Rory Johnston: Global Oil Market Chaos - 3 Factors Making For a Larger Energy Crisis
The Competent InvestorShow Notes
Tom Bodrovics welcomes back commodity market specialist Rory Johnston for his analysis of the volatile state of the global oil market, focusing on the Strait of Hormuz, Chinese demand, and refining capacity disruptions. Johnston explains that following a recent memorandum of understanding, there was a temporary surge in oil transits through Hormuz as stranded tankers were released, creating a short-lived mini-glut that depressed prices. However, this flow has since collapsed again due to renewed kinetic attacks between Iran and the United States, effectively closing the strait once more and tightening supply.
A central theme is the unexpected role of China as a "swing demander." Johnston details how China abruptly slashed its seaborne import demand by approximately 5 million barrels a day, likely through a combination of reduced refinery runs, feedstock substitution, and the release of strategic product stocks. This massive, policy-driven swing cushioned the market from a severe price spike, preventing the demand destruction that would have otherwise been necessary. This new dynamic positions China as a powerful counterpart to OPEC's supply management.
The discussion also highlights a critical disconnect between crude oil and refined product markets. Widespread Ukrainian drone attacks have knocked out a significant portion of Russia's refining capacity, forcing Moscow to ban diesel exports and even import fuel. Combined with other factors, this has driven diesel crack spreads to historic highs, with diesel priced at nearly double crude oil. This situation creates a paradox where crude markets can be weak due to a lack of refining demand, while product markets face extreme tightness. Johnston argues that the Strategic Petroleum Reserve remains a vital policy tool, not merely for import cover but as a source of discretionary, rapid-response supply. He contends that the market's inability to quickly self-correct validates the need for such reserves.
Looking ahead, he expects prices to move higher in the short term due to renewed supply disruptions and depleted stockpiles, but maintains that a structural oversupply and a potential glut still anchor the medium-term outlook, predicting a bumpy road for oil markets over the next 18 months.
Timestamps: 00:00:00 - Introduction 00:00:22 - Hormuz flows post-MOU 00:04:30 - Pipeline and storage dynamics 00:09:11 - Renewed tensions impact 00:11:40 - Price and positioning analysis 00:16:20 - Demand elasticity China role 00:25:13 - Demand & SPR 00:32:13 - Russia refining capacity loss 00:41:42 - Market future outlook 00:47:15 - Siberia Drone Strike 00:48:03 - The Road Ahead 00:52:10 - Peak oil thesis debate 00:56:25 - Concluding Thoughts
Guest:
Rory Johnston — Commodity Market Research - Specializing in Oil & Gas Rory Johnston is a Toronto-based oil market researcher, the founder of Commodity Context, a lecturer at the University of Toronto’s Munk School of Global Affairs and Public Policy, host of the Oil Ground Up podcast, as well as a Fellow with both the Canadian Global Affairs Institute and the Payne Institute for Public Policy at the Colorado School of Mines.
He is a leading voice on oil market analysis, advising institutional investors, global policy makers, and corporate decision makers. His views are regularly quoted in major international media including the Financial Times, New York Times, Wall Street Journal, Bloomberg News, Reuters, BNN Bloomberg, CBC, and Financial Post, and he frequently appears on numerous market and industry podcasts (e.g., Bloomberg’s Odd Lots, Hidden Forces, etc.).
Prior to founding Commodity Context, Rory led commodity economics research at Scotiabank where he set the bank’s energy and metals price forecasts, advised the bank’s executives and clients, and sat on the bank’s senior credit committee for commodity-exposed sectors. https://www.commoditycontext.com/ https://x.com/Rory_Johnston
📈 The Competent Investor Markets, macro, and the minds that
More from The Competent Investor
I sat down with Matthew Piepenburg, Partner at Von Greyerz Gold Switzerland and author of Gold Matters, for a conversation that ranged from French riots to the COMEX silver squeeze. What struck me most was his framing of today's gold setup as fundamentally stronger than the 1970s bull market.
I've had Rory Johnston on before, but this conversation felt different. The oil market Rory describes isn't just tight—it's structurally broken in ways we've never seen.
Peter Schiff, CEO of Euro Pacific Asset Management, argues that the US economy is trapped in a self-perpetuating doom loop driven by massive deficits and rising interest rates, which he believes will inevitably lead to a sovereign debt crisis or hyperinflation. He explains that as the Federal Reserve raises rates to combat persistent inflation, the government's interest expense balloons—potentially consuming half or all of tax revenue within years—forcing even larger deficits that fuel more inflation.
AJ Signal, a former military strategist and current geopolitical risk advisor, outlines a framework for predicting conflict by monitoring five logistical signals that nations cannot easily fake: medical mobility, energy, finance, and munitions. He explains how, just before Russia’s invasion of Ukraine, the movement of blood banks to the front line served as an undeniable indicator of imminent war, because the cold-chain logistics for blood are too complex to be a bluff. Applying this lens today, he observes the U.S. military moving blood supplies into both Europe and the Asia-Pacific, which, combined with other indicators, suggests preparations for a potential ground operation against Iran.
Michael Pento, President and Founder of Pento Portfolio Strategies, joins Tom Bodrovics to discuss his increasingly cautious market outlook. Pento’s model currently sits in sectors three and four, indicating stasis or slight reflation, but he anticipates a shift to sectors one and two by 2027. He has neutralized his portfolio for the first time since December 2021, reflecting his be Pento argues that the Federal Reserve is raising short-term rates while long-term rates are also rising, creating pressure on a "triumvirate of bubbles"—credit, real estate, and equities. He attributes this to inflation remaining above target for over five years, foreign creditors abandoning US Treasuries in favor of gold, and the unwinding of the yen carry trade. The US savings rate is near historic lows, limiting demand for government debt while deficits remain massive. He warns that AI-related debt issuance, potentially a trillion dollars this year, is fueling inflation and competing with Treasuries for scarce savings. He dismisses the idea that renewed quantitative easing could solve the problem, calling such measures palliative and likely to trigger a stagflationary environment.