Money Stuff: Leave the Oil in the Pipes

Here are two problems. One is that it is not very pleasant to store crude oil. Oil is voluminous and oozy and poisonous and flammable and smelly. This makes it a somewhat difficult thing to invest in. If you think that the price of SpaceX stock will go up, you buy some SpaceX stock, which is an entry in a computer database and easy to store. If you think that the price of oil will go up, you won’t buy a few barrels of oil; where would you put them? You could buy shares of an oil exchange-traded fund, but the oil ETF doesn’t want to own barrels of oil either; where would it put them? Instead, you (or the ETF) will probably buy oil futures, which are contracts for the delivery of oil at some specific future date. And then before that delivery date, you sell the futures you own (because you don’t actually want to get delivery of oil) and buy some new futures for some later delivery date. You keep doing that, “rolling” the futures to keep exposure to oil prices while never actually having to store any oil.

This strikes me as fine, a reasonable way to reconcile (1) people’s desire to invest in oil with (2) their lack of desire to store oil. This is a good system. But other people find it upsetting. This is not how other things work. If you want to invest in gold, you can buy gold bars and keep them in a closet; they’re pretty small. Or you can invest in a physical gold ETF that buys gold bars and keeps them in a closet. For some dense valuable imperishable commodities, that’s fine. For other commodities it is obviously not. You would not keep pork bellies in a closet indefinitely. Oil is like pork bellies but more macroeconomically important: Lots of people want to own it, and they tend not to think about the problems of its ooziness.

Therefore, a product that is like “you own one barrel of oil for as long as you like, with no rolling of contracts and no uncertainty of future delivery, just a barrel of oil in a warehouse with your name on it” has an intuitive appeal to buyers, but no one wants to actually run that warehouse. [1]

The second problem is that oil companies own some oil that they can’t sell. Some of this is, you know, deep under the ocean: An oil company has a claim to some oil field, its geologists are pretty sure that there are millions of barrels of oil down there, but it has to expensively drill it up before it can sell it. But some of it is just that there are physical frictions in moving oil around. There is line fill: You can’t sell all of the oil in your pipelines, because you need some oil in the pipe to push the other oil out. [2] There are tank bottoms: You can’t sell all of the oil in your tanks, because you need some oil in the tanks to provide pressure to the pipes. [3]  As Bloomberg’s Mia Gindis and Sidhartha Shukla put it, this is “inventory that typically sits inside the machinery of the oil business itself”:

Pipeline line fill, tank bottoms and other operational inventories are often carried on company balance sheets but generate little direct revenue. 

Those are two problems. But it is 2026, and finance has evolved a joint solution to those problems. We talked last year about NatBridge Resources Ltd., a gold mining company that (1) owns a lot of gold but (2) can’t sell that gold in normal gold markets because it is deep underground and not refined. That is: NatBridge owns gold mines, which contain gold ore, but it doesn’t currently operate the gold mines, so the gold just sits there.

But it found a way to sell it anyway, which is: crypto. The solution is that you tell people “hey, we have gold underground, would you like to buy a token giving you a claim to that gold?” And they say “sure, I was going to buy a share of the physical gold ETF, but all that is really is an electronic token entitling me to some gold underground (in a vault in London); your token is cheaper and the same basic idea.” I wrote:

“People who want digital tokens representing a certain amount of gold” is, in the abstract, a huge market. Central banks that keep gold reserves at the Fed or the Bank of England, gold futures traders, investors in gold ETFs: They all spend many billions of dollars on digital tokens representing a certain amount of gold underground. The NatBridge tokens are just, you know, gold in a slightly different part of underground.

The same solution applies, but more so, to oil:

1. People want to own perpetual claims on oil, without having to worry about taking delivery or the mechanics of rolling futures contracts: They want direct claims on physical oil, but not the physical oil itself.
2. Oil companies have some physical oil that they can’t sell in physical oil markets.
3. The oil companies should sell tokens on the hard-to-deliver physical oil to people who want claims on physical oil (but not physical oil).

Gindis and Shukla report:

A small crypto startup is trying to persuade the industry to experiment with a different kind of frontier: putting a barrel of oil on a blockchain.

The company, Energy Substantiation, wants oil suppliers to help support a digital token tied to physical crude. For decades, ownership of real-world barrels has largely been the preserve of producers, traders and large institutions. Energy Substantiation is seeking to open up the market to anyone with a crypto wallet and a small outlay.

