Facts vs Feelings with Ryan Detrick & Sonu Varghese
This podcast takes a deep dive into the market-moving events to cut through the noise and help you identify what really matters. Facts vs Feelings is hosted by Chief Market Strategist, Ryan Detrick and VP, Global Macro Strategist, Sonu Varghese, and is a product of the Carson Investment Research Team.
The information included herein is for informational purposes and is intended for use by advisors only, and should not be copied, reproduced, or re-distributed without the consent of CWM, LLC. Carson Partners offers investment advisory services through CWM, LLC, an SEC Registered Investment Advisor. Carson Coaching and CWM, LLC are separate but affiliated companies and wholly-owned subsidiaries of Carson Group Holdings, LLC. Carson Coaching does not provide advisory services.
Facts vs Feelings with Ryan Detrick & Sonu Varghese
Talking Oil and Iran with Rory Johnston (FvF Ep. 183)
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A global oil chokepoint sits at the center of today’s biggest market story — and the ripple effects are already showing up in prices, supply chains, and geopolitics.
In Episode 183 of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, sit down with Rory Johnston, founder of Commodity Context, to break down what’s happening in the Strait of Hormuz and why it matters far beyond energy markets. They walk through how oil actually moves around the world, how much supply has come offline, and why restarting production takes months, not days.
The conversation reveals the mechanics behind oil pricing, from futures curves to physical barrels, and explains why spot prices have surged even as headline prices lag behind. They also explore how disruptions force tough tradeoffs across global economies, with rising costs hitting some regions far harder than others.
If you want to understand what drives oil prices, how supply shocks unfold, and what comes next, this episode connects the dots.
Jump to:
0:02 Welcome And Guest Introduction
2:05 Rory’s Path Into Oil Analysis
6:09 Strait Of Hormuz Flow Basics
10:20 Reroutes, Pipelines, And Shut-Ins
20:50 The Double Blockade Explained
27:20 Retaliation Risks And LNG Targets
29:52 Shortages, Jet Fuel, And Demand Destruction
33:20 How Oil Prices Went Negative
36:56 Brent, WTI, Dated Brent, Backwardation
50:08 Why Oil And Stocks Look Complacent
57:22 Where To Follow Rory And Closing
Connect with Ryan:
• Ryan on LinkedIn: https://www.linkedin.com/in/ryandetrick/
• X: https://x.com/RyanDetrick
Connect with Sonu:
• Sonu on LinkedIn: https://www.linkedin.com/in/sonu-varghese-phd/
• X: https://x.com/sonusvarghese?lang=en
Connect with Rory Johnston:
• Rory Johnston on LinkedIn: https://www.linkedin.com/in/rorysjjohnston/
• X: https://x.com/Rory_Johnston
Questions about the show? We’d love to hear from you! factsvsfeelings@carsongroup.com
Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dietrich, and I'm joined by my co-host, Sony Vargeist. Cutting through the noise each week with Ryan Dietrich, Chief Market Strategist, and Sony Vargeist, our 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 going to join us today. I was gonna 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?
SPEAKER_00I 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.
SPEAKER_02A lot to live up to.
SPEAKER_01You know, there's a lot of Ryan's. That's the cool thing about Sonu, though. We joke like this. I mean, you ever heard of a Sonu? Like honestly, like I I haven't. I mean, we you know, I have not.
SPEAKER_00I have not first first and best, easily.
SPEAKER_02It does mean gold, so you know, like Rory, to give you a clue of you know, our sympathies for the shiny metal.
SPEAKER_00Okay, good, good.
SPEAKER_01It'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 is so let's make sure we say it correctly.
SPEAKER_00Um, so I yeah, I'm the founder of Commodity Context. Uh I also lecture at the University of Toronto's Monk School of Global Affairs, and I also have my own podcast called the Oil Ground Up Podcast, where I get deep and wonky with other crude oil analysts.
SPEAKER_01So that's so you've been all over the place in the last couple months. I'm gonna get into all that stuff. We were just kind of talking before it's usually we should do what do you call that? So we were recording before we start. Yeah, B-roll. Yes, you said you you were an economist by trade, you were kind of let's go that, let's go that route before we get into it. Let's talk about your background.
SPEAKER_00How'd you how'd you get to where you are? So my background is actually more on the political science and international relations and security studies background. So I had initially planned to work in the national security space. I had initially planned to honestly work with the RCMP, the Royal Canadian Mounted Police up here in Canada, uh, on counterterrorism stuff. Um and I was always interested in energy security. So I sorry, I have to make a joke.
SPEAKER_02Like, did they wear the uniforms as well, like the bounties? No, I was kidding.
SPEAKER_00They they they they do still have the uniforms, uh, but they're like they're not always wearing those uniforms. They also just are like regular police officers, too. Um, and in that role, I wouldn't have been an actual officer. It was the civilian branch of the RCM. But um, but no, so in terms of my background, more on the political science and international relations side, I got really interested in energy security. And like any kind of budding oil analyst, my kind of introduction was with Dan Jurgens the prize. And I got deeply into the idea of, you know, Winston Churchill switching over the Royal Navy from Welsh coal to Persian oil, especially relevant as uh an energy security story right now. Um, and that was just fascinating to me. So I got really into the idea of energy security and you know, actual physical movements of these products. Um, and then I went to go try and work in this space, and I didn't have much of a background in markets or engineering or chemistry or any of this stuff. And I was like, wow, I don't know what any of this means. So I had to kind of do a crash course. I did, I remember I was I interned in BC, and while I was waiting for my visa to clear, I did like a crash course in organic chemistry to be like, okay, what are hydrocarbons? Why is like, why does a refinery do what it does what it you know, uh do what it does? Um, and then like, okay, what are futures curves? And I basically came back from my internship and decided to kind of go heavy into the market side of the business school and futures curves and you know, the the you know, the finance of of uh of these markets. And then I got a job at Scotiabank Economics, where I ended up leading commodity market research at Scotiabank Economics, which is the most international and most commod commodity-focused bank in Canada at the time. Um, so that was my introduction, and now I am doing it independently, very similar type of job as I was doing then. But back then I was covering roughly two dozen different commodities, uh, everything from oil and gas, base metals, ferrous metals, agriculture, wood and paper products, kind of everything.
