Rory Johnston on Why His $200 Oil Prediction Didn't Turn Out Right

**SPEAKER_2** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Joe Weisenthal** (0:18)
Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

**Tracy Alloway** (0:22)
And I'm Tracy Alloway.

**Joe Weisenthal** (0:24)
Tracy, recording this June 24th at noon, Brent crude is below $74 a barrel.

**Tracy Alloway** (0:30)
I know, it's crazy to look back when the Iran War started.
I don't think we ever got above $120 per barrel on Brent. Despite this scenario, the closure of the Strait of Hormuz, the thing that oil analysts had talked about as a tail risk event for years and years and years actually happening.

**Joe Weisenthal** (0:51)
No, it is really remarkable. We had two peaks. There was one right at the end of March and then one right at the end of April basically and the closing price right around just a little bit shy of 120, both of those days. But no, absolutely not like some of the doomsday scenarios at least for now, their crossings are picking up. I guess negotiations are ongoing of some sort, but no, they clearly, the doomsday scenarios about how this couldn't even stay closed for a few weeks, let alone two or three months did not pan out.

**Tracy Alloway** (1:21)
I see a lot of people on Twitter slash X making fun of the barrel counters right now.

**Joe Weisenthal** (1:27)
Yes.

**Tracy Alloway** (1:27)
Which I have a lot of sympathy for barrel counters because I like my analysis to be grounded in facts and numbers, but there is clearly a disconnect here between what happened with the price and some of those predictions.

**Joe Weisenthal** (1:40)
Well, maybe we learned something. Maybe we learned something about the oil market in the last few months. We've gotten a lot of requests for this episode. And so we are going to talk to someone that we talk to right at the very beginning of the war. Someone we've talked to a lot. Someone whose oil analysis we greatly respect, even if this particular incident did not perhaps pan out the way he and many others, almost all the others expected. We're going to be speaking with Rory Johnston. He is the founder of the Commodity Context Newsletter. And maybe he learned something about the oil market in the last few months. So Rory, thank you so much. By fan request, and our request, because we want to learn something too.
By fan request, welcome back to the podcast.

**Rory Johnston** (2:18)
Thanks for having me, guys.

**Joe Weisenthal** (2:20)
Let's just start with like, what was, let's start with like, okay, early March. Remind listeners what this sort of your take and the sort of general wisdom was, you know, first couple of weeks of March about how long this could persist and why this, remind people why the Strait of Hormuz was seen as sort of the choke point among choke points when it comes to oil.

**Rory Johnston** (2:44)
Yeah, so let's transport ourselves back to our last conversation. I think it was the first week of-

**Tracy Alloway** (2:48)
We need a time travel machine music, right?

**Joe Weisenthal** (2:50)
They can add that.

**Rory Johnston** (2:51)
So yeah, the reason that it was such a massive deal and still remains, I would say, I mean, while we have avoided the doomsday prophecies, it is still by far the largest supply disruption in the market's history. And for the numbers, for the barrel counting, for Tracy, the total flow through Hormuz prior to the war was roughly 20 million barrels a day. Now, we knew we weren't going to lose all of that because we knew that we had some offsets, you know, the Saudi East-West pipeline, the Emirati pipeline to Fujairah on the Gulf of Oman. But overall, netting for all of those known rerouting options, which again, at the time, we didn't know if they would fully work because they'd never been fully tested. But they did work, thankfully. But even netting of those, we were still down roughly 13 million barrels a day of Gulf oil production, excluding Iran, that had been forcibly shut in through the duration of this crisis and is only now beginning to pick back up again.
That's a lot of oil. That's 13 plus percent of the global supply.
And the reason we thought that prices were going to hit 150 or even $200 a barrel was that when you have a supply shock that large without any more offsets, you end up at demand destructive pricing really, really fast. And to destroy that level, the depth of that demand, we had never seen that before, but $200 a barrel seemed like the reasonable price at which that would happen. Now, thankfully, we did not have to destroy that demand. And what we will talk about shortly, I'm sure, is all the ways in which the system adapted and flexed. And I think we saw this most notably above all in China.