Rory Johnston On Whats Happening In The Oil Markets

TITLE: Rory Johnston (oil expert) on what’s happening in the oil markets | Subtext by Zerodha CHANNEL: Markets by Zerodha DATE: 2026-04-10 ---TRANSCRIPT--- Hey, thanks. Thanks Rory for doing this, for replying to my tweet. It was really kind of you.

Happy to help. So, one of the things that I wanted to start with was I’ve been listening to a bunch of your podcast and been seeing your tweets. You say that I’m not an alarmist and people on Twitter have been calling me an alarmist now. And the one of the things is that people have started to say that if you are being an alarmist, it is a sign. We should pay attention to it. Why? Why is this a big deal? What is happening right now? Yeah. So I think I think by this stage I think everyone has heard some of the contours of what is happening in the Iran war and the stoppage of traffic through the street of Hormuz. But yeah, just to kind of reiterate what you said, I’m normally a pretty pretty calm guy. Uh, and I think I I have a bit of a reputation within the oil market as being a little bit of a bear that, you know, if anything I my assumption is that the oil market is going to find out figure out a way to adapt to things and what we’ve seen over the past half decade is from, you know, attacks on AB cake in 2019 to CO to Russia’s invasion of Ukraine to the Houthies in the Red Sea to the 12-day war last year between Israel and Iran. The oil market has proven extremely resilient and able to compensate for all manner of kind of previously kind of feared shocks and you know kind of jars to the system. But this is just something entirely different. It’s such a difference in scale. It’s a difference in kind. It is the largest. It is now the largest oil shock oil supply shock in history. We’re talking about the actual stoppage of flow through the straight of Hormuz is about 20 million barrels a day of oil out of a market of roughly about 105 million barrels a day, but let’s just say 100 for easy math. 20% of global supplies travels through the straight of form. We have very thankfully been able to have some some rrooting offsets that have reduced that headline 20 million barrel a number between the Saudi eastwest west pipeline between the fact that Iran continues to export its crude through through the straight of Hormuz uh and actually now the US has actually removed sanctions on Russian crew sorry on Iranian crude to allow it to flow even more easily. You also have an Emirrodi pipeline and a couple Iraqi pipelines that theoretically can reroute some flows around the straight of Hormuz. But even after factoring for all of those rerouts, you know, and and assuming they’re operating at 100%, which they aren’t always, and and until very recently, many of them weren’t, that reduces that 20 million barrel number to about 13 million barrels a day. That’s the hole, right? That’s so 13% of global supply is the hole that needs to be filled. There is no single source or any collection of sources of supply globally that can respond that quickly to that supply loss. And just to be clear, this is not just even a loss of of exports alone and we’re accumulating inventories. No, this is we have probably 11 to 13 million barrels a day of confirmed shut in production in the Gulf. That’s between Iraq, Kuwait, Saudi Arabia, and the Emirates and Qatar. That’s a lot of oil. And if we can’t fill in supply, uh, and we have a couple offsets as well as SPRs and everything else that’s been going on, but fundamentally we can’t fill that much supply, which means that as long as the straight remains closed and those production assets remain shut in the Gulf, we’re going to need to destroy that volume of demand globally so the industry doesn’t basically rip itself apart. And that means ever higher and higher and higher prices. Right now we’re at about $109 Brent as we you know as I checked before starting this call and it’s going to go higher and and I think if the straight remains closed we could very easily be heading for $200 plus dollar Brent crude. So I I’ve heard uh in the last Oddlords podcast also I think you mentioned you’ve been tweeting also we should be reaching to 200. Why haven’t we reached it yet? It’s a great question. It’s a great question because any oil analyst I speak with and people who like really know this market, everyone’s confused as to why oil prices aren’t higher. And I think there’s kind of two fundamental reasons. Firstly, prior to this crisis, the oil market was in pretty structural over supply. We had built up a lot of stocks. The oil market was weak. And the expectation was that basically going forward, the market would be in over supply and price would be under downward pressure. And I think that remains kind of a base case bias for a lot of people in this market that as soon as this whatever this is ends, we go back to that bearish steady state. And I think also given the fact that energy crisis and rapidly rising oil prices is pretty squarely a negative for global equity prices, everyone in the market just wants this to be over. So there’s a there’s a bit of kind of confirmation bias here that they any opportunity they can have to sell down crude and bid up equities is makes their lives better basically right so it’s it feels good it’s kind of validating