SPEAKER_02Wow.
SPEAKER_00And I was like, no human being can do that well. Uh, no human being can cover two dozen commodities especially well. So if anything, I wanted to focus and concentrate more. So when I left, I decided to start a Substack. And this was in commodity context, grew out of a hobby. Uh the crisis in 2022 with Russia's invasion of Ukraine was right around the time that I decided to put on try a paywall. And thankfully, and endure my enduring gratitude to my subscribers have enabled me now for the past three, four years to do this full-time uh as my primary vocation. You know, keeps the keeps the house over my kids' heads and keeps me kind of walking out to oil. So very, very blessed. And this has been the busiest six weeks of my entire life.
SPEAKER_02I have never met somebody. This is this is a red-lighted day for me because I had this the first person I've heard who voluntarily took a lesson in organic chemistry. And I've done organic chemistry. I was fascinated.
SPEAKER_00I was like, what do you mean? Like, what is this cracking? What is this? What are these catalysts?
SPEAKER_02Like, I had to do all that stuff, and I tell you, like, chemistry was my worst subject. I like it speaking, like, I had to do that for engineering.
SPEAKER_01And now let's be honest. That means Sonu got a 98. It means he got a 98 worst class. 100%. Yeah, yeah, yeah.
SPEAKER_00Everything about him strikes that. Yeah, yeah. It's like, no, yeah, yeah, it was terrible, terrible. It was only an A plus.
SPEAKER_02I sucked at it, but no, it was yeah, it it was bad. But anyway.
SPEAKER_01Uh I was gonna say, I'll just say it's funny how careers start because I actually started as an underwear model at a younger age. Oh, very nice. No, I'm teasing Rory. That's an absolute joke. I just wanted to see your reaction. I just want to see your reaction. All right, we've got so much to say. We are so pumped you're here. Sony, let's just start firing away. It's a good little intro, but let's get into it.
SPEAKER_02Yeah, it's funny. You mentioned your national security background, and you one thing you mentioned was you know, you were interested in how this stuff flows. So let's just start there. The Strait of Hormos. And we were joking before the we officially got this rolling about how I spent, I think, the last 12 hours hours tracking two ships on Twitter. I mean, you know, I think I I probably ought to have gone to bed half an hour or an hour before because I was looking at, you know, is the Elpis going? I don't know, some other Chinese ship. What's the state of play here? How many ships are flowing? Maybe you can put it in context. How many were going across, transiting across the Strait of Hormuz before the crisis? How many are transiting now? And talk about the blockade as well.
SPEAKER_00Yeah, so let's start with the very fundamental basics for those if you know six weeks in that have not followed Hormuz at all. Welcome! Welcome to the Congratulations. Uh exactly. I'm sorry to break this news to you. Um, but prior to the Iran war, prior to the end of February, uh, you had roughly, I mean, Hormuz is the critical, the most important single choke point in the global petroleum market. Prior to the start of the war, you had roughly 130, 140 ships transiting Hormuz.
SPEAKER_02And Rory, I have your chart here. Drew, we can put this chart up. This is Rory's chart, Strait of Hormuz transits, ship count.
SPEAKER_00Yeah, and so that that basically covers ships that are going in and coming out. So that's 130, 140 ships total, say roughly 65, 70 ships each way. And carrying crude oil or other stuff too. So they carry everything this is everything. So this includes tankers, this includes bulk freight, this incall so this will include, you know, fertilizer and LNG and all these other things as well, and food in and out of the region. Obviously, that's obviously a critical component of what normally comes into the Gulf in particular. Um and in terms of volume, he's focusing on the oil market, which will be the focus of our conversation today, you had roughly 20 million barrels a day of petroleum products, liquids, as we call them, transiting the strait. Of that, you had roughly 15 million barrels a day was crude oil, and then 5 million barrels a day was refined products. So let's, you know, that refined products split, which I think will come in important in a little bit later in the conversation, is roughly 50% middle distillates and 50% lighter natural gas liquids and feed stocks. So the NGLs or lighter liquids largely went to Asia. Or NGL is like natural LNG. Yes, natural gas, yeah. Sorry. Thank you. Yeah, poke me every time I do that. Um, natural gas liquids, NGLs, uh things like uh ethane, propane, butane. But typically when we talk about it in the context of global markets outside of North America, typically what we're talking about is LPG. So, you know, cooking fuel, uh, propane in your and your barbecue. Uh, particularly for, and this is particularly important for India, where roughly a quarter, a fifth to a quarter of total Indian petroleum product demand is in LPG, which is actually very rare in a global scale. Um, and I think reflects the fact that, again, these are this is a cooking fuel that has kind of increased a lot of particularly rural Indians, you know, above the kind of uh biomass burning uh kind of stage towards cleaner fuels that are more controllable and healthier. And that's why you had like one of the first big bilateral transits uh after the war was after the mo, you know, Prime Minister Modi reached out to the government in Iran and was like, look, look, we need LPG. Uh and you had two LPG tankers that transited relatively early on.
SPEAKER_02I mean, I was joking in the podcast last week. That's my like, you know, but I I told Ryan that my parents who are in India right now in South India, they have like four months worth of gas. He's like, wait a minute, they had that like when we say gas here, I forget that it's gasoline, but oh that gas.
SPEAKER_01I thought about like they have like barrels of gas in the basement. I was like, really? Okay, yeah.
SPEAKER_00That's two cylinders or three cylinders or whatever. And literally and literally gas in this case, in this case, right? Got it. Um so for like the Indian market, that's primarily for cooking fuel, heat, etc., uh, for most of the rest of Asia, you see a lot of that used in petrochemical feedstock. So, you know, making plastics and plastic precursors, et cetera. The middle distillates, your diesels, your jet fuels, largely went to East Africa and up into um and up into the European market. Uh and then obviously the crude largely went a bit of everywhere, but largely to Asia. So you had, let's say, 20 million barrels a day of flow. Now that there have been some very notable and important offsets to that that have lessened that hit to the global economy, most important of which is the Saudi East West Pipeline, which dumped out between it switched or kind of transferred roughly four and a half to five million barrels a day of uh Gulf flow into the Red Sea. So this is and you people will see this number a lot. And I I spend a lot of my time like debunking bad takes on Twitter right now because there are so many. And one of them is that when people are counting up the offsets, what they'll often do is they'll say, well, the the East West Pipeline has a capacity of seven million barrels a day, which it does. That is an upgraded capacity, Ramco pressed to have that exp, you know, basically push even more through, particularly in this moment. Um, but you already had two to two and a half million barrels a day of flow on that line. Oh, that was that's important because that was pre-crisis.
