AI Summary
5 min readOn March 9, 2025, with Brent crude already above $100 a barrel and Asian jet fuel prices briefly touching $220, oil analyst Rory Johnston told the Odd Lots podcast that the Strait of Hormuz closure had created a supply gap equivalent to the peak of COVID demand loss — 20 million barrels a day — but without a pandemic to destroy demand. "This is the scenario that you give new analysts in the industry as a thought experiment," he said. "It's terrifying to be speedrunning it in real time."
Why the Strait of Hormuz Is Different
The oil market has proven remarkably resilient over the past half decade, absorbing COVID, Russia's invasion of Ukraine, Houthi attacks in the Red Sea, and direct strikes between Iran and Israel. Johnston argues that this resilience has taught the market the wrong lesson: that it can fix almost any problem. The Strait of Hormuz is the exception. Roughly 20 million barrels of petroleum flow through it daily — the same volume as the peak of COVID demand loss in March and April 2020. But unlike a pandemic, there is no natural demand destruction to rebalance the market. "If the strait remains as it is today, we will need to forcibly adjust the market to that level of demand, but without a pandemic, just via price signals," Johnston said. That is why he sees $200-plus oil as plausible if the closure persists.
The Product Market Is Breaking First
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What you'll learn
- 1 (02:18) **Introduction: Oil in a Bear Market** - Joe and Tracy set the scene: oil is down 20% from its high but still surging week-over-week, and the market is in uncharted territory.
- 2 (05:44) **Guest Introduction: Rory Johnston** - Joe and Tracy bring on Rory Johnston, founder of Commodity Context, to discuss the oil shock and the potential for oil to surge to $200 a barrel.
- 3 (06:32) **Why This Shock Confounded Expectations** - Rory explains why the market's resilience to past shocks led to overconfidence, and why the Strait of Hormuz closure is different.
- 4 (08:51) **Oil Analyst's Job: Supply Chain vs. Geopolitics** - Rory describes how analysts focus on supply chain adaptations and market signals, which break down during a massive dislocation like this.
- 5 (10:27) **The Product Market Blowout** - Rory explains the critical distinction between crude oil and refined products (gasoline, jet fuel, diesel), and why product markets are surging even faster.
- 6 (16:01) **Strategic Petroleum Reserves (SPR) and the Reluctance to Tap Them** - Rory argues it's "insane" the SPR hasn't been tapped yet, given this is the exact scenario it was built for.
- 7 (19:23) **The Danger of an Export Ban** - Rory explains why the rumored export ban on crude and refined products would be a "disaster scenario."
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Guests on this episode
Show Notes
Oil has obviously spiked massively since the start of the war with Iran. And if you look at various end products, such as jet fuel, the surge is even more extreme. And if the war is prolonged, or if the Strait of Hormuz continues to be functionally blocked, then this could just be the start of an even bigger spike. On this episode, we speak with Rory Johnston, the author of the Commodity Context newsletter. Rory is typically a very level headed guy, and not a doomer at all. And even he is quite alarmed. He says that the persistent closure of the Strait of Hormuz is such big disruption to contemplate that it’s typically used as the worse case scenario in industry thought experiments. He walks us through how oil could go to $200 a barrel or beyond, resulting in higher prices at the pump for American consumers, and perhaps significant shortages in the rest of the world.
Read more:
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