Must-read by my friend Lakshmi. As my Commodity Compass subscribers already know, for me, the most interesting — and most rewarding — force in cyclical commodities is a regime change. They are rare and often misunderstood by casual commodity observers (think the copper US tariff price mirage). In oil, we are witnessing what I called the great value migration from upstream to downstream — from E&Ps to refiners. The transformation doesn’t stop there. Tankers, too, are experiencing a profound supply-side dislocation with duration. These are hardly the only beneficiaries. We are operating in what I call a « war economy », with structural consequences that extend far beyond oil. The key is to recognise these regime changes early, understand their duration and position capital accordingly. That’s where the real money is made in cyclicals.

🇧🇷Brazil's oil is now on the ballot. Brazil pumped a record 4.62M b/d in August, up 18% in a year. Most of it comes from the deepwater pre-salt fields offshore Rio and São Paulo. Petrobras operates most of that output, and the state controls Petrobras. That's why oil investors watched the first round closely. Flávio Bolsonaro took 47% to Lula's 44.9%, beating polls that had Lula ahead. Petrobras ADRs jumped about 10% the next morning. The market was pricing the government's grip on Petrobras: fuel prices, dividends and where the investment goes. The runoff is on 25 October, and it looks close. What each result means for Petrobras and Brazil's oil growth, in my analysis 👇 themerchantsnews.substack.co…

In 2012, Delta purchased a recently shuttered refinery in Pennsylvania for $150 mil, plus another $100 mil in planned capex to restart it. The investment got off to a rough start but lately has been a windfall. There is a lot of debate about whether/how airlines should hedge their jet fuel exposure. Airlines can add fuel surcharges when prices spikes and pass the added costs to customers. Higher fuel costs are correlated with a stronger economy and higher demand for air travel, providing a natural hedge. And if other airlines choose not to hedge but collectively help set ticket prices, your hedges may not be reducing risk. In addition, corporate finance experts are highly skeptical of upstream vertical integration, particularly of commodity inputs. It adds unnecessary complexity and is often a poor allocation of capital. Companies typically vertically integrate at the moment of maximum frustration with the supply chain, when asset prices are at their peak, and then divest when markets are loose and asset values are low. Originally, the purchase was a mess. Superstorm Sandy disrupted the restart. Refinery margins fell. Prices for renewable credits soared. In these situations, a successor CEO will often unwind the integration. Indeed, the 5 years after the then-CEO left in 2016 were terrible for refineries. Luckily for Delta, they didn't dump it at the bottom. The successor and still CEO had been involved in the decision to buy it and has stuck with the strategy. And since 2022, it's printed money. Refinery margins spiked in 2022-23, generating >$1.1 billion in operating income. In 2Q of 2026 alone, it made $351 million. And 3Q results, when released, will be even better. This case study alone doesn't validate upstream integration. There are still many reasons to be highly skeptical. It is a lesson that if you choose to do so, you have to have long-term commitment to the strategy. Too often, these decisions are made based on the most recent years of performance.

Working on some very, very cool stuff that @TheCoalTrader premium website subscribers will get to preview pretty soon...

Biodiesel in Brazil is screening cheaper than petroleum diesel imports... The country is heavily subsidizing diesel imports as a national testing program is underway for blends above B15.