SPEAKER_02So you can't exactly that's not you know additional that offsets exactly that's not coming out of the hormuz straight right now.
SPEAKER_00Exactly. So that's why the actual switching, the uh the rerouting is only four, again, it's a lot. Four and a half to five million barrels a day, roughly a quarter of the total Hormuz loss. There, you know, that was uh going through um uh uh Yanbu, which is the industrial port in the Red Sea. So that's great. That's an important thing, and we'll come back. The Houthis could get involved there, lots of stuff that could go wrong. But right now it's the single most important reroute.
SPEAKER_02Are those little geography, not geography, like are those pipelines underground? Because I'm thinking like Iran's already sent their drones and things like that. I think last week a pumping station for what that east-west pipeline got blown up, but it was okay, it didn't take off production or flows, I should say it's not production, just it didn't take away of the flows. Uh so is that safe? I guess is my question.
SPEAKER_00I would say it's not safe, it is still hittable. Okay. Um a lot of it is buried, um, but the pumping stations are not, kind of you know, definitively, right? Um and the port isn't, obviously. And the port isn't, and the loading ports. And we've seen the the port at Yambu hit, uh, we've seen the refinery at Yambu hit, we've seen obviously you noted the pumping station, which again, it's important to remember like how pipelines work. You have these pumping stations building up pressure to push this stuff through the pipeline. Right. And in this case, what what they noted when the pipeline was hit was that it re with the pumping station was hit. It didn't turn the pipeline off, but it reduced flow rate on the pipeline by about 900,000 barrels a day. And again, that is because you lost the pressure from that particular station. Right. Um, they it's now claimed that they have fixed that, so it should be all good again now. But again, it is proven that it can be hit. So on top of East West, you've also got an Emradi pipe out to the Gulf of Oman, um, uh basically that that terminates at the major loading and blending uh hub of Fugiera. I was there on a snorkeling trip, by the way.
SPEAKER_02Really? In November. I grew up in the middle. I grew up in Oman. I I spent my childhood and all that there. Took my family there, but I went for a snorkeling trip out to the Gulf of Oman. I need to know.
SPEAKER_00I I've heard great things about particularly like the diving out there. I have a bunch of friends that dive and and they they they rave about the diving out there.
SPEAKER_02So I'm gonna take my Nietrich now, like we go into Jda.
SPEAKER_01Like raw dog and some. Like I said, I used to be an underwear model. I can just we're gonna put on my speedo, we can go.
SPEAKER_00I like it. Wetsuit time. Um but overall, overall, roughly, after everything's said and done, you have roughly seven million barrels that has been offset or rerouted that includes Iranian flow through the strait. So Iran has continued to ship basically one and a half to two million barrels a day through the strait up until the weekend.
SPEAKER_02And they ship mostly to China, I guess.
SPEAKER_00And something almost entirely to China. Although, interestingly, because the US has removed or eased sanctions on Russia on uh Iranian floating storage, you have actually seen India purchase Iranian crude for the first time since uh Trump scuttled the JCAPOA at the end of his term at the end of his first term. Um, which historically, like it India is a natural market for Iranian oil. It's right there. And historically, India was one of the one of, if not the largest, importer of Iranian oil uh until those sanctions were put in place. So yeah, so all in all, 13 out of the 20 million barrels of flow, seven are still getting to markets in some way or another. 13 million barrels a day is blocked, and those upstream projects are shut in. So that's the real fundamental loss to the oil market is those shut ins. So 13 million barrels a day, thus far accumulated over almost six weeks now, let's say five because they didn't shut in immediately. What you're looking at is over 400 million barrels. Explain what in is I it's going back to the physicality of this market. Um so basically, oil has to be produced and put somewhere after it gets out of the ground. Okay. Normally these countries just load onto tankers, ship out the Gulf, and don't think much about it after that. When you stopped being able to ship crude out of the Gulf, and you stopped being able to get new empty tankers into the Gulf, all of a sudden you didn't have anywhere to put that oil. So the first thing they did was they started filling up all of their domestic onshore storage tanks.
SPEAKER_02Okay.
SPEAKER_00Um so you basically, again, you're pumping it, because again, you don't want typically you don't want to shut in these wells, because a lot of these wells, particularly conventional ones, are driven by, you know, uh, you know, natural reservoir pressure. And if you start mucking with that, going back to your engineering background, Sonia, um, you can you there's the potential to muck up that natural pressure system. And you're never sure if when you restart it, you're gonna restart it exactly the same as when you turned it.
SPEAKER_02That gets to an important point that uh once you shut in, it's not easy restarting the it's not like you flip a switch and things go back to normal.
SPEAKER_00Exactly. So so as I was saying, we've got over 400 million barrels of uh of total oil thus far that, and that's just as of today, as of yesterday when I published my my latest update. Um, I think 400, 450 million barrels of oil that is both crude uh and condensates in NGLs, so total liquids again, um, that hasn't been produced this year over the past five weeks that was supposed to be produced. Right. Um and that is this kind of dead weight loss to the global supply mix. And to your point, Sanu, once you know, getting this stuff restarted is not a flip of a switch. It takes time, it takes energy. Um I've been modeling it roughly based off of comments from the CEO of the Kuwaiti Petroleum Corporation, uh, with the national oil company of Kuwait uh to me at zero week uh a couple weeks ago. I'm losing track of how long the passage of time is. Um the uh he said that it would take three to four months to get back to full production. Wow.
SPEAKER_02Um and I have from your last post. Drew, we could put this up implied Middle East Gulf production shut ins by producer.
