Tom Bodrovics welcomes Rory Johnston, a commodity market researcher specializing in oil and gas, to discuss the current state of the global energy market. Johnston highlights the unprecedented situation where OPEC+ output reached an all-time low last month, and the significant impact of the closure of the Strait of Hormuz on global oil supplies. Johnston notes that over 90 Very Large Crude Carriers (VLCCs) are headed to the US Gulf Coast to pick up crude, a situation that has gained attention, including from former President Trump. This influx of tankers is due to the Middle East being functionally offline and China banning the export of refined products, making the US and Canada the most energy-secure areas.
Johnston explains that the current market dynamics are driven by a significant backwardation in the futures market, where the price of oil for immediate delivery is much higher than for future delivery. This is due to the acute shortages in areas that previously relied on Middle Eastern fuel, leading to a scramble for available supplies. He emphasizes that the market is not creating new oil but rather shuffling existing supplies to areas willing to pay more.
The discussion also touches on the potential for the US to supply the global shortfall and the implications of tapping into the Strategic Petroleum Reserve (SPR). Johnston believes that some of the SPR releases will likely be exported, given the high demand and the need to balance global supplies. He also notes the potential for resource nationalism and the political considerations that could influence oil trade policies.
Johnston warns that if the Strait of Hormuz remains closed, the global oil market could face severe shortages, leading to significant price increases and potential demand destruction. He highlights the importance of understanding the physical market dynamics versus the futures market, which often moves much faster. The interview concludes with Johnston emphasizing the need to follow the crisis closely, as the physical impact on the oil market will continue to worsen as long as Hormuz remains closed.
Timestamps:
00:00:00 – Introduction
00:01:16 – Viral Tanker Tweet/Trump
00:03:31 – US Supply Shortfall
00:06:47 – Sustaining Output Levels
00:08:15 – Market Reaction Weirdness
00:09:07 – Backwardation Explained
00:11:45 – Pre-War Oversupply Context
00:18:24 – Physical Market Lags
00:21:00 – Hormuz Blockade Impact
00:24:30 – Iran’s Negotiation Strategy
00:28:34 – China, Chokepoints, & Russia
00:38:06 – LPG and Product Shortages
00:44:53 – Demand Destruction Risks
00:50:05 – Price Shocks & Inelastic Markets
Guest Links:
Substack: https://www.commoditycontext.com/
X: https://x.com/Rory_Johnston
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.
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