Oil: Don't Overestimate the Short-Term Shock, Don't Underestimate the Long-Term Impact

The US Dollar Index has broken above 100. The essence of "risk aversion" is this: exchanging slightly less liquid assets for the most liquid ones. This way, when a better liquidity discount appears later on, you can swap back into those less liquid assets.

The US 10-year Treasury yield continues its climb, reaching 4.09%, which is approaching the highs from early 2026. How high oil spikes in the short term is mostly a matter of sentiment, even if it surges into the $120-$150 crisis range, that is driven by expectations rather than actual reality.

However, the median level where it stabilizes long-term is a practical reality; production and shipping volumes are calculable numbers. If the current shortfall of 4+ million barrels truly persists for several months, dragging the median oil price into that $120-$150 crisis range obviously doesn't align with anyone's interests. But keeping that median around $90 is a mutually uncomfortable yet acceptable position for all parties involved.

Therefore, as mentioned yesterday, rather than betting on oil continuing to skyrocket, it is better to focus on the certainty of inflation or stagflation. US equities are currently facing inflation/stagflation expectations, which one plays out will depend on employment data. Simultaneously, the market is facing default risks in private credit, though the overall impact won't be as exaggerated as the subprime mortgage crisis.

Our live trading portfolio will continue to stay hedged. Over the past few days, our returns have actually up.