so yeah go that direction and I think the the reason you can get away with that cuz I mean sure you could say that anytime right but I think part of the challenge here is that at the fundamental end of the day the market is trying to handicap Donald Trump’s kind of appetite and expected timeline in this war. And what we have seen repeatedly is that every week of this war, the White House or someone from the administration has essentially said that this is the like the last week or the last week or two of the war. Even last night, and I think we’ll probably talk more in depth about last night’s speech. Uh we’re taping this on April 2nd. Uh the President Trump gave his speech, his address, an update on the Iran War last night. There’s just an assumption that he’s going to back out. So the market basically every single time you’ve seen these kind of the war is almost over, oil prices sell off pretty aggressively. And I think a lot of this is because we’re still waiting to feel and witness the physical ramifications of this shortage in the in at least western kind of call them the most transparent responsive markets. The loss of hormone supply still hasn’t really been felt here. I think you speaking in India obviously are one of the first countries to have felt the acute stoppage of flow and I think you look at India you look at many Asian economies right now there is full-blown panic through governments there is you know uh beginning to roll out of forced rationing or at least the language around like be prepared for what is coming because it is not good and that message just has not resonated most people honestly aside from like a higher price at the pump. I would say like most people on the street do not know. I I’m in Canada. Most people on the street do not know what is happening right now. They do not appreciate the scale of the calamity because frankly the only way they’re going to feel it is when the markets really begin to overreact and that just hasn’t happened yet. Yeah. I’m just wondering when will that happen? I mean considering what Trump said last night, it’ll go on for two or 3 weeks. Yeah. Well, I mean I I agree and I would have expected prices to be higher than they are right now. like 110 Brent is high, but it’s not nearly high enough. I would expect us to at least be in kind of like 125 to 135 territory by now. And I think what you you have seen in spot markets and refined product markets in Asia, you do see many products well over $2, $250 a barrel at the Singapore market now. So like there is we are seeing this in the physical market. We’re seeing record physical premium being uh kind of announced by the major exporters for their price references. Like the physical market is showing this in a way that the paper and the futures market is not yet. But I think given that as you note last night President Trump announced that no they’re just about to done they’re just about done the war still but it’s two to three more months and sorry two to three more weeks and again he’s saying this after four weeks of the war. He’s basically saying that it we’re, you know, best case scenario kind of only halfway through this thing. And again, I think two to three weeks is optimistic now given that we’ve seen how we’ve seen them manage timelines repeatedly over the past month. So what does that mean? What does it mean to kind of be guaranteed another month of hormonous closure? We’ve already hemorrhaged over 200 million barrels of oil from the global system. These are barrels that are just fundamentally that were not produced. This is not floating storage. This is not an inventory in Saudi Arabia and the Emirates. This is barrels that were shut in that were not produced. That even if this war ended today and the straight of horm reopened today and every producing asset restarted 100% today, we’d still be down almost a quarter billion barrels of oil that is going to fall out of global inventory. So again, going back to that, you know, we were entering this in a surplus with rising inventories and a bearish kind of downward price pressure outlook. Even if that resumed exactly as it was in February, we would be rewinding the vast majority of the surplus that had been built up over the past year. So we’re basically starting back at square one. And I think and if this goes on for another full month like I think it it seems like now April we have hormones closed for all of April which is like a second full month of this is just wild and that the amount of loss production in April alone will be in the ballpark of 400 million barrels that is this that is the entire size of the IEA or the international energy ay’s coordinated record setting largest in history strategic petroleum release which was 400 million in barrels and that is going to happen over months. Uh like it’s not going to match the same pace of this loss, but that’s just what’s going to happen in this month alone. So just in terms of the scale even, you know, we’re not going to get the stuff restarted immediately. So if you start the timer at the end of April, then you’re not getting back up to full production until middle end of summer right through summer driving season in North America when you see oil demand spike globally. Air travel typically spikes. All of these fuels are going to be in