Episode summary
Talking Oil and Iran with Rory Johnston (FvF Ep. 183)
Facts vs Feelings
· · Hosts: Ryan Detrick, Sonu Varghese · Guests: Rory Johnston
Summary
Rory Johnston argues that the Strait of Hormuz crisis has created a historic physical oil disruption, even if headline prices have not fully caught up. He says the chokepoint normally handles roughly 20 million barrels a day of petroleum liquids, and that about 13 million barrels a day is now effectively blocked because producers cannot move crude and products out of the Gulf. Some flow has been rerouted through Saudi Arabia’s East West pipeline and other routes, but Johnston says the market is still facing very large shut-ins and a restart process that can take 3 to 4 months, not days.
A central theme is that oil is a physical market first and a financial market second. Johnston explains why the crisis has produced extreme backwardation: near-term barrels are far more valuable than later deliveries. He says dated Brent has traded far above the prompt futures contract, and physical spot barrels can command even larger premiums. That structure helps explain why oil can look “only” around the mid-90s on screens while immediate barrels in hand are much more expensive.
Johnston also says the market is underestimating how long the disruption can last. He warns that if Hormuz stays closed, the world may need to destroy more than 10 million barrels a day of demand, a shock larger than the annual average loss during COVID. He expects Europe and Asia to feel the first pain through jet fuel and other shortages, while prices ultimately do the rationing globally.
Key takeaways
- Johnston says about 13 million barrels a day of Gulf liquids are now blocked, even after reroutes through Saudi and other outlets.
- He estimates Gulf production restart takes 3 to 4 months, so the supply hit compounds over time rather than ending quickly.
- Johnston says the market is in extreme backwardation, with dated Brent and physical spot barrels trading far above prompt futures.
- He argues that if Hormuz stays closed, the world will need to destroy more than 10 million barrels a day of demand, which would be a larger shock than the COVID annual average.
- He says Europe and advanced Asia will likely bid prices higher first, leaving poorer regions exposed to the worst of the shortage through global price transmission.
Notable quotes
“Hormuz is the critical, the most important single choke point in the global petroleum market”
“You had roughly 20 million barrels a day of petroleum products, liquids as we call them, transiting the straight”
“there have been some very notable and important offsets to that that have lessened that hit to the global economy”
“it would take 3 to four months to get back to full production”
“we will need to destroy forcibly upwards of 10 plus million barrels a day of demand”
How the episode opens
Welcome to the Facts Versus Feelings podcast. I'm your host, Brian Dietrich, and I'm joined by my co-host, Sonar Geese. Cutting through the noise each week with Ryan Dietrich, chief market strategist, and Sonavar Geese, chief macro strategist.
Taking out the boring and helping investors focus on what really matters. And we are back. Episode 183 of Carson's Facts Versus Feelings.
Ryan and Sonu as always. We have a super special guest with everything going on out there. Um, Rory Johnston is gonna join us today.
I was going to make a joke like, "Thank you for finding time to join us after winning the Masters last week. Do you do you hear that a lot?
I get that a lot. And my my wife is actually her my wife and her family are massive golf fans. My wife almost played competitive golf. Like they're like big into golf and — He was the first Rory that she was aware of. So I'm always in the shadow.
Oh my. A lot to live up to. — Yeah. There's a lot of Ryan. It's the cool thing about Sonu though. We joke like this. I mean, you ever heard of a son? Like honestly, like I I haven't. I mean, we you know,
I have not. I have not. First, first and best easily. First, it does mean gold. So, you know, like Rory, to give you a clue of, you know, our sympathies for the shiny metal. — Okay. Good. Good. It's lit literally a namesake.
Yeah. So, so Rory, I mean, let's um we like titles around here. I guess you're What is the exact title you have? What What is Just make sure we say it correctly. — Um so, yeah, I'm the founder of Kamari Context.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil chokepoint
- strait of hormuz
- oil supply shock
- oil pricing mechanics
- geopolitics and energy risk
Watch the episode
Watch “Talking Oil and Iran with Rory Johnston (FvF Ep. 183)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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