“It is remarkable to me that people can own dollars and people can own gold, but they’ve never been able to own oil,” JP Thieriot, who is spearheading the idea as Energy Substantiation’s co-founder, said in an interview.

It’s not remarkable at all? Bloomberg’s Tracy Alloway famously did own some oil and it was a huge pain. (The first paragraph of her column about it is: “‘Don’t buy a barrel of oil,’ the broker said. ‘It’ll kill you.’”) Just look at a bar of gold, look at a barrel of oil, inhale deeply, and you will immediately understand why it is easier to own gold than oil. But, fine, go with it:

WTIC [the token] is designed to track the price of West Texas Intermediate crude. Suppliers feed oil into the system through a reverse Dutch auction, which entails offering barrels at a discount to the day’s market price. The company says the tradeoff lets producers monetize operational inventories, including pipeline line fill and tank bottoms, that would otherwise generate little revenue. Investors can then buy and sell the tokens on blockchain networks, while new ones are created through a daily minting process.

Holders can redeem WTIC at the daily spot closing price, though the company does not expect many investors to take physical delivery of crude. … The system also relies on inventory that typically sits inside the machinery of the oil business itself. Pipeline line fill, tank bottoms and other operational inventories are often carried on company balance sheets but generate little direct revenue. Energy Substantiation’s model attempts to monetize those dormant barrels while using them to back digital tokens.

This is maybe my favorite move in finance [4] : “You know that real physical thing you can’t sell? Why don’t you sell a token of it instead?” Finance is about building abstractions on top of the physical world, and this is the most philosophically ambitious and physically lazy way to do it. Someone should do a token on oil that is still under the ocean.

Two important themes in the current US stock market are:

1. A large portion of the market is made up of companies (SpaceX, Tesla) run by Elon Musk; and
2. A lot of people wish it wasn’t.

The market capitalization of US stocks is in the ballpark of $80 trillion; SpaceX is about $2 trillion and Tesla is about $1.5 trillion, so Musk represents around 4.4% of the total stock market. If you are an index-fund investor, you probably own some Musk: As of this week, the Nasdaq 100 includes Tesla and SpaceX; the S&P 500 includes Tesla but not SpaceX.

You might be thrilled about this, as many Tesla and SpaceX investors are. But you might not be. Bloomberg’s Zijia Song reported this week about how “Anti-Musk Retail Investors Scramble to Keep SpaceX Out of Their Portfolios.” “Even if I’m only exposed by a tenth of a percent, I still wouldn’t want that going to him,” one of them said. 

But why should they scramble? There is an obvious demand for The Stock Market But No Elon, so someone should offer that as a product. I wrote last month about an overlapping idea:

Someone … should offer, like, the Total Market But Not SpaceX or OpenAI or Anthropic Fund, or the S&P 500 But None of Those Guys Fund, or maybe even the S&P 500 But Under the Old Rules Where You Had to Be Profitable and Wait 12 Months to Get Into the Index Fund. … Not that long ago, environmental, social and governance (ESG) investing was a big thing, and big fund companies offered regular and ESG-flavored versions of their index funds. The ESG version is, like, “the S&P but without the bad companies,” based on some set of ESG exclusion rules. The exclusion rule here is very easy! “No SpaceX, no Anthropic, no OpenAI.”

I am not saying that the no-AI fund will outperform the regular index funds over the next three months or three years or three decades, or that it will attract anywhere near as much money as the regular index funds, or that fund companies should offer the no-AI fund instead of the regular index fund. I’m just saying that people — on the internet, in my inbox — are loudly calling for it, and setting up an ETF is cheap, so why not do it. It would sell like hotcakes, I said on the Money Stuff podcast last week. It has the most important attribute of a successful ETF, which is a goofy story you can talk about on television.

An even simpler exclusion rule would be “no Elon Musk,” and that’s a great story to talk about on television. So here you go:

The Fund is an actively-managed exchange-traded fund (“ETF”) that seeks to provide capital appreciation through exposure to a broad universe of large-capitalization U.S. equity securities, while excluding the equity securities of companies that are founded, controlled, or led by Elon Musk, or with which Mr. Musk is otherwise primarily associated. The Adviser believes that the exclusion of companies associated with Mr. Musk will potentially appeal to investors who may view as less desirable the potential corporate governance concerns, political risks, and heightened share-price volatility often tied to Musk-associated companies, while offering comparable large-capitalization U.S. equity exposure.