extraordinarily short supply and the prices are just going to be astronomical because otherwise you will just have shortages. Like the prices have to continue rising in order to shed demand. And one thing I keep stressing is in advanced markets this is going to feel in North America, in Europe, in the wealthiest parts of Asia, this is going to feel like a very painful price spike. attacks kind of it’ll eat away your disposable income. It’ll tighten your household budget. But in many of the poorer areas of the world in the global south, you will not you know you know these countries will not be able to afford import balancing cargos which will mean it will manifest as physical shortages which for many areas of the world is a life or death proposition. One of the major one one area that everyone’s watching very closely right now is the Indian LPG market. Given that I mean this is a core structural cooking fuel for tens hundreds of millions of people. Without those fuels, households will be pushed to dirtier biomass kind of combustion or just not have cooking fuel. And this is like this is the type of thing that this we could talk about this from a market perspective. But it’s going to have catastrophic human consequences if this persists. Which is why I have repeatedly thought no one would allow this to persist as long as it has. And I’ve been wrong. I’ve been optimistic of human nature here and I’ve just been wrong at at kind of the ability of people to actually just tangibly wrap their heads around how bad this could get if this persists. I mean a bunch of things you said. I had a bunch of questions related to this specifically about the IA SPR release. You made a tweet my morning time that there was basically 400 mil of shortage and then basically the whole of shutdown is basically equivalent to IA’s SPR releases. So I wanted to take a step back a bit so that our viewers have a little bit a rough blueprint of sorts as to how oil markets as a whole work. If you could give that picture and then then I’ll go forward asking more questions. Sure. Say say that one more time. The how how does the oil market system work in 30 seconds or so? How does oil work in 30 seconds? Okay, let’s try. Um so the oil market is the world’s largest stock and flow model. At any given point, you’re producing roughly 105 million barrels a day and consuming roughly 105 million barrels a day. The system I talk about as a flowing system and we talk about supply and demand in millions of barrels a day rather than let’s say you know tons per month or anything else is because we think about and the system operates as this kind of giant flowing chemistry set. when that flow of supply stops, when the pipe turns off, the system has a lot of trouble kind of adapting to that. So, one thing I’ve been describing this as um is when we see a price on the screen, when we see a, you know, Brent or WTI or Dubai crude or Singapore Jet Fuel or whatever else, these it’s a price of a particular product at a particular place in a particular time. And all three of those pieces are really, really important. And all three of those those aspects, the relative value of them changes dramatically over time. I’ve been describing this crisis as kind of a time space shock wave that’s kind of moving out of the Middle East and the way it’s kind of manifesting in global supply chains is a bit like an air pocket that you know I was mentioning that the west still hasn’t really felt the stoppage quite. I wanted to probe you here. Can you explain what do you mean by air pocket here uh in a little more detail? Yeah. So, you know, five weeks ago, we still had ships leaving uh the Gulf laden with with crude and petroleum products. Those tankers take 3 to 6 weeks to get to where they’re going, depending on which area of the world they’re going to. So, when those tankers that left 5 weeks ago, some of them still haven’t landed to where they’re going. Those locations haven’t felt the loss of Hormu’s supply quite yet. eventually that final ship, that final tanker will arrive and nothing will be behind it but air. That’s kind of this air pocket that I’m thinking about. And when we’re talking about where that happens first, it happened first in East Africa. It it happened next in India and then East Asia, Europe, East Asia is really happening this week and that’s the biggest kind of final bucket of this. And then Europe is next week likely and then North America the week after that. After that point, there will basically be no pri pre pre-war flow of oil still on water. And that I think is when we’re going to really start feeling that kind of heavy sucking sound, if you will, of kind of global demand trying to make up that loss supply. One thing we’re we’re likely going to see more of, and we haven’t seen as much of it yet, as I would have expected, is more Asian buying of basically every crude barrel and product barrel in the world. So this is why I mean you know in North America people will say like this doesn’t affect us. We don’t get as much oil. You heard this from President Trump last night. We don’t get as much oil from the straight of Hormuz or the or the Middle East as we as we did historically. We’re energy independent or whatever that means. And because of that we won’t feel the price effect. And that just couldn’t be