I am writing this at around 10 ET on Sunday, knowing it could age like milk. WTI popped to about $75 on the open, but now has drifted lower than $70 in classic “sell the news” style.

Here are a couple of things we believe — hopefully this helps you navigate the maelstrom of bad takes out there:

Closing the Strait of Hormuz is not a thing.

Putting aside the logistics of whether Iran could actually shut it down for any meaningful amount of time even if they wanted to (they cannot), it doesn’t make any sense for them to try. The strait isn't a weapon Iran points at the world…it's the door to their own economy. Eighty percent of Iran's oil exports flow through it. Closing the strait would be an act of economic self-immolation that also happens to enrage every single one of your neighbors, your biggest remaining customers, and the country currently bombing you. The people who are most confident the strait is closing are operating from a model of geopolitics where countries just do the most dramatic thing available to them at all times, which is a model that describes approximately zero periods of history but does describe a lot of Twitter threads.

Losing Iranian oil is not going to cause prices to spike above $100.

Our base case is that Iranian oil will continue to flow, but let’s just take as a given that we lose it. Iran exports about 1.5 million barrels a day. China adds about a million barrels a day to their stockpiles. They can offset most of the loss in Iranian supply just by tapping the brakes on their SPR build. In the case of any acute material rise in prices, they will go the other way and draw down some oil from storage. The US will do the same from our SPR. In the medium term, you have the ability for other countries to flex their production higher - e.g. the US and Saudi Arabia. There is not going to be some kind of shortage unless Iran somehow cripples the production capabilities of one of their neighbors. Good luck with that.

The overwhelming majority of traders should sit this one out

There are two possible roles oil can play in your portfolio. It can be part of a strategic commodity allocation, in which case the only trading is rebalancing. Or, you can try to trade the market for alpha if you have an edge. In a scenario where I highly doubt that even the central participants know what they are going to do, it’s a little hard to imagine anyone having a real edge.