David Hay — Haymaker Daily: A Crack in the Market's Oil "Logic" — oil in the upper-$70s/$80s is an inflation-adjusted bargain (CPI +60% since 2007, when WTI hit ~$98) with Hormuz still essentially closed and 12%-of-global-crude Red Sea egress at risk; the crack spread at $61.80 vs $84.19 WTI = a 73% ratio "unlike anything seen in the 21st Century" (barely 50% last fall) which, with very strong jet-fuel demand, refutes the plunging-consumption story — crude sell-offs are opportunities to accumulate oil and particularly oil-producer equities (Jul 30 2026)

A macro/commodity Daily arguing the oil market's own internals contradict the story being told about it. Crude in the upper $70s to upper $80s is "historically much lower than it appears" — that was the range almost 20 years ago, and with consumer prices up ~60% since 2007 (when WTI "hit almost $98"), oil is "an inflation-adjusted bargain" — which is extraordinary given "almost no one on Planet Earth would have believed oil would be anywhere close to this inexpensive with the Strait of Hormuz still essentially closed," plus at-risk Red Sea egress carrying "about 12% of global crude supplies." The tell is the crack spread: at $61.80 against $84.19 crude — a 73% ratio, versus "barely above 50%" last fall — it is "unlike anything seen in the 21st Century." With "very strong demand for jet fuel," that says refined-product demand "remains extremely robust," directly refuting the claim that subdued crude reflects plunging consumption. Conclusion: prices are "far too low," and sell-offs "such as seen this week" are "opportunities for accumulating oil and, particularly, oil-producer equities."

One-line take: a macro/commodity-only Daily — no security is named — that attacks the consensus explanation for why oil is cheap by pointing at the refining market. Two "oddities" are stacked. First, the price level is an illusion of nominal quoting: crude in the upper $70s/$80s "were in this range almost 20 years ago, and considering that consumer prices have risen approximately 60% since 2007, oil is an inflation-adjusted bargain" — WTI "hit almost $98" in the fall of 2007, so in real terms today's crude is dramatically cheaper than a nominal chart suggests. That is startling because it coexists with the supply shock: "almost no one on Planet Earth would have believed oil would be anywhere close to this inexpensive with the Strait of Hormuz still essentially closed," and with Red Sea egress — "about 12% of global crude supplies transit" it — "at-risk, as well." Second, and the piece's actual novelty, the crack spread has nearly converged with crude itself. The crack spread "reflect[s] the cost of converting oil into refined products, like gasoline"; it is "presently ~$66/barrel, while WTI is at $84," and precisely, "the current $61.80 crack vs $84.19 oil represents a ratio of 73%" — where "even last fall, when the crack spread spiked as oil was languishing around $60, it was barely above 50% of the crude price. This is unlike anything seen in the 21st Century (and, likely, in the 20th Century, as well)." Because a fat crack spread is refiners bidding for barrels to satisfy end-product demand, that ratio — "along with very strong demand for jet fuel" — "would indicate global demand for oil-based products remains extremely robust," and "these realities run counter to the view that a key reason oil prices have stayed subdued, relative to the severity of the supply shock, is because of plunging consumption of refined products like gasoline." The verdict: "oil prices are far too low based on the continuing debacle in the Middle East as well as the high demand for oil-related products. Accordingly, sell-offs in crude, such as seen this week, are opportunities for accumulating oil and, particularly, oil-producer equities." (Continues the Jul-26 stance — profits gradually harvested on the futures position while "any dip is to be bought" and the remaining upside preferred in the equities; and the Jul-27 line that the shortage is "worsening, despite the various peace treaty head fakes." Logged as a macro viewpoint, not a stock idea.)

1. Key points

The nominal-price illusion — oil is cheaper than it looks

"The current state of the oil market is unusual." Crude "in the upper $70s to upper $80s" is "historically much lower than [it] appear[s]."
The rebase: "they were in this range almost 20 years ago, and considering that consumer prices have risen approximately 60% since 2007, oil is an inflation-adjusted bargain. In fact, in the fall of 2007, West Texas Intermediate (WTI) crude hit almost $98."