more wrong. I mean as an example if you look at the US east and west coast net importers of gasoline in order to satisfy that demand consumers in those countries and the marginal or kind of final price needs to be high enough to incentivize balancing import cargos to those jurisdictions which means that you are basically not competing just in North America you’re competing with every buyer of fuel in the world in the Atlantic basin on the east coast and in the Pacific basin the west coast coast. The west coast in particular, given that Asia is the kind of epicenter of the product shortage, West Coast in particular is going to feel that kind of competition and we have. We’ve already seen, you know, California diesel average diesel prices soar above $7 a barrel, sorry, $7 a gallon. And all of this is going to continue getting worse as well. But I mean, for areas in the North America, you know, in the Midwest, in the middle of the country, you don’t have as much competition. You don’t have the same price pressure. But that’s what we’re going to see is that that more and more of this pressure is going to force these prices higher in North America. And if they don’t go higher, then we will face the shortages here. Like for instance, if you saw a repeat of President Nixon’s energy or, you know, pump price caps of the 1970s. That’s how you would get, you know, physical shortages here. But I I don’t think you’d see them here unless you begun kind of mcking with the trade file. You mentioned the 1970s bit. That was one of my questions. I was born in 2002. I have zero context of what happened even in 2000s. So if you could go back in time a little bit and just paint me a picture as to what what happened in 1970s, how is it different than today? Plus what happened in the Russia Ukraine war crisis as well and how is it different today? Yeah. So you’re making me feel old now. Um but so I’ll forgive you for that. But anyways, the um 1970s obviously is like the when we talk about the energy crisis, we talk about an energy crisis reference. We’re typically talking about the 70s. So in 1973 you had the Arab OPEC oil embargo which was essentially when uh in retaliation for assisting Israel, the Arab Gulf states uh basically announced an embargo or kind of a blockage of exports of crude oil to the west largely United States, Great Britain, etc. And that was basically the first major oil shock. Then you know in in some we lost we lost some production but the biggest effect was actually a rrooting of those those barrels away from the United States and a lot of the most a lot of the biggest pain was actually caused by the policy response of President Nixon at the time to you know cap prices which caused shortages which caused all the gas lines. That’s what people really remember, right? They remember the oil prices, but they really remember the gas lines. And this triggered the, you know, recession through the 70s, the high inflation, all of this kind of, you know, marred our memory, our collective memory of the 1970s. And in the later ‘7s, you had the reason ’ 70s was particularly remembered is you had a double whammy because you also had the Iranian revolution in 1979, which also kind of ended up taking a bunch of barrels off the market, at least temporarily. that I think is the reason that people remember that so acutely was it came with all that inflation. It came with those, you know, basically a decade of deeply deeply weak growth. And I think that’s a lot of people’s main reference for what this will look like as well. And I think the difference is that the scale of the supply loss is actually larger. The upside is that oil as a relative proportion of our economies is less important now than it was in the 1970s. that the economic the oil intensity of global economies and particularly of the western economies is far far less today than it was in the 1970s and I think that in large part due to many of the oil price spike related issues that came in the 1970s. You had the efficiency drives, you had cafe standards announced, you had all manner of kind of effort to reduce energy intensity and very frankly I think that this will likely be a similar experience for Asia. Back in the 70s, Asia was nowhere near as important to the global oil demand as it is today. Now, it’s by far the largest source of of demand overall and the and by far the largest source of incremental demand growth. That was not the case in the 1970s. And given that Asia didn’t feel the 1970s in the same way when oil was essential to the economies now I think it’s going to be one of those things where people have like you know in the near term I think this is obviously positive for oil prices obviously bullish for the oil market but I think in a decade we’re going to look at this differently this is going to have been another shock and it’s going to likely all else equal mean lower demand in Asia a decade from now than I would have expected let’s say a month and a half ago. And that’s because this has exposed just how vulnerable Asia is to these these energy shocks and how an event like this can essentially make all of Asia’s governments on a dime basically scramble to figure out how to manage the shock and stop, you know, the worst from coming to pass. So that’s the 1970s. The Russia crisis when Russia