SPEAKER_00Exactly. And if people want to go back even further to a couple of pieces I had earlier, I I showed uh uh basically a scenario of okay, let's assume that the war goes until the end of April, and at May one, we turn everything back, you know, the straight is opened full, everyone starts the restart process, and we start, you know, the restart process. Given that I've been modeling it in a more optimistic version, so three months versus four months, and pretty aggressively kind of exponential at the beginning. So you get like a 70% uh restart in the first month, 20%, and then 10% in the third month. And using that kind of restart schedule, you what you end up getting at the end of this is over a billion barrels of oil that would have that should have been produced, that is now not going to be produced.
SPEAKER_02So all the way from March to let's say end of May and maybe you know part of June because of restarting issues, things like that. A billion dollar billion barrels of oil that should have been produced is wow.
SPEAKER_00Now a hundred a hundred billion, a hundred billion dollars.
SPEAKER_02Yeah, but yes, yes, a hundred billion dollars. Well, um that's huge.
SPEAKER_01I mean, no, go ahead and well that is huge. I will say uh notice on your X feed you said you follow a lot of smart people. I saw Pam from the office informed us this morning that the the strait is still closed. So I like I like how you add a little humor uh to uh to some of the things. It's how I stay sane.
SPEAKER_00It's you know, the the running bit is like is the straight report moves open and find the best yes gif.
SPEAKER_01So another way you stay sane, uh you're looking at your uh we're connected. We're we're we're connected, and here's how. Uh you're the only other person I've ever met via you know, kind of social media because your bio line on X says the words barbecue. Now mine also says the words barbecue. We'll we only have so much room on your bio. I mean, but I had to say searching for the perfect. So we'll take a little bit of a uh do you use natural gas when you do your barbecue? Do you smoke it? Well, what what's your what how do you do your barbecue given you're the energy expert? What's the best way to taste barbecue?
SPEAKER_00So for me, I've got a Yoder pellet smoker that I truly love. This was not my pandemic hobby that I picked up, was like Texan, you know, and I started on like a kettle grill, uh, and it was just very onerous to cook a brisket on a kettle grill for, you know, 16 hours. You're like mucking with the buffers constantly. So I was like, you know what, I love this, but I want it a little easier on my life. So the pellet grill, so I can, you know, set it up and whatever. Then I've also got a gas grill right beside it. Uh, for I mean, I actually would prefer propane. This is natural gas uh because it's connected to the house. Natural gas is great because it's convenient, but propane actually burns hard. So what you really want with a with a grill, like my, you know, I mean, Ryan, I don't know how how you typically do it, but I buy it. I buy it.
unknownThere you go.
SPEAKER_00Um, so for me, it's it's either I do like uh like a full smoked kind of like you know, ribs or a brisket, or if it's like a night, like a steak, I'll often reverse sear. So you kind of smoke it for an hour and a half, uh, get it nice, kind of rare, you know, rare, and then you you know hit it with as hot a heat as you can on the barbecue, on the actual grip. And that's where I think it's better to have propane where you can get really, really piping hot.
SPEAKER_01Now, listen, you've you've you've been big for years, but the last six weeks obviously been bigger. You've done a ton of these. Have you ever talked about barbecue in anybody else's podcast? No, you're the first one to ask. And that's what I wanted to hear. That's what I wanted to do. I will ask what let me ask one, Sonu. And then again, you guys know more than that. I'm gonna say in the barbecue pack, everybody. You guys know way more than I do about this stuff. I'm just trying to trying to keep up, I'll be honest. Uh, did you have on your bingo card that President Trump was gonna say we're gonna shut it down now? I mean, was that a total surprise? How how wild was that decision or that what we're doing there?
SPEAKER_02The blockade.
SPEAKER_01The blockade, yeah. Yeah, and let's get to the blockade now.
SPEAKER_00So, yeah, the the straight information moves has been closed for five, you know, six weeks now. Um, and now we've double blocked it, right? How can you make it worse? Double block it. There you go.
SPEAKER_02Um, yeah, explain that. Like, okay, Iran's I don't I don't understand it. Straight is closed. Explain it. But we're closed, we're closing it some more, like yeah, get down.
SPEAKER_00And again, I think was it surprising, like a little bit in the context that like after six weeks this is what we're that this is what the Trump administration is going to do. But I think what was even more surprising initially was if you had asked me or any kind of oil analyst two months ago, three months ago, okay, so the Strait of Hormuz, Iran is going to close the Strait of Hormuz. First of all, I'm like, nah, like that would never happen. Um, because I wouldn't have thought that that the United States would have would have basically attempted to kind of call the bluff, which just proved out to not be a bluff, because the because the downside would have been very bad, as we are now seeing. Um, but I think one of the things that was strange is that if you had asked me two, three months ago, if Iran closes trade for Moose, would Iran still have been exporting its oil the entire time? My answer. Of course not. Like obviously, if the Straight Reform moves is closed, like at that point, three months ago, we had just had the experience of the Trump administration blockading exports out of Venezuela and chasing down these ships across the Atlantic. Like clearly, like that was actually part of the calculus now. It's like, okay, sure, this is gonna happen. They're gonna catch these ships. And and particularly the fact, like in the first week or second week of the war, you had that very high-profile incident where uh the US Navy sunk that Iranian frigate coming back from naval exercises in India. Um we know they're there or something, right? Yeah, like we know they're there, uh sitting there, like waiting. So they're just watching these Iranian tankers go by and like doing nothing about it. So that was surprising in and of itself. So I would not say that the Trump administration being like, actually, now you don't get to export oil. I'm not that's not shocking, but I think it's weird that it took them six weeks to get here. Because up until now, what we had seen from the Trump administration was I don't know, this attempt to kind of soften the impact of all of the oil at like the energy side of this. So sure, Iran will be able to do that.
SPEAKER_02Yeah, on the rest of the world.
