In short: He does not short ("a very early short squeeze… was very very painful"), so the expression is optionality: "I own some puts on refiners which has not worked out so well — a very small position and a hedge of sorts — because refining margins have risen." His thesis is that today's margins are a geopolitical shortage, not a real one (struck Russian refineries, China's export halt, deferred North American maintenance) and normalize after the election: diesel could fall from ~$200 to ~$150 with oil at $110 and margins would still be very elevated.
Refiners are the middlemen who turn crude oil into diesel, gasoline and jet fuel; they earn the gap between what crude costs and what fuel sells for — the "crack spread." That gap has blown out to extraordinary levels, with diesel margins running near $100 a barrel against a normal $20–30.
Young's view is that this is a borrowed profit, not a durable one. Three temporary things caused it: Ukraine has been systematically destroying Russian refineries (each takes months to restart, and Russia has gone from exporting fuel to importing it); China, the next-largest fuel exporter, abruptly stopped exporting refined products after the US attacked Iran; and North American refiners have been deferring their autumn maintenance to cash in, which will soon dump extra supply into a season when driving demand falls. He expects China to restart exports right after the US election. Crude could go to $110 while diesel falls from ~$200 to ~$150 — good for oil, bad for the middleman's margin.
How he expresses it matters as much as the view. He refuses to short stocks after being caught in a short squeeze years ago, so he buys put options instead — paying a small premium for a contract that pays out if the stock falls, with the loss capped at what he paid. It is a small position and a hedge, and he freely admits it has lost money so far because margins kept rising.
19:39So I will occasionally buy put options which is essentially paying premium for insurance on a stock that pays out if it goes below a certain price before it expires. And so I own some puts on refiners which has not worked out so well — a very small position and a hedge of sorts — because refining margins have risen.
In short: Deliberately avoided: "we didn't invest in the US refiners, for instance… we thought that the crude oil molecule was the mispriced asset." Record cracks are the symptom, not the prize — the shortage began upstream, and his implied bet is that "the crack spread would come down with oil benefiting."
US refiners are the businesses earning those record fuel-processing margins, so the obvious way to play a diesel shortage would be to buy them. G&R deliberately didn't: "we didn't invest in the US refiners… we thought that the crude oil molecule was the mispriced asset."
The logic is about where the problem started. Refining margins are wide because 10 million barrels a day of oil production was switched off upstream and refineries elsewhere in the world went dark — a symptom, not the source. Once the shortage is resolved the way he expects (crude rising to meet fuel prices rather than fuel prices falling), refiners lose: they'd be paying more for crude while their selling price stays put. His implied bet is exactly that — "the crack spread would come down with oil benefiting."
53:45And so we didn't invest in the US refiners, for instance. We chose to get our exposure to this crisis — was before — but we thought that the crude oil molecule was the mispriced asset today. I continue to think that the oil molecule is the mispriced asset. I'm not a physical or paper commodity trader. I trade the equities. But if I were, I probably would be betting that the crack spread would come down with oil benefiting. Now maybe diesel prices stay where they are, maybe they come down and join in the middle. I'm not sure. But the oil price
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