invaded Ukraine in 2022 was what I think a lot of people are much more familiar with. It’s much closer in memory. And the difference there was that that was largely a crisis of fear and it happened at a time when oil markets were already very tight. So it was a tight market and then we were worried about losing a huge chunk of Russian supply. The kind of high watermark of that fear was the IEA’s oil market report in April, which basically speculated that and forecasted that we could lose 3 million barrels a day of Russian production, which at the time was like an unthinkably large sum of oil to fill in for, but it ultimately we only ended up losing maybe a million barrels a day of production for a month or two. And at the end of the day between the SPR release from the United States and the IEA and then the you know China’s co zero lockdown policies you know tanking Chinese demand and ended up kind of prompting the first year of annual average contraction in Chinese demand in like three decades. So you ended up having a situation where that that fear ended up being completely unrealized. Whereas the difference between then and now is that the fear it’s not just fear anymore. If anything, we don’t have enough fear given how much realized supply loss we already have in the market. So, I think it’s in some ways it’s the exact opposite of what we experienced in in in 2022. And we’re just waiting for markets to kind of catch up. I I just there was one tweet that I had seen you put out. This is a couple of weeks back. I think Brent was trading the spot was trading at around 140 150. The future was at 100. The the paper pie price was very different than the spot. Can can you just walk me through that? What was happening there? That was specifically in reference to certain spot purchase grades of Middle Eastern crude. And again, if we think about that was where the epicenter of this started. That was where the tightest absolute markets were. But one thing we’ve also seen, I kind of mentioned that this was a crisis in time as well, like spacetime and both geography and kind of intertemporally if you will. And one thing we’ve consistently seen is extremely extremely aggressive backwardation in the market. And for those that aren’t familiar, backwardation refers to the shape of the futures curve. So there’s two main shapes. If the curve is sloping down, that’s called backwardation. And if the curve is sloping up, it’s called contango. People typically think that means that if the curve is in backwardation, they think, ah, the market’s bearish because the market is forecasting the price of oil is going to go down in the future. But in actuality, it’s the exact opposite. And really, it’s not about the expectation of the forward. It’s where the market is pricing where the market is pricing the premium on spot. And what it’s essentially saying is when the market’s in backwardation, when you have higher prices today than the future, the market’s saying, “Holy crap, we’re super super tight right now. We need to pay as much as we can for every barrel we can get today in order to kind of satisfy that demand.” They want to incentivize in any holders of inventory to dump those inventory into the market. They want to penalize people for hoarding through opportunity cost. And that’s essentially what we where we are today and and for that reason a futures contract. So right now Brent uh the current you know front or prompt market for Brent futures are trading for delivery in June. That’s June’s a far way away whereas you can have you know dated Brent which is at a very very high premium to those June cargos is you know pricing at over $120 a barrel. um you’re seeing that in a position that’s much much tighter because again we’re in this extraordinarily backwardated market and that I think is is is telling you a different story than the futures market which is still pricing in some kind of deescalation pretty soon right interesting you had mentioned one of the points that this means that Asian countries like India for example because of the current crisis they’ll be more vulnerable let’s say from a decade from now what does this mean let’s say I I won’t take oil from the Middle East or go to a green energy transition. Like what does it mean? I think it will mean both. I think that at a base level I think that Asian economies all else equal will work to reduce their the energy and kind of particularly oil intensity of their economies. That means further drives electrification. That means I mean any countries for instance that were potentially wary of Chinese EVs in their economies and in their markets may now be less so because well maybe we let China take over our vehicle market rather than depending on the Middle East for kind of the the fuel that runs our societies. But on top of that I think really at the end of the day the only thing that that provides energy security is diversification and optionality. So the other side of this is going to be fostering and building relationships with other non-golf sources of supply. I mentioned earlier so I’m sitting here in Toronto very you know a couple weeks a you know actually I’m losing track of time a couple months ago there was India energy week and our uh minister of energy and natural resources uh Tim Hodgson was there talking