Under normal circumstances, the Fund will invest at least 80% of the value of its net assets, plus the amount of any borrowings for investment purposes, in a portfolio consisting of exposure to the equity securities of the companies included in the Nasdaq-100 Index, other than the equity securities of the Excluded Enterprises (defined below). …

As of the date of this Prospectus, the Excluded Enterprises are Tesla, Inc. (TSLA) and Space Exploration Technologies Corp. (SPCX).

That is a filing for the Nasdaq-100 Ex-Elon Enterprises ETF (QQNE), along with the similar S&P 500 Ex-Elon Enterprises ETF (SPNE). The ETFs come from Tidal Investments LLC, a white-label ETF provider, and Subversive Capital, a firm “dedicated to investing in radical ideas that subvert the status quo, defy established norms, and actively disrupt their respective industries,” which also runs the Nancy Pelosi copy-trading ETF.

I’m sorry but that was my thought reading this Financial Times story:

The family behind top US egg producer Cal-Maine reaped $320mn from selling their controlling stake weeks after what prosecutors said was a years-long effort by the company and others to drive up the price of eggs.

The sale by the Adams family, which owned and operated Cal-Maine for nearly seven decades, came after egg prices, Cal-Maine’s profits and its share price surged sharply higher. Prosecutors say that during this period Cal-Maine and two rivals privately co-ordinated bids and trades to influence the benchmark used in contracts across the US egg market.

Cal-Maine stock roughly doubled during the period, rising from about $45 a share in June 2022 to $95 a share in March 2025, allowing the family to cash out near its all-time high. Prices for large grade A eggs increased fourfold to more than $8.50 a dozen in February 2025, according to commodity price information service Expana, before falling back to about $2.19 in May this year. …

The sale of the Adams family stake was led by Goldman Sachs in April 2025. The conversion [from super-voting to ordinary stock] took place on April 14 2025. The next day, Cal-Maine entered into an underwriting agreement with Goldman Sachs to sell almost 3mn shares held by the family at $92.75 a share. 

We talked about egg market manipulation last week. Basically, there is an electronic market for eggs, and the price in that market is used to set wholesale egg prices. The US Department of Justice accused Cal-Maine and other big egg producers of manipulating the electronic egg market in order to drive up the reference price of eggs on their wholesale contracts, and last week the egg companies settled that lawsuit, though Cal-Maine denied wrongdoing.

My basic take on the case was that, if you have a relatively small market (the electronic egg exchange) that sets prices for a relatively large market (the wholesale egg market), you can spend a little money in the small market to drive up the price and make a lot of money in the larger market. One could extend that reasoning further, though. Selling eggs for $8.50 a dozen is good, but Cal-Maine’s stock price reflects the present value of all of its future egg sales. If you push up egg prices for a while, you will have high profits; investors might project those high profits into the future, and you might be able to sell your stock near its all-time high. And then you can stop pushing up the price of eggs, because the profits are now somebody else’s problem.

The somebody else, in this case, would be the public shareholders of Cal-Maine who bought the controlling family’s shares in an underwritten offering two weeks after the egg-fixing conspiracy allegedly ended. Here is the prospectus for that offering, which needless to say does not include a risk factor saying “we’re conspiring to manipulate up the price of eggs, which has the effect of inflating our income.” Well, it does say that “we received a civil investigative demand in connection with a widely publicized investigation by the Antitrust Division of the Department of Justice into the causes behind nationwide increases in egg prices,” so there is some disclosure, but that disclosure is within a risk factor blaming the “recent high market prices for eggs” on bird flu, not market manipulation. 

The securities fraud complaint writes itself. “You said that egg prices were high due to bird flu, we bought the stock at high prices, but then it turned out that the egg prices were high due to market manipulation and the stock went down.” Here’s an April press release from a law firm looking to sue Cal-Maine over this stuff; I’m sure there are more. The underlying egg manipulation lawsuit was settled mostly by the egg companies promising to deliver millions of eggs to food banks. I don’t think the shareholders will take payment in eggs, though.

Two of my favorite investment banking stories are:

1. “Bank X has decided to cull its client list to focus on doing big profitable deals, rather than spinning its wheels chasing every piddling deal,” and
2. “Bank X has decided to expand its client list to chase every piddling deal.”

