Vortex
This report is going to be open to all, as what is at play in oil is significant at the moment. Please enjoy and share wide, like, comment etc. It means a lot to have your continued support. Thanks
In this report: WTI rallies on Iran tensions, a polar vortex hitting US output, Venezuela barrels draining the sea glut and specs puking shorts.
Key Stats. WTI +2.92% ($1.73) for the week. Open $58.94 High $61.36 Low $58.53 Close $61.07
Articles
Iran Revolutionary Guard commander says ‘finger on the trigger’ as US ‘armada’ heads toward Middle East
Cracks Are Emerging in Iran’s Once-Resilient Oil Sector
US energy sector braces for winter storm as crude and natural gas output fall
World oil market faces significant surplus in first quarter, IEA says
Davos 2026: Aramco CEO says oil glut predictions are seriously exaggerated
Natural Gas Prices Surge 23% on Cold Shock and Short Covering
Valero, Phillips 66 buy Venezuelan oil cargoes as part of Washington’s deal with Caracas
IEA Monthly report Jan
OPEC MOMR Jan
View
On Greenland, Denmark and Sweden simply sold approx $8bln of US paper by the time Trump took the stage in Davos. He then capitulated and on Friday put out a statement saying that if Europe continued to sell US treasuries, that he was going to go ape-shit and unleash the fury. Well, I think he was gently reminded who owns close to 10% of all US debt.
Okay now back to energy.
Oil prices in my view are set to accelerate hard. Given that the Specs are getting further squeezed out of their positions, we then look at rising tensions AGAIN in Iran and a nice Polar Vortex freezing producing assets in North America. This will then lead to a short term spike in inflation if we get WTI back over $62’s. With that spike, I doubt the Fed will be hoodwinked into more rate cuts. So just keep an eye on this picture. Onwards…..
Some housekeeping
China continues to build oil, Gold and steel stocks.
India continues to buy non-sanctioned Russian discounted oil. And just like with every other US administration- sanctions don’t always work as planned.
Glut no more
“Oil glut predictions are seriously exaggerated... Oil stocks are low across the world on a five-year average and barrels offshore are mostly sanctioned barrels,” -Amin Nasser, chief executive Aramco
Trumps ordering of 50million barrels of Venezuelan oil to the US is certainly a drawdown for the Glut, and while not a wild descent, we can certainly see a diminishing level of Crude/Condensate at sea. Overall, the 50mb is 33% of current glut. It will take a number of weeks if not months for all 50mb to land, but the floating glut will drain significantly. Valero & Phillips 66 set to take Venezuela shipments with a nice $5 net margin after the sweetheart discount of about $9.20 from Brent price.
The anticipation is WHEN will onshore storage and utilisation increase meaningfully- reflecting the landings of the glut. Here is what EIA have to say.
There are signs increasing volumes of oil are accumulating in transit on the water or in floating storage, which have begun to weigh on oil prices. However, the excess supply that we estimate built up last year has not yet been fully reflected in observable inventories of crude oil such as those at storage hubs in Cushing, Oklahoma, or the U.S. Gulf Coast. We expect that lower near-term oil prices relative to those for oil deliveries further in the future (in other words, contango market structure) will encourage market participants to begin to store crude oil on land until supply and demand imbalances moderate and inventory builds decrease- EIA Jan monthly report.
And this is when they expect inventories to start to look a bit thinner? Q2/3 2026. Basically, there is a lot of oil on floating storage waiting for higher prices.
So to close off on this Supply/Demand picture. We have to be vigilant when trading front of curve. It will be sensitive to these landings as appear on EIA weekly storage numbers each Wednesday. A high frequency data point that is a fixture on any oil traders week. It has been largely insignificant and a non-tradable event over the last 6 months. It should come back into focus through end Q1 as we see some landings and volatility to match. I may bring back the weekly table on the top of the report then.
Iran
I don’t want to spend too much time on this. Just to say this. Take the Russian invasion, Oct 7th Israel attack, The June 2025 12 day war, snatching Maduro. None of this volatility lasted more than a week of high prices. The 12 day war was priced in and then out within 5-10 trading days. Should we get heightened tensions in Iran- a ground attack, a closure of the straits-we should expect the same. After it gets priced out, that is when the swing trades get awesome. Be it holding short spreads or initiating longs from a post rally established range low.