about kind of bolstering and building out further Canadian energy exports and Canadian oil and gas exports to India. And that was often it was talked about as diversification source of supply you know diversifying potentially away from Russia but now I think it you know the the same argument applies equally to the Middle East. So you know Canada is always trying to export more oil at the west coast. I think that is an example where potentially Indian companies or the Indian government could try and partner and kind of bolster the commercial prospects of those projects in order to provide more supply for moments like this. So I think to your question, is it going to be more renewables like more energy transition or is it going to be more differences supply? I think the answer is going to be both. Right now let’s say Trump allowed the Iranian oil to go out. It is letting pass through a bunch of ships. Chinese ship I think just passed through. Who are all the winners losers in all of this war essentially? Yeah. So I would say despite the fact that some various countries shipments are starting to get through in a trickle. I would say pretty well every importing nation in Asia has been the kind of primary and immediate losers of this war and of this crisis and of the hormood stoppage alongside of course the Gulf exporters themselves who have basically seen their oil production evaporate their you know state and kind of economic revenues obliterated. So actually I guess technically actually probably the single largest losers of some of those Gulf countries that have just seen their economies basically implode. Next biggest losers would be the Asian importers that are going to feel the brunt of this supply shock. Then you know Europe is also going to be generally a loser here. I would say the single largest winner is Moscow. What we’ve seen historically here that you know over the past 9 months prior to the war the Trump administration to their credit had actually done a very good job at tightening the structures around Russian oil industry. And you’ve seen for instance India had you know between the sanctions imposed on Russia by the US Treasury on Roseneft and Luke oil in October of last year and then the imposition of a punitive tariff on India for imports of Russian oil by the Trump administration that successfully reduced Indian imports of Russian oil from over 2 million barrels a day in early October to more like a million barrels a day earlier this year. that I think was obviously very successful in in kind of tightening that news around Russia. You saw kind of a wider discounts for Russian oil. They were selling less oil and they were getting less money per barrel and you saw an increase of Russian oil and water which kind of illustrative of those difficulties marketing and selling those barrels and clearing them. But what this has done is very very quickly you basically saw Indian refineries jump back into the pool to buy Russian crude. And if that wasn’t enough, then you saw the US Treasury actually explicitly remove sanctions on Russian floating storage specifically uh meant to kind of facilitate the kind of Asian draw of Russian oil. Again, so Russia has been by far and away the biggest kind of beneficiary of this war so far. The only offset to that has been that a person that has been very clearly aware that Russia has been a major winner of this war has also been uh Ukraine’s president Zalinski who has doubled, tripled, quadrupled the efforts to attack and disrupt Russian export infrastructure. And at one point last week, Reuters has reported that upwards of 40% of Russian oil export capacity was offline. It was the they reported it was the largest disruption to Russia’s energy sector in modern Russian history. So since the fall of the Soviet Union that is obviously I I like to say like we only have time for like one largest supply disruption in history like having two is very you know I can’t keep track of them all at the same time but so I think there’s that aspect that Ukraine appreciates how much Russia stands to benefit from this introduces this additional kind of satellite kind of proical layer to this crisis that the higher oil prices go the more Ukraine is going to have an incentive to bomb Russian ports pipelines and export facilities. which is going to then push prices higher which is going to you know and we end up in this kind of upward spiral. That’s the kind of primary winner that I’ve been focusing on. But the other thing I will say is again North America is the most secure in this moment. And I think that between the US shale revolution and the massive buildout of Canadian oil and gas production uh in the particularly in Western Canada in the oil sands, North America has a unique degree of supply security and barrels that can’t readily be incentivized away. So as an example I was mentioning earlier Canada can only shift you know max about 100,000 barrels a day of additional flow at the trans mountain pipeline at the west coast out of more than 5 million barrels a day of import of exports very very small flex in the system most of those barrels end up kind of locked into the US Midwest with no way for let’s say Asian refineries to bid those barrels away because of that you’re going to see the cheapest you know prices arguably