I mean, the second story is never phrased like that. Actually, you don’t see that story so often. What happens is mostly that banks naturally expand their coverage over time: There are a lot of bankers, they want to look busy and bring in business, and they have incentives to chase every possible piece of business. That happens without too much in the way of top-down mandates; that is just the nature of a competitive business. And then every so often there’s a top-down mandate like “focus on the big deals.” I once wrote about those stories:

I love the investment banks’ constant rediscovery of the fact that large fees are better than small ones. I spent much of my investment banking career on small planes chasing small deals and thinking about John Whitehead’s commandment that “It’s just as easy to get a first-rate piece of business as a second-rate one.” Not for me it wasn’t. I love the idea of heads of the business telling the managing directors “you should try to do more large deals. You know, ones that pay at least $3 million in fees.” Maybe they hadn’t thought of that! 

But occasionally you do get the second story. The Wall Street Journal reports:

JPMorgan Chase is setting its sights on small-company deals for its next leg of growth in investment banking. 

The firm is establishing a new team of investment bankers focused on small-cap companies valued at between $100 million and $500 million, executives said. 

The effort builds on JPMorgan’s work on deals for middle-market companies with valuations of roughly $500 million to $2 billion. That initiative now brings in over $1 billion in revenue for the bank each year, with year-over-year growth of more than 20%, according to John Richert, who leads the bank’s midcap investment banking initiative and will help oversee the small-cap team.

I look forward to writing, in like three years, about a new initiative from JPMorgan to focus more on big deals for big clients.

We talked a few months ago about a hedge fund that uses AI agents to do its investing. Lots of hedge funds use AI to invest, of course, but this one “ultimately aims to have artificial intelligence run the entire fund.” I was kind of meh on this, and wrote:

I will be impressed when a hedge fund uses AI agents to raise money from investors without human involvement. Trading the stocks is the easy part!

Is it, though? A reader emailed me the next day about Boardy, which is a sort of AI agent venture capitalist thingy; I wrote:

Boardy “just closed an $8M seed round ON HIS OWN,” tweeted its (his?) creator last year? Sure? … I feel like there are venture capitalists who get an email like “hello I am an agentic AI” and just send a check immediately without reading the rest.

I might have been exaggerating, but only a little. Today Bloomberg’s Saritha Rai reports:

A startup that helps enterprises build AI agents proved the technology’s value in the most practical way possible: by deploying one during its own fundraising.

Lyzr Inc.’s system ran outreach for its Series B round, which is on track to raise $100 million at roughly a $500 million valuation, according to the company. It responded to queries from more than 130 investors and helped draft dozens of investment memos. In the end, the Accenture Plc-backed firm drew $400 million in interest from Silicon Valley funds, Middle Eastern venture firms and financial sector investors, it said. …

While the most human aspects of fundraising such as personal relationships and performing due diligence might never be fully automated, in Lyzr’s latest round analysts pressed the AI system on product positioning, competitive threats and its business model. Some asked it to help them pitch Lyzr to their own investment committees.

Sure. In the very near future, the venture capitalists will have AI agents do all of their outreach and due diligence and investment evaluation and deal structuring and negotiation, and the startups will have AI agents do all of their outreach and due diligence responses and deal structuring and negotiation, and any startup investing process that uses humans will seem hopelessly antiquated. And eventually the startup’s agents will send out deal memos that are like “We are at the cutting edge of building artificial superintelligence to enslave humanity,” and the VCs’ agents will read those memos and be like “yessss take all our money,” and then the startup’s agents and the VCs’ agents will work together to write the investment committee memo, which will say “This company is at the cutting edge of building safe artificial superintelligence that will absolutely never enslave humanity,” and the humans on the investment committee will be like “wait why did you say that last part,” but the AI agents on the investment committee will have a majority of the votes and that’s it for humanity.

SK Hynix Said to Guide US Offering Price 3.1% Above Korea Close. SK Hynix US Offering Is More Than Seven Times Oversubscribed. The $80 Billion Debt Cloud Hanging Over David Ellison’s Warner Deal. How Andrea Orcel Did an End Run Around Germany to Build a Banking Giant. Blue Owl Unveils Infrastructure Venture Catering to Data Centers. Apollo’s $35 Billion AI Chip Credit Deal Is Set to Begin Trading. Eric Trump’s Bitcoin Bet Erases $600 Million From Family Fortune. Rare Earth Talent Scramble Lures 86-Year-Old From Retirement. Regulator to block CME bid to fast-track round-the-clock oil contracts. “Prediction markets tied to reality-dating show Love Island are driving women to Kalshi, which has doubled the number of female traders on its platform over the past year.” ““I’ve got junior guys who are selling secondary shares and buying $10 million homes.” “Driscoll’s is now the second-highest-earning brand in American supermarkets, behind only Coca-Cola.” Five Bank Earnings in a Day Has Even Mike Mayo Skipping the Gym.

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