SPEAKER_00Um, you know, sure Iran's profiting from this, but you know, do we really want to take two million extra barrels of oil a day out of the global supply mix? In that way, it's actually quite dissimilar to what we saw during 2022 with the Biden administration in Russia, that there was a price cap mechanism rather than a full secondary sanctions or embargo or whatever else. Because at that time they were worried that we were already having an inflationary spiral, we were already having high energy prices. You didn't want to, you know, turf this even further with you know blocking uh Russian exports because there's a cost of going all out and saying you know what, we're gonna crush you. It is, and I and I think it makes you did have an you know an increasing number of ships that were transiting through Iran, basically through the like the Iranian toll booth. Or it's still a debate whether or not they're actually paying the toll, but but clearly it was go they were going through with the blessing of Tehran and under the you know the the watchful eye of the R IRGC. So um but you're so I think to that point, like now, yeah, there's nothing coming through. You I think you've seen a couple ships today that that had crossed the strait but hadn't made it into the Arabian Sea. Um because there's also this open question of like exactly where the blockade is being enforced. Um it's all very ad hoc. Um and there's this just open question like that.
SPEAKER_02Even if the Strait of Hormos is like 20 miles, so once you go out of the strait, the narrowest part of the strait, it's gotta be at least what 30, 40 miles. I I have no idea. Like something like that, right? I mean, we'd need a lot of ships to feel like 30, 40 miles. It's not a fence that you're putting up, right? Yeah, but but but I also have radar and things like that, obviously.
SPEAKER_00But if the US Navy wanted, like this is like the similar same thing could have theoretically been said about Venezuela, right? And I think that we know that the US Navy can see ships, can track ships, can chase them down. Thus far, it's been an active choice by the White House not to do that. And I think now we're seeing potentially a change. But not only does that take away, and basically, like, let's say you maintain this for two weeks, at that stage you will have likely force shut ins of Iranian production. So now that 13 million barrels a day of shut-in golf output jumps to 15 million barrels a day. Okay. Um, so the again, we're we're going backwards. We're going in the wrong direction of what we need to be doing, which is increasing flow through the strait and allowing these shut-in assets to restart production. Um, and that's so far what we're not seeing.
SPEAKER_01Well, let me jump in just for a second. We've hit the halfway point. It's amazing how fast this goes. Episode 183 of Carson's facts versus feelings with Ryan and Sonu. Sonu, usually we come up with a title beforehand. How about this is like how the sausage is made. I'm thinking like we gotta have some key words in this title. Yes. Talking oil and Iran with Rory Johnston. That's a good one, right? That's a pretty yeah, the word oil and Iran, if it'sn't a subject title of the uh podcast. I feel like it gets to be uh algo gold, right? Yeah, yeah.
SPEAKER_02You got the oil piece, and then now put your the the international security political relations, international relations stuff, your background is in. So you said Iran exports most of its oil to China, a little bit to India now, after you know unsigned. It's still dominantly China. Yeah, mostly China. So if a Chinese ship, I mean I'm thinking about that. If a Chinese ship carrying Iranian oil wants to go through the Persian Gulf right now, up until last week they could, because you know, we were letting them is a US Navy going to I'd love to see, by the way, a video of a US Navy ship, battleship chasing down one of these things. That has got to be a pretty exciting video, but anyway, like are they going to shoot down a Chinese tanker or you know, like what does that mean for and President Trump is going to meet President Xi next month in middle in the middle of May? So I imagine they don't want tensions there. I'm just I don't know. I I'm just trying to think how is this blockade going to work?
SPEAKER_00I agree. And I think that's everyone's asking that question. Like, are you really going to stop? Because I think, again, not only does it decrease or or increase the amount of oil that's trapped or kind of shut in in the Gulf, but also like Iran has been proceeding along a pretty structured tit for tat, you know, retaliatory, escalatory ladder. We saw after the Israelis hit the South Pars gas field, um, I want to say three, four weeks ago now, again, losing track of time.
SPEAKER_02Um and that's a big gas field in the middle of the Persian Gulf.
SPEAKER_00Exactly. That Iran and Qatar share. So basically, all of the Qatari LNG industry is driven off the same uh reservoir or same reserve of gas that's basically under the Gulf. Um, Iran calls it the South Pars field, and Qatar calls it the north field, which just speaks to the kind of orientation of the way they're looking at the Gulf.
SPEAKER_02Um, even though Iran's is on the north and Qatar's is on the south.
SPEAKER_00Exactly, exactly, exactly. Um, so they after Israel hit the gas field in Iran, Iran immediately retaliated by basically shooting a bunch of missiles at the Roslaff and LNG facility in Qatar. Now, thus far, what we're talking about, we've talked about the strait being closed, we've talked about these forced production shut ins. Most of that thus far, to our knowledge, has not been physically damaged per se. It has not been attacked. Okay. Um the Ros so that's when we're talking about like the recovery of those assets in production is more like weeks to months. Whereas the Roslaffen LNG facility, the the cutter LNG, sorry, cutter energy CEO told Reuters that it reduced the Qatari LNG XOR capacity by 17% for up to five years. Wow. And I think that is the risk of India. Right. And I think this is this is the worry is that if let's say this, you know, let's say the US Navy seizes an Iranian tanker, how does Iran retaliate there? It's done a lot so far. It has many, many targets that are still open. One thing, if you know, if if it's if they're maintaining this tit for tat thing, this is where we start talking about, you know, the Bab el-Mindeb Strait in the Red Sea, coming out of the Red Sea, this is with the Houthis. Um, we know now that, you know, the Red Sea flows are very important, particularly Saudi Arabia. You know, if the US double blocks the strait, does Iran, you know, push its allies in Yemen to close the Bab el-Mindeb strait? Maybe. There's also the possibility that they strike loading infrastructure, upstream infrastructure, other things that would make that would turn that upstream production recovery from a weeks to months story to a month to year story. And everything is repairable in the oil industry, but everything takes money and time. And I think that's fundamentally what we don't really have in the market is time. We need this stuff to get back online soon. Because the longer this goes on, the worse the situation gets. We're already starting to see physical shortages of major products in Asia and also increasingly in Europe, where it's even getting more attention just given the kind of nature of the media. Um like we're seeing uh like uh what was it, FT reported a couple days ago that uh supplier jet fuel suppliers in in in Europe are saying that we're good for April. Like we got you covered for April. Okay, but we cannot commit to supplies in May. And well, May's pretty close. And I think this is where we get into the situation where, like, yeah, once you start seeing physical shortages of jet fuel, like half of the UK's jet fuel imports, for instance, come from the Strait of Hormos. Um, that's less than ideal. Um now, I want to stress that I think that there's a there's a timing element here that I do not think that Europe or you know advanced wealthy Asia is going to face um actual physical shortages for a very long time because they have a high propensity to pay, they have low sensitivity to prices relative to a lot of other countries in the world. So I do think that as those shortages manifest in these wealthier regions, what's gonna happen is they're gonna bid prices higher very quickly. And then those that arbitrage opportunity is going to start sucking barrels and products away from poorer areas of the world. So one thing I keep stressing is that us in advanced economies, we're gonna feel this is a debilitating price shock. We're gonna, it's gonna be a tax, it's gonna be erosion of disabilities. Right? Right. In the same way that we always talk about high energy prices and a tax on consumers, et cetera, et cetera. It's a regressive tax, no doubt, even in advanced countries, but it's truly regressive on a global scale. Because at the end of the day, if Hormuz remains closed, we will need to destroy forcibly upwards of 10 plus million barrels a day of demand. Um, we've never had to do that before in the history of the market.