…and it's cheap while the supply shock is still running

"What makes this surprising is that almost no one on Planet Earth would have believed oil would be anywhere close to this inexpensive with the Strait of Hormuz still essentially closed."
A second chokepoint is live: "egress out of the Red Sea, where about 12% of global crude supplies transit, is at-risk, as well."

The oddity — the crack spread has nearly converged with crude

"Another current oddity is the crack spread versus the price of crude itself. Lately, they have nearly converged." The crack spread "reflect[s] the cost of converting oil into refined products, like gasoline" — "presently ~$66/barrel, while WTI is at $84" (per a Bloomberg chart).
The precise reading: "the current $61.80 crack vs $84.19 oil represents a ratio of 73%."

Why 73% is the whole point — the historical comparison

"Even last fall, when the crack spread spiked as oil was languishing around $60, it was barely above 50% of the crude price."
"This is unlike anything seen in the 21st Century (and, likely, in the 20th Century, as well)." — i.e. the extreme is measured as a ratio to crude, not as an absolute dollar spread, which is what makes today's reading unprecedented rather than merely high.

What it proves — demand is robust, not collapsing

"Along with very strong demand for jet fuel, this would indicate global demand for oil-based products remains extremely robust."
The consensus it kills: "these realities run counter to the view that a key reason oil prices have stayed subdued, relative to the severity of the supply shock, is because of plunging consumption of refined products like gasoline."

The bottom line — buy the sell-offs, prefer the producers

"In our view, the bottom line is that oil prices are far too low based on the continuing debacle in the Middle East as well as the high demand for oil-related products."
"Accordingly, sell-offs in crude, such as seen this week, are opportunities for accumulating oil and, particularly, oil-producer equities." (No ticker is named — the preference for producer equities over the commodity matches the Jul-26 decision to gradually harvest the futures position while keeping the equity upside.)

2. In plain English

Oil is trading somewhere in the high $70s to high $80s a barrel. That sounds like a normal-to-firm price, but Hay's first point is that the number is misleading, because prices in general have risen about 60% since 2007 — and oil was in this same range back then (it actually touched nearly $98 in late 2007). Measured in today's money, oil is genuinely cheap. What makes that strange is the backdrop: the Strait of Hormuz — the narrow sea lane through which a huge share of the world's oil normally moves — is still effectively shut, and the Red Sea route, carrying roughly another 12% of the world's crude, is unsafe. A closed chokepoint plus cheap oil is not a combination anyone would have predicted.

The new evidence in this piece is the "crack spread." Refineries buy crude and sell gasoline, diesel and jet fuel; the crack spread is the profit margin between the two — literally what it's worth to "crack" a barrel into products. When people want a lot of fuel, refiners can charge more for it, so the spread widens. Right now that margin is about $62 a barrel while crude itself is about $84 — meaning the margin equals 73% of the price of the raw material. For comparison, last autumn, when the spread was considered high, it was barely half the crude price. Hay says a ratio like this hasn't been seen in this century, and probably not the last one either.

That single number does a specific job in the argument. One popular explanation for why oil has stayed cheap despite the supply disruption is that people are simply using less fuel — demand has collapsed, so the shortage doesn't bite. If that were true, refining margins would be thin, because nobody would be competing for gasoline and diesel. Instead they are at a record share of the crude price, and jet-fuel demand is strong on top of it. Demand isn't collapsing; it's exceptionally strong. So the market's stated reasoning has a crack in it — hence the title.

His conclusion is straightforward: with supply constrained and demand demonstrably robust, oil is priced far too low, and the dips — like this week's — are chances to buy rather than reasons to worry. He specifies a preference for the shares of companies that produce oil over the commodity itself, which is consistent with what he said days earlier: he has been taking profits on his own crude futures while arguing that the energy equities still haven't caught up with the oil price. No fund or ticker is named here, so this is filed as a macro view rather than a stock recommendation.

Macro/commodity viewpoint — no security named. Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.