The Crude Conundrum
Let’s look at sticky oil prices, even after the flow largely returns from the Middle East. Also, could Tesla merge with SpaceX?
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The market price for WTI Crude, front-month delivery, surged on Tuesday morning and then sold off. This morning, as I work my way through the zero-dark hours, I see “Texas Tea” trading with a $99 handle, up around 77% year to date. Brent Crude, which is the global benchmark, however, was showing no such cooling off, remaining in rally mode as the morning wore on. Brent rose above $110 per barrel in early European trade, as attacks on shipping through the Strait of Hormuz threatened flows.
Interestingly, energy markets have held onto recent gains, ignoring rumors that have made their way up and down Wall Street that the diplomatic stance between Iran and the U.S. had thawed somewhat. Even more interesting and perhaps underreported, is the that more is now coming out of the Persian Gulf region than was doing so before the start of the war between the U.S. and Iran. According to a report at the Wall Street Journal on Tuesday night, oil exports out of the Persian Gulf have now surpassed pre-war levels, as shippers have improvised and the U.S. Navy has provided broad protection.
Tankers have moved more oil despite Iranian forces having ramped up one of its fiercest waves of attacks on vessels traversing the Strait of Hormuz since the war began. The piece at the Journal that cites data provided by Kpler, shows that oil flows through Hormuz, including offshore transfers in the Gulf of Oman, amounted to roughly 14 million barrels a day on average for the week through Oct. 18, or 82% of prewar levels.
While that alone is quite impressive, flows from the Middle East, to include shipments through Hormuz as well as alternative routes across the region, have averaged more than 24 million barrels per day for the same period, surpassing prewar levels of 23.3 million barrels. Kpler’s data shows that Pipelines across both Saudi Arabia and the U.A.E. are functioning at greatly increased levels. For September, roughly 40% of all non-Iranian crude shipped out of the Persian Gulf simply bypassed the strait. That compares with 17% pre-war.
What Gives?
So, we have to ask. If shippers are simply bypassing the strait and that obviously diminishes any leverage that the government and armed forces in Iran thought that they had, why is oil still so expensive? If more oil is flowing out of the Middle East that was before the start of the war, what’s up? Is the current price of oil and any associated consumer-level inflation artificial? An act of manipulation?
I mean, Gulf oil is flowing despite Iran having escalated violence around the strait. Attacks on civilian vessels by Iranian forces just for October to date now account for 20% of all such attacks during this war. That’s the very definition of a military (Iran’s) having failed to meet its objectives. They tried to constrict the flow of oil out of the region in order to force energy prices higher that in turn would put upward pressure on inflation across developed economies.
One has to wonder. Is someone helping Iran? The flat answer is no. Not really. While one would think that oil prices would be falling sharply at this point, and I believe that they still will, the cost of shipping oil through the region remains 15% to 25% higher than it was in very early 2026. No, that’s not 77%, but there is still risk and those shipping costs have only now started to contract.
The U.S. Navy has done a fantastic job. Iran’s economy is in ruins and inflation there is worse than it is in almost anywhere else. The war between Russia and Ukraine is still a factor and perhaps a growing factor. That said, a week or two more of what we saw for the week of Oct. 18, with the world increasingly going around Iran’s ability to impact flows, and these prices will come in.
Speaking of the Navy…
Bloomberg News is reporting that The U.S. Navy has suspended additional orders for the “GARC” or Global Autonomous Reconnaissance Craft, following an independent evaluation that identified shortcomings in both the vessels’ hardware and performance. The Navy is said to be exploring less expensive options to fill its need for one-way seaborne attack drones with similar advertised capabilities.
Aevex (AVEX) shares are trading lower on the news, but not dramatically so, as perhaps this news was seen coming by traders. AVEX is down more than 65% since its late May 2026 high. The Navy’s decision does not necessarily end the company’s relationship with the Pentagon.
The company’s unmanned maritime vessels remain operational across multiple U.S. Navy fleets and task forces and have accumulated more than 25,000 hours of activity. In addition, the firm was recently among three winners of a U.S. Navy competition involving autonomous mine detection and destruction capabilities.
Space-La?
Last night, after SpaceX (SPCX) released quarterly results, Elon Musk openly endorsed the prospect of combining that firm with Tesla (TSLA) in what could be the largest-ever corporate merger. Such a move would further consolidate Musk’s varied businesses into a high-tech conglomerate of sorts. SpaceX has already brought in Musk’s AI company, xAI.
This would unite assets from the electric vehicle business with AI data centers, rocket launch services and the firm’s satellite capabilities. During the SpaceX conference call, Musk said that the boards of both companies had formed special committees to consider the idea of a combination. He added, “There’s a lot of merit to combining the companies.”
How about Twitter? Twitter, or “X,” remains a private company, legally independent of both Tesla and SpaceX.
Marketplace
The good news is that equity markets rallied broadly on Tuesday without much help from the AI trade to from the tech space? Does that mean that those trades are ready to rally? It could. Breadth was quite positive on Tuesday. Ten of the 11 S&P sector SPDR ETFs closed out the Tuesday session in the green. The market was led by both health care (XLV) and the REITs (XLRE). Tech (XLK) was the lone loser.
Still, winners beat losers by better than two to one on Tuesday at both exchanges and trading volumes inches (ever so slightly) higher on a day-over-day basis. The key positive for me was this. The S&P 500 still has not lost contact with its 50-day SMA though swing traders have not yet bought in. In addition, the Nasdaq Composite also kissed that line on Tuesday. For four consecutive sessions, the Nasdaq Composite has hit resistance at its 50-day SMA, as we suggested could happen. A Wednesday rally across tech could be what the doctor ordered to put this quite severe test to bed.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 7.5%.
07:00 – MBA Mortgage Applications (Weekly): Last -2.7% w/w.
10:30 – Oil Inventories (Weekly): Last -8,557M.
10:30 – Gasoline Stocks (Weekly): Last +3.518M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: ABT (1.41), T (.60), MCO (4.25),
After the Close: CSX (.53), IBM (2.87), LRCX (2.18), META (6.76), TSLA (.45), TXN (2.42), URI (14.03)
At the time of publication, Guilfoyle was long IBM equity.