SPEAKER_02Did we do that during COVID? What was the how much of demand was destroyed in March and April of 2020?
SPEAKER_00So the so the peak of COVID just demand destruction uh when you basically had you know no one on the roads, no one in the skies was about 20 million barrels. Okay. Um, that was about 20% total loss, and that was only for two months. Right. Oh, in total for the year, I think the actual demand decline was like eight million barrels a day on average. Oh, okay. Um so this is larger than that on an annual basis. And you don't have the help in the distorted meaning of that word. You don't have the help of a pandemic that's actually keeping people inside that is that is very clear that's exogenous reason. Like that's demand to supply. Exactly. So this is you need high prices to do the work. And the question is, how high do prices need to get to do that? And the answer is quite frankly, no one knows because everyone has their sensitivities, you know, like a you know, a 10% increase in price is a 1% reduction in demand or whatever. That's true in that first kind of like one to two percent of global demand level, right? When we typically talk about demand destruction, we're talking about shedding one to two percent of global demand, which is doable without it's painful, but it's not untenable. I um I was just looking.
SPEAKER_01Were you writing your Substack during COVID six years ago? Or when did you start that?
SPEAKER_00I started in 2021.
SPEAKER_01So I started in I started writing in the recovery from COVID. So I just looked because it just I think it's interesting. Uh, do you remember the day oil went negative 37 bucks by chance? Do you remember the exact day by chance for it?
SPEAKER_00April 20th, 2020.
SPEAKER_01Yes, I just looked at the cheat. I looked at the internet. So April, so we're almost six years. Like, I just think it's neat and I I kind of know, but like in 90 seconds, just explain how did oil six years ago, right now, go negative $37 and I think it was 63 cents. How's that work exactly?
SPEAKER_00I mean, fundamentally, at the end of the day, the oil markets are physical processes, futures or derivatives of those physical processes. Um, to that same point that I was saying, actually, this is ties in directly to the to the golf production shut-ins. Good, good. Um it's like it's actually the exact same story.
SPEAKER_02I was gonna ask you about all these different prices. You got WTI, you got V. Yeah, so we'll do that next.
SPEAKER_00That'll actually tie in together nicely here. Um so in COVID in 2020, you basically all of a sudden had this massive loss of demand, um, and inventory started to build very, very quickly. Basically, the fastest pace of inventory builds on record. And you got to such a point that for in particular certain regions, particularly the United States, which has a lot of production, particularly if you're not exporting a lot, you're building up a lot of inventories domestically. Um, when Cushing uh the contract physically settles.
SPEAKER_03That's down in Oklahoma. Right.
SPEAKER_00Yeah, and WTI physically settles in Cushing, Oklahoma. When if you hold a long position at the end of that, you need to take possession of a barrel. If you're a short, you need to deliver a barrel. Okay. So if you were long and all of a sudden there's no storage tanks and there's no room left, you're like, oh God, uh-oh. Not only is this not valuable, but it is an act of liability. Because I might need to pay someone to let's say truck this somewhere or whatever.
SPEAKER_02Because I have to take physical delivery and literally have nowhere to put it. Assuming that we clear it to get it out.
SPEAKER_00And nobody's driving, so you don't want to do it. And no one wants to virtually no one in those markets wants to take physical delivery. So what they had to do is they had to cover uh those long positions where they had to kind of sell out, and then there was no one that was buying. And that's how you kind of got and you know, there was there was a good Bloomberg piece around a group of UK traders that potentially exacerbated that volatility around expiry. Because that basically April 20, April 20th was the last day of trading for that would have been the May contract. Oh, definitely.
SPEAKER_01Kind of one of those deals.
SPEAKER_00Yeah, so it was basically the last day, and people were like, oh God, if I hold this. Okay. Yes. Okay. Um, so that's how it happened. And then in the same way, basically, what the price, what the market was saying was globally, oil is now not just worth nothing, but it is an active liability at least for this month. Um, in the same way that right now in the Gulf, if you were, let's say there were no national oil companies and it was just all shale on the other side of the Gulf, the same thing would have happened, where you had all of a sudden nowhere to put it, you filled up all your inventories, prices drop to zero, or actually theoretically negative levels, although no one's assessing those prices. De facto oil prices on the other side of the Gulf, on the bad side of the Gulf right now, are negative. Um, and that's the signal to shut in these production wells. And I think that's exactly what's been happening here is that same fundamental process. We saw the same thing in Canada, in Western Canada, when we ran out of pipeline capacity um in late 2018. Uh that the government forcibly curtailed production so that you didn't basically, we had $50 a barrel differentials for our crude. Um, you're basically getting to negative prices. So that was the same, it's all the same thing. The oil has to go somewhere.
SPEAKER_03Yeah.