Storm Fern
The polar vortex acts like a cylindrical wall around the cold air around the northern ice cap. When it gets disrupted, it allows that cold air system to escape and bleed lower into the northern and mid-Northern Hemisphere. What’s crazy is that this vortex event was identified 2 months ago. The impact on front month futures for both oil and gas is high- 23% up in a week in Natty. Specs were mega short.
U.S. crude output is declining as severe winter weather forces operators to shut in production, with losses potentially exceeding 300,000 barrels per day (bpd), say analysts and regulators. The cold snap is freezing wellheads in key areas, with significant impact in the Permian Basin and a 5-10% drop in North Dakota output- Energy Aspects via Reuters Jan 24th.
Commitment Of Traders Report
Please do go back and look at my COT analysis from 2 weeks ago- There are a few reasons- but the largest is the regime change that I noted back then. This is like the 50yr wave from Point break (the original with Keanu and Patrick Swayze- not the remake abomination)
Open interest -54,430 Total 1,964359 Prior: 2,018,789
Commercials Long -33,510. -3.92% . 81st percentile
Commercial Short -1,913. -0.21%Total 918,850. 44th percentile
Non Comm Long -1,327. -0.46%.Total 284,809. 20th percentile
Non Comm Short -21,991. -9.64%. Total 206,017. 92nd percentile. PUKE!
It is with great delight I got to see the new spec COT positioning on Friday. Endorsing what we observed in the Duggan Capital trading room this week. I came into the week with the hypo that SPECS at 98.1% short would puke. I could see this on the book Friday-relatively large size (200-400) lots coming in and trading on the bid at market-without selling pressure and delta not rising through that auction. Once this volume was deployed, then we moved higher, with higher positive cumulative delta.
How do you get out of a ton of contracts on the book? Slowly and carefully on the bid.
Commercials
Not much to report, other than they actually dropped shorts 0.21%/ 1,913 contracts.
When commercials are afraid of prices dropping - THEY SELL MORE, NOT LESS.
Non Commercials/ Specs
This is what the start of puking a large position looks like on C.O.T
On a z-score basis, the WOW change was a shift of an entire deviation from +1.77 last week to negative 1.55 this week gone.
TRADE
You ever YOLO a short position and it move up in your face? Well, specs have been so short this, they are going to have to purchase back at higher and higher prices to get out.
We are heavy long on oil in Duggan Capital, with a view that the specs stepping back will lead to a short squeeze. It is my belief we go to $65. As you can see, there is a BIG RED area of resistance above-about $61.51 to $63.40s. This area is the lows of Aug and Nov 2021.
As this point, I ask that you go back 2 weeks ago now and look at the COT section in the report ‘Squeeze Now’. I observed that the last time we were at these spec levels and they had to puke, it led to a rally of +$24 on front month prices. YES TWENTY FOUR DOLLARS UP! $$$$$$$$ The data is there to support the thesis.
So here is what I’m looking for this week on oil.
As we have the overhang of ‘what is Donald going to do in Iran?’, we have to remain tight aggressive at the levels below. Trade onto top of green area $60.18, I’m going to want to get long if the order flow supports it. I’ll take my stop below $60 handle-preferring to see a small washout first, then go long $60 or $60.18s. The market may open gap up- depending on the overnight news flows. In which case, I’ll be playing the ‘waiting for a pullback’ game.
Intraday trade wise- I’m willing to pay up the market if we get to $63s- meaning Ill buy a higher pullback. QPVAH $60.91s. There are really 2 execution strategies at play now. Playing long/short intraday and playing long swings on spreads.
As usual, these charts are not what I expect to happen on price, but if the markets sets up as per the first move on the chart, that is the trade plan I am executing. I am not predicting price, I am trading an edge of
Context (value high/low and market balance)
Condition (Average volume & prices paid )
Macro COT fades
If you want to learn how to trade like this, give me a shout.
As always,
Waiting is trading. Trading is waiting.
Brilliant breakdown of the spec positioning squeeze. The COT data showing 9.64% drop in non-comm shorts at the 92nd percentile is wild. What really caught my eye tho is how the Venezuelan cargo deal drains 33% of the floating glut while specs are stuck unwinding. Been watching similar setups in natgas and the short covering accelerates way faster than poeple expect once momentum flips.