Paulo Macro — Oil & Retail
"When Asymmetry Meets Absurdity." Even if he's wrong about the North Star, "Schroedinger's Strait" resolves oil higher either way — and retail's ~$1bn crowd into a broken 2x-short oil ETF (plus a lopsided USO short) is the contrarian tell.
One-line take: "Schroedinger's Strait" is both open and closed at once, but both branches send oil up. Even assuming he's wrong about the North Star and a "Big Beautiful Deal" is signed, the only deal Iran accepts hands it control of Hormuz — which Saudi/UAE won't accept, so the GCC keeps ~3mmbpd shut in indefinitely (Saudi: 4mmbpd at $150 = $600mn/day beats 7mmbpd at $80 = $560mn/day) and oil moons on an "indefinite mass shut-in" the market can't look through; if Iran drags it out, inventories draw and oil rips — "win/win or lose/lose depending on your side." Invoking Shrub's Razor (the funniest, most absurd outcome is the likeliest), the tell of weak hands is retail: SCO (ProShares UltraShort, -2× WTI) assets exploded from ~$100mn to over $1bn as retail piled in, yet vol-drag + ~$5/mo negative roll left it going nowhere despite crude's correction — "the dumbest speculative money in the market." Meanwhile USO (long front-month WTI) at $1.8bn is down ~$1bn from its high and is so heavily retail-shorted that it costs 7.9% to borrow (only 10k shares) vs SCO at 2.7% (10mn shares) — a lopsided contrarian-bullish oil set-up (Kovner: "a consensus the market is not confirming"). Two ETFs are tabled as positioning tells; both are consistent with his existing stances (USO bullish vehicle, SCO the broken short to fade). Crude/Brent futures, the Strait, and GCC barrels are not tickers.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What's said | Source |
|---|
| USO | United States Oil Fund (WTI) | QT · SA · STK | Positive | The plain long-front-month-WTI fund ($1.8bn, down ~$1bn from last month's high) is so heavily retail-shorted that only 10k shares are available to borrow at 7.9% (short interest 10.7mn shares / ~$1.4bn notional as of Mar 31) even amid the most severe backwardation and carry in history — a lopsided retail short into a bullish-oil set-up. | read ↗ |
| SCO | ProShares UltraShort Bloomberg Crude Oil (-2× WTI) | QT · SA · STK | Negative | The "twice as stupid" 2× inverse-WTI product (short June26/Dec26/Jun27 futures): assets exploded ~$100mn→$1bn+ as retail leaned in since the war, yet vol-drag + ~$5/mo negative roll left it going nowhere despite crude's correction — "quite literally the dumbest speculative money in the market thinking they are buying the lows." Contrarian-bullish oil tell; something to fade, not own. (10mn shares available to borrow at just 2.7%.) | read ↗ |
Two ETFs are tabled as positioning tells in a contrarian-bullish oil argument, consistent with his standing stances: USO (the bullish WTI vehicle) and SCO (the broken -2× short to fade). The 2× MSTR levered ETFs are cited as the vol-drag precedent (not tabled here). Crude/Brent (CO) futures, Saudi/UAE barrels, Yanbu/Fujairah, and the Strait of Hormuz are commodities/geography, not tickers. Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
2. Talking points
Schroedinger's Strait — both branches send oil up
- Assume he's wrong about the North Star and a "Big Beautiful Deal" lands. The only deal Iran accepts hands it control of Hormuz — no adversary relinquishes that economic power. But Iran controlling Hormuz replaces Saudi-led OPEC with Iran and subordinates the GCC monarchies to Tehran — a world Saudi/UAE won't accept.
- So the GCC's optimal response is to max exports via Yanbu/Fujairah and "not a drop more," keeping the shut-in ~3mmbpd in the ground indefinitely. The math: 4mmbpd at $150 = $600mn/day beats 7mmbpd at $80 = $560mn/day, and with the US security umbrella meaningless, Saudi no longer owes Trump a low price. Markets can look through a temporary disruption; they can't look through an indefinite mass shut-in that precipitates a global recession.
The other branch (no deal)
- If there's no Big Beautiful Deal, the North Star still governs — a lurking "Tom Hanks Has Covid" moment when molecules and paper assets collide. Either way: "win/win or lose/lose depending on which side of the oil/equity/credit trades you're on." Odds of a rapid resolution with Iran giving up the Strait are both very low and priced in.
Shrub's Razor and the weak-hands tell
- Shrub's Razor: the funniest, most absurd outcome is also the most likely — here, a peace deal signed and crude promptly ripping in an epic "news failure." To find who gets run over (the convexity), he looks for weak hands. His "Retail Trader's Guide to Mass Suicide" diary flags SCO.
SCO — a billion dollars into a broken 2× short
- SCO (ProShares UltraShort Bloomberg Crude Oil) targets 2× the inverse daily WTI move, holding short June26/Dec26/Jun27 futures. Its assets exploded from ~$100mn at the war's outbreak to over $1bn as retail piled in — yet, like the 2× MSTR ETFs, vol-drag plus ~$5/mo negative roll left it going nowhere despite crude's big correction. "The dumbest speculative money in the market thinking they are buying the lows." (He even notes 'CO' is the Brent ticker while SCO shorts WTI — "twice as stupid.")
USO — the lopsided retail short
- USO (plain long front-month WTI, $1.8bn) is down ~$1bn in assets from last month's high and so heavily retail-shorted that only 10k shares can be borrowed at 7.9% (short interest 10.7mn shares / ~$1.4bn notional as of Mar 31) — even as oil shows the most severe backwardation and carry in history. Meanwhile you can borrow $80mm of SCO for under 3%. The lopsidedness (Kovner: "a consensus the market is not confirming") tilts odds and convexity to the bullish-oil side.
3. In plain English
Jargon-free notes on the two ETFs used as positioning tells. (Plain-language companion; renders on each ticker's consolidated page.)
USO — United States Oil Fund Positive
USO is the simplest way for a retail trader to bet oil goes up — it just holds the nearest oil futures contract. Paulo's point isn't a fresh call on USO; it's about who's on the other side. So many small traders are betting against oil (shorting USO) that there's almost none of it left to borrow, and the few shares you can borrow cost a punishing 7.9% a year. When a crowd is this lopsided betting one way — and the physical oil market (tight supply, "backwardation") is quietly saying the opposite — it's the kind of "consensus the market isn't confirming" that legendary trader Bruce Kovner hunts for, because a lot of people are set up to be wrong.
SCO — ProShares UltraShort Bloomberg Crude Oil Negative
SCO is a fund designed to move twice as much as oil, in the opposite direction, each day — so if oil falls 1% today, SCO is built to rise ~2%. The problem is the "each day" part: these 2×-daily products get eaten alive when prices chop up and down (a "volatility drag"), and this one also bleeds ~$5 a month just from rolling its futures forward in a backwardated market. The result is almost comic — retail poured nearly $1 billion into SCO thinking they were catching a falling oil price, yet the fund made essentially nothing despite a big drop in oil. Paulo treats it as the poster child of "dumb money" and a contrarian bullish-oil signal: something to fade, never to own. (He also enjoys that 'CO' is actually the Brent ticker while SCO shorts WTI — "twice as stupid.")
Key points extracted from the paid Substack post (in transcript.txt) for personal study. Not investment advice. © Paulo Macro for source material.