the cheapest prices in the world in the midcontinent of North America America where you have the least kind of readily accessible. You have lots of oil and gas and you have the least readily accessible competition from others. So I think that North America is going to see relative benefit from this. Not I should say it’s not going to see benefit. It’s going to see the least cost. I think some people argue that this is a net benefit to the United States which I disagree with. I think even if you make that argument on a overall aggregate uh kind of national level, it just does not apply across the board. It’s the distributional effects are wildly skewed towards producing companies and producing states. And the vast majority of both American and Canadian consumers are consumers of oil and gas, not producers. And not to mention, you know, North America exists in a global economy. And if the rest of the global economy is going through a steep recession, if not a depression in various parts of the economy, then yeah, North America is going to feel that as well. It just has to. Let’s say when all of this ends, and I hope it does, does the market just snap back both the physical and the and the market or is there something structurally changed in the whole oil market? So, let’s do this in two phases. And I agree with you. I also really hope this ends sometime soon and I’ve been again been wrong on the timeline so far. The way it’s going to structurally change the market. Let’s let’s do the kind of short to medium term called the recovery from this and then the longer term implications. In the shorter to medium term, it’s going to take a minimum of months even after the war is done and everything gets back to normal, you know, and and flow resumes through the straight. It’s gonna take months to untangle that because basically like going back to the air cap, you have it takes upwards of, you know, four, you know, three to six weeks to to get this oil to where it’s going. It takes 3 to 6 weeks to refill the air gap as well. So, at a bare minimum, you’re going to have a period of adjustment as you need to refill that pipeline on water. But, it’s also going to take months for these countries in the Gulf to get production back to full capacity as to where it was before. The Kuwait Petroleum Corporation CEO said that it’s going to take them three to four months to hit full production after the straight resumes and they can begin exporting again. So whatever your kind of loss and I was saying that April’s loss alone is is likely the equivalent to the entirety of the IIA strategic release likely factoring for a month’s long recovery window. You at least minimum have to double that. And that’s so we’re talking like huge huge huge supply losses. That’s the short to medium term. In the longer term, I think that coming out the other side of this, you know, we will have expended so much strategic reserves, there’s going to be a period of artificially high demand to refill those reserves. And not to mention, we will not likely refill them to the exact same level they were before. We will likely build them bigger, particularly in Asia. Now that this is kind of I think like you were saying, many people do not remember the 1970s. Many people do not remember the oil crisis that prompted the creation of the strategic petroleum reserves in the first place. This will be a crystalclear reminder of that energy security reality and I expect that you will see you know far more of that going forward. I would think you were going to see much like coming out of co you’re going to see kind of more inventory holding across the entire system just in order to kind of allow a little bit more flex for further disruptions like this particularly if like as it seems to be the case right now like this is what Trump said last night in his speech that two to three more weeks so let’s say probably more like a month minimum and then he’s leaving the job of reopening the street of Hormuz to Europe and Asia he’s like well we don’t import any oil from from the Middle East so they should figure it So at a bare minimum, what is that going to look like? No one knows what that’s going to look like. That it effectively seeds de facto near-term control of the straight of formulas to tyrron which again from a view of if you know this makes further this may just be the first closure of the straight form moves we have to deal with this. There may be subsequent closures if this persists and if we and if there can’t be a reasonable diplomatic agreement kind of landed on and we end up in an unsustainable situation. So at a bare minimum, even if things were fine on the other side, people were going to overbuild inventories to kind of prepare themselves for future disruptions. But if we’re in a situation where Iran control like permanently or durably controls the straight of horses, then yeah, everyone’s going to have much bigger inventories because like we can almost bake in like an annual like, oh yeah, it’s that time of the year we the straight of horses is closed again. Like this is an insane reality to kind of bake into the system on an ongoing basis. There was one question that I missed asking. OPEC was formed roughly 50 55 years back. How has its power changed over the years? I mean it doesn’t feel like they could