The Shocking Reason Gas Prices Can’t Come Down Anytime Soon | Rory Johnston

David Lin (0:00)

It's Wednesday, September 30th, and three tankers have reportedly been hit in the Strait of Hormuz. This comes as Iran is reviewing a new US ceasefire counterproposal. Crude oil is up on the day, with WTI just shy of $91, up about 1%, and Brent over $98, up nearly 3%.

An interesting fact is that Gulf oil exports have recovered sharply. According to JP Morgan analysts, the 10-day average of crude oil exports has rebounded to 17.5 million barrels a day, about 98% of pre-war levels. However, diesel remains near record highs with a national average of $6.41 a gallon. So why are oil prices still so high, even as more oil is being shipped out to the Persian Gulf than a few months ago? Also, will there be a diesel export ban? Washington is weighing diesel export restrictions, and another release from the Strategic Petroleum Reserve. This is already at an all-time low since 1982 We're gonna be answering these questions and much more with Rory Johnston, founder of the Commodity Context. He's gonna give us his outlook on where crude oil prices are headed next. Right now, on Kalshi, traders are pricing in a 33% chance that WTI crude will end the year above $115 a barrel. If you agree with those odds, a $50 trade could yield potentially $145.

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It's CFTC approved and available in all 50 states, including California and Texas. Welcome to the show, Rory. Good to see you.

Rory Johnston (1:59)

Thanks for having me, David.

David Lin (2:01)

Your first time on the show, and hopefully not the last, so welcome. There has been a counter proposal and three tankers hit in the Strait of Hormuz overnight. So let's start with a counter proposal. Iran is reviewing a US counterproposal to its seven-day ceasefire after three ships were struck in Hormuz last night. So as you're aware, earlier in the week, Trump has denied or declined to accept the Iranian offer for a ceasefire. This comes right before the midterms, which we can talk about. But now the Iranian authorities said that a cabinet meeting, the foreign minister is presented with a proposal for a seven-day ceasefire to the president. Another report detailed that efforts by Qatari mediators have not yielded much progress. This is from IB Times. Now, as we speak today, the WTI price is up about 2 percent, so oil is slightly up on this news.

I wonder why the markets aren't, I guess, more optimistic about this particular proposal or the prospect of a proposal of being accepted. In theory, there should be good news in the sense that oil should come down, not up.

Rory Johnston (3:09)

Yeah. I mean, so in terms, I would say the reason the market is not especially kind of glued to this particular latest headline is that we've seen this so many times before, right? This sounds like we've seen this exact story a dozen or more times through the war. Thus far, as we've seen, the two sides have not materially shifted from their prior kind of bottleneck and kind of points of friction between Washington and Tehran.

It all comes down to whether or not Iran will actually give up its right to enrich uranium and what its view on its future status of the Strait of Hormuz and its kind of governance or authority over the water body are. This is something that back and forth they've gone repeatedly like a ping pong ball.

And I think the main thing to focus on is what's actually changing under the surface. So these negotiations have remained largely the same, but the conditions in the market and the physical conditions in the Strait of Hormuz do change. You mentioned there were three ship strikes overnight. Those were actually delayed. So they were actually likely happened a little bit earlier than they were even reported to the UKMTO. So I think all of these issues show that there are still attacks going on the Strait. There is still a heightened sense of risk and precarity, vulnerability in the Strait. But despite this, over time, we have seen flows, oil flows and various shipping traffic through the Strait continue to rise, which is obviously this point of massive political contention right now based on my replies on Twitter.