SPEAKER_02And right now, the world obviously needs oil. And so you can't get the oil that's on the west of the Strait of Hormuz in the Persian Gulf. So you need to get oil from what's outside. And the nearest oil is stuff in Oman, maybe you know, Dubai, places like that. So explain the difference between like there's WTI, which is last I looked about $95, $96 a barrel. Brent is slightly higher. This difference between Brent and WTO is much larger three weeks ago, which is breaks my brain a little bit. And then there's something called dated Brent, which is $132 a barrel. And then there's Omani Blend, Dubai, Morban, all of this was about $100, $103 a barrel. It was $140, $150, $160 a barrel. Explain what all this is. I mean, I have a chart here which uh Drew, we can put this chart of oil prices for different blends up there. It's a very colorful chart, but you know, Rory, you probably know what I'm talking about without even you know seeing the chart.
SPEAKER_00Yes, and I actually am working on a chart right now on specifically Brent structure because the Brent complex is very complex. Uh and most of the time people don't need to know anything about it. I think this is the weird thing, is most of the all the stuff we're gonna talk about, I think there's a tendency for people to overcomplicate these markets. Um, most of the time, most of what I'm talking about does not matter for most people or the view on the macro side. The and the difference is, and what's really weird about this crisis thus far, is that the vast majority of the pricing pressure has been felt in term structure or essentially the steepness of the futures curve. So futures curve 101, um, you have two main structures for a futures curve. And when I mean a futures curve, I mean the actual like basically you plot the prices of say Brent crude forward each month of its tenure, uh, you get a curve. Now, if the curve is downward sloping, so if it's higher today than it is in the future, that is a structure called backwardation. That's where we are right now. Ironically, people often will look at that and say, oh, the market is saying that the price is going to go lower in the background. It's a forecast almost. Yes. Right. And I heavily push back on that. Although what I've seen, there's naturally, there's always a little, you know, a wrinkle in the rules. So we'll touch that in the end here. But normally, as to say not normal markets, that is not what it means. What it means is it's it's important to think of it less as a discount on future purchases and more as a premium on now purchases. What what Bloomberg has called ASAP barrels, which I like is so basically, you know, right now, as an example, the the um the Brent crude, the prompt or front of the price we all see on our screens is a futures contract for June delivery.
SPEAKER_02Okay.
SPEAKER_00That right now is trading on my screen at $95.50 a barrel, which is wildly low in the context, I will say. Uh, but let's just take it for what it is. In June, the market is currently pricing a barrel of June crude for you know delivery uh for 95 bucks. Dated Brent is a physical marker um that is used to price physical deliveries. Okay. Um, right now, as I looked even like five minutes ago, dated Brent, which is typically for cargoes that are going to be loaded in 10 to 30 days. So instead of two months, you're looking at 10 to 30 days. And those that benchmark right now is trading at over $130 a barrel. Wow. Okay. So you have like a $30 spread, more than $30 spread between dated Brent and the prompt futures contract. And then on top of that, there are various actual physical deliveries of these crudes that are, you know, delivered against the dated Brent benchmark. And right now, physical buyers are bidding up like $20, $25 a barrel above dated Brent. So what your actual physical spot, you know, barrel in hand, you're talking over $150 a barrel, even though the barrels in June are going for $95.
SPEAKER_02So if I'm in India and I'm like, I need oil like five days from now or 10 days from now, I'm like, I'll pay you $150, something like that.
SPEAKER_00Basically. Basically. And I think that let's talk about WTA Brent for a second. Because I think that's actually another really interesting manifestation of this. When you were talking about WTI Brent.
SPEAKER_02Yeah, that was a big event for you. I don't know if that's the way to phrase this. President Trump retweeted a picture of yours. Yes, yes, he did. Oh wow. Yes, he's he he stole it. He stole my tweet and crawled my head out. He didn't attribute it to you, though. Yes, exactly. Yes. Yes. Speaking of WTI and you know, maybe I'll try and get the picture, I'll put it up. We can put it up here. It's a whole flow of ships going across the Cape of Good Hope, Africa, towards the United States. And that gets to what you were going to talk about, WTI.
SPEAKER_00Exactly. So let's talk about that chart for a quick hot sec. So the chart showed VLCCs, which are the largest main type of tanker. They carry roughly they have a capacity of roughly two million barrels of crude oil. Um, virtually all the VLCCs in the world right now that would normally be servicing the trade in the Gulf and elsewhere are all steaming towards the US Gulf Coast because that's the main place right now that has any oil available to get. Um so that is this basic, and I think the the way the president took it was, you know, raw, raw USA. This is coming in oil, right? Exactly. The downside for the president of that same thing is that that is because other people are willing to pay more for it than Americans are, which means that the prices are going to go higher and higher and higher. That's the way this market is going to solve and the way the pain in Asia and Europe is going to transmit itself to the US, to North America.
SPEAKER_02Our guys are going to sell it to the highest bidder. If the highest bidder is in Asia or Europe, they'd be like, you know what? I'm not going to sell it to Americans for 100 if I can sell it to the Europeans and Asians for 110, 120.
SPEAKER_00Exactly. Exactly. So, and I think when we go back to the WTI Brent spread, which is again, this is like a very important channel in this market. Um, the weirdness with it is again, so you were mentioning it was really wide, then it got really narrow, and then WTI was trading at a premium. Like, what's going on? But again, only thing that's really going on there is once again backwardation. So just to give you a sense that we hit we've hit record backwardation in this market. Again, we were talked about the spread between dated rent and prompt rent futures. Even the spread between the front WTI contract and the second month's WTI contract, which we talk about as like the prompt time spread, um, that blew it to all-time highs two weeks ago of more than $15 a barrel, which means that like if you if you could if you had inventory and storage, you could sell that barrel into May, uh, buy the same barrel in June. And as long as you didn't need it for that month, you could basically pocket a $15 a barrel you know profit risk-free. Um, that's how desperately the market was saying, give us any barrel you have right now. We are we are super desperate. But the weird thing is, is that WTI and Brent, and this is an ever annoying reality in this market, they have different expires and delivery windows, which is very annoying. So WT WTI right now, which is trading at a premium to Brent, is trading May. Barrels. Okay. And and WTI will roll around the 20th, uh, give or take. Uh again, which is why we're back to April 20th.
SPEAKER_03Yeah.
SPEAKER_00Yeah. So that will roll to June. And for the next week and a half, both WTI and Brent will be trading June barrels. But then at the end of the month, Brent rolls. And it's trading July barrels after that. So then once again, you're gonna get this weird wonkiness. Normally, this doesn't matter because normally time spreads are like when we're talking about $15 a barrel time spreads, like a strong time spread is a dollar. Like normally we talk about time prompt time spreads in cents a barrel, not $15 a barrel. So all of this weirdness is reflecting that. And again, in in and again to backwardation, if you're a physical buyer trying to get a barrel from, let's say, you know, point A to point B, let's say you have to, let's say the shipping time from point A to point B is a month. You, the shipper, needs to eat a month of backwardation. Because you basically have to, if you think about backwardation, it's effectively the time value of crude. So if you have to have the crude for a month, you're eating that $15 a barrel. So that needs to be incorporated into all of your pricing and everything else, which is why this market is really, really tough to trade right now on the physical side, because all of these barrels are so desperately needed where they are, it's hard to get them from point A to point B profitably.
SPEAKER_01So the different months, um, it reminded me of Sonu and I because we're both 1978, but he's older than me. So coming up in May, he's like a year ahead of me. So it reminded me of that. Listen, uh, this is like a six-month spread there.
SPEAKER_02Yeah, six-month spread. Sony's a little more seasonable. Maybe we'll get to the time value of that.
SPEAKER_01We uh we're gonna be respectful of time. We are kind of near the end. This was this was amazing. I know our listeners are really gonna love this. I know I learned a lot. Sonu learned a lot. I do want to give you a chance to um promote your company in a second, but I want to go through something real fast. I I did something that's kind of fun. Famous Rory's of all time, right? So maybe Drew could put these faces up. Obviously.
SPEAKER_00Between barbecue and famous Rory's best podcast of all time.
SPEAKER_01Hands, Rory McElroy. I think he's probably numbered. Yeah, I'd say so. You have Rory Gallagher, a renowned Irish blues rock guitarist. I don't know. Have you ever heard of him? I'm not sure. Now Rory Colkin, I believe he's Macaulay Colkin's brother, but I love his being called that. There's a Rory Calhoun, never heard of him. But I honestly think the most famous Rory is a person that didn't even exist. Apparently, it's Rory Gilmore from Gilmore Girls. That is the one, really. Yeah, like literally the most famous Rory. How's that make you feel? I'm teasing. And now you, you're on the Mount Rushmore of famous Rory's, in our opinion.
SPEAKER_02Um I have yeah, one barbecue thing, maybe just a comment. What's the best smoke meat I've ever had is actually closer to your neck of the woods up in Canada in Montreal. I forget the name of the place, but it was phenomenal. Like I could, I could hopefully like my mouth to order.
SPEAKER_00Is it was it was it Schwartz? Yes, yes, yes. That's the one. Yes, I forgot the name. Schwartz is like a famous, famous Montreal. And for those that aren't aware, Montreal smoked meat is a type of smoked meat that basically is cured dry cured for I've made it once in my life. It takes like 12 days of dry curing, then you need to smoke it, then you need to chill it, then you need to you actually uh steam it at the end. It's like an extremely involved process that takes like days and days and weeks. Um, but it is insanely good. And Schwartz for those, you will pay like $30 for a sandwich, but it is like literally heaping. It's like half a cow on your on your bread. Wow.
SPEAKER_01Am I the only one when I hear Schwartz, I think of like Mel Brooks and Spaceballs to Schwartz? I don't know. That's the first thing I thought of. I don't think that's it. Um so listen, we are kind of near the end. Do a little promotion. Um, you know, we can't say we promote you due to compliance reasons. We're obviously fans and this and that, but talk to us about what you do all day, how who how we people can sign up for your stuff. If the I just use the joke, the the if you use the password so new, they get the first month free. Um, you know, give the listeners something why they should sign up for what you're doing every day.
SPEAKER_00Yeah, so I would encourage everyone to join me at commoditycontext.com uh where I publish all of my formal written research. Um I publish uh oil context weekly every Friday around 4 to 4 30 p.m. after this commitments or traders data is released. So that's nice and fresh in your inboxes. I publish three different monthly reports on global oil balances. It's basically my version of the IEA's oil market report. I have a report on OPEC uh production, tracking, compliance, everything else. Right now, I just published that yesterday. All of my charts are broken because all of a sudden all the OPEC producers are basically getting zeroed out, which has never happened before. Uh it's like it's been a COVID-level event for all of my OPEC charts. Yes. Um and then on top of that, I also have my North American. So prior to the Iran War, a lot of what I did was North American oil markets trading, uh, Canadian to US trade, pipeline politics, all that fun stuff. And then obviously I read a lot of thematic research, which over the past six weeks has been the Iran War all the time. And prior to that was Venezuela. And prior to that was a bunch of other stuff that I could have a variety and a spice of life. And it wasn't just a one, a one-trick pony for like months at a time. Uh, but I encourage you guys all to check me out there. Um, in addition, follow me on Twitter. I'm also on Blue Sky, and I'm also uh I also host the Oil Ground Up Podcast uh through the Clear Commodity Network, and you can follow, uh you can follow that on any of our podcast platforms. So love to have you. Normally I'm not so manic and alarmed. Normally I'm as sort of saying, normally You're a perma bear. You were bearish on oil before a whole. This is the thing. The reputation I had prior to this war was that of a permabear. Now, I think that's an unfair characterization. I was just bearish when the data was bearish, but now the data is roaring bullish, so I am now bullish. So people, a lot of people have followed me or found me through this crisis, and they're gonna be deeply, vastly disappointed when I'm like, you know, fade that, fade that. You I just don't think you should fade the straight of four moose. That's like it's like a base minimum rule for my life. Like if the straight of four moose is closed, things are broken and I'm probably bullish oil.
SPEAKER_02Right? Do we have time for one more question? Oh, I think I think so. I I hope so. Ro, you tell us. Five more minutes. Five more minutes. So maybe I'll segue away from that. You know, you'd mentioned your bullish oil, especially now, like it's already at 95, whatever, 95, 96 dollars a barrel. Why aren't, given what you everything you just mentioned, the straight hormones, even before