control what’s happening today. I mean yeah well there’s you know this is a particularly special and troubling shock for OPEC because it kind of short circuits OPEC’s main way of interacting with the market which is through production. The vast majority of countries that would have increased I mean basically all the countries that would have increased production to offset this shock are on the wrong side of the straighter hormuz. So Iran kind of shortcircuits the entire idea of OPEC. I think before going into this crisis, if anything, OPEC was already on its back foot, but from a different problem from too much over supply that they couldn’t maintain prior prices because there was too much growth in supply from non OOPC countries. Now, what could this look like for OPEC on the other side? Well, it’s not good for OPEC on the other side because again, everyone’s going to want to diversify supply away from the Middle East. If we go back to the 1970s, what happened coming in the 1970s? high prices, reduced demand, bad for OPEC, and increased nonOPEC supply. At the time, the North Sea was essentially the the shale of the oil industry. It was brand new. Everyone was excited about it. It grew like gang busters to one point and then Saudi kept cutting back production until I think it was one point 198 the summer of 1985 when the Saudi king basically exclaimed that like the Saudi Arabia was producing less oil than the British portion of the North Sea alone. And he’s like, “This is crazy.” you know, ramp production, open the floodgates, and then we ended up with basically the lost half decade between the mid80s and then the Gulf War of kind of this long period of extremely low oil prices. And I think that now the main areas that we would expect to offset through more production because of higher prices. We’re looking at the United States, Canada, Guyana, Brazil, and Argentina. All in the Americas. All were already seeing the strongest nonPEC growth. And in some years, we’re growing more than OPEC. And I think that will supercharge this. So, we haven’t seen that take hold yet because again, we’re only in the first month of this. But as this goes on and on and on, you’re going to see the same phenomenon occur, which is slower demand growth and much faster supply growth, which is already something that we were having too much of before. It’s just now we’re in this interregnum where you have like, you know, way too little supply because of Hormuz being closed. But presumably Hormuz doesn’t stay closed forever. I hope. I hope. Anyways, yeah, I mean we all hope we’re reaching the cut off time. So, just one last question. Let’s say if I want to understand oil going forward, what are some of the two three things that I should regularly check? Something that I should keep my eye on. Well, just a shameless plug at at the gate here. You should all subscribe to Commodity Context at commoditycontext.com and follow me on Twitter or Blue Sky or whatever you wherever you can follow me. On Twitter, I’m Rory Johnston. So, I tweet way too much about this. I tweet and meme. The memes are also good. Excellent. Thank you. I’m glad you appreciate the memes. Uh, I try and keep it light as as light as the worst energy crisis in history can ever be. We try and keep it a little light so that we don’t all go insane. That’s I think obviously I will I can try and help keep things up there. But if you’re following this on your own, I would say the main things to watch are obviously the price of oil. But also, in some ways, more importantly for many Asian economies, the price of refined products in Asia. So you’re looking at Singapore, you know, gas oil, jet fuel, uh, gasoline. These are the prices that will actually drive demand destruction. And we’ve already started to see, for instance, Asian flights canled and routes restricted because there’s just not going to be enough jet fuel to go around. On top of that, I think one thing you were mentioning earlier was the term structure or the shape of the futures curve. The thing that will be the number one indicator of when this eventually ends will not be the flat price of oil or or the price of oil that you just generally talk about. It will be the time spreads or the shape of that curve. You will see backwardation finally begin to fall back and normalize. You know, prior to this crisis, we were on the verge of of the futures curve flipping into contango and much of the curve was already in contango. Again, this is a structure that indicates too much supply, rising stocks, falling prices. That is, you know, that’s what we would need to see in order for the market to begin healing because again, we’re going to need to start building stocks on the other side of this. And the only way we’re going to be able to do that is when we when we finally have more supply than demand. And the way we’re going to see that is first and foremost in the futures curve, not in the flat price you see on the screen. Thanks. Thanks so much for giving your time to us. Just one last thing, is there any other question that you would have wanted me to ask you? Anything that you’d want to say? Yeah. No, no, I think you you did a great job covering all the major points and uh thanks so much for having me on your program. Thanks. Thanks. Bye-bye. All right. See you later.