so many asset classes and leading indices behave like penny stocks and most importantly, whenever such behavior is observed in some asset classes, the asset classes which are still holding up and showing signs of strength almost always follow their peers on the way down. The correlation always turn out to be 1 on the way down.

So Nifty which is hardly down 7-8% will join the party very soon as well as the US markets on which our basis stands. With the amount of news flow coming out of the private equity side, it won’t be surprising if the Lehman of this crisis is some legendary Private Equity firm. Who is going to be AIG is to be seen with a lot of curiosity.

4. What do we see going forward:

I believe that in the next one week, possibly by early to mid of the week, the world will wake up to the reality that this war is now beyond the control of US administration. Unless they nuke Iran, there won’t be a surrender and if they do, it’s anyways end of the world for markets, something which Trump so dearly loves. As Iran keeps bombing its gulf neighbors, the oil supply gets choked and there is one point I want to make strongly- if countries can buy oil at 120 or 130 and still meet their demand, it only results in higher inflation and budget deficits which most countries can still tolerate. If the price rises and still you can’t buy as much as you want, it results in domestic chaos and rising inflation and weakening currency and everything else which is bad, almost like Sri Lanka a few years ago, something no country can tolerate!

As far as the markets are concerned, if I had a hunch in January that the markets will fall 40%, I now take this as a certainty that we will see markets fall at least 40% this year. We sat on cash and looked absolute foolish in February but when God’s on your side, it even causes a war for your position. We are incredibly blessed by Mahakaal that we could sell as much as we wanted to while the world partied and like we write on our website, when there is blood on the streets, we will buy with all our might because the World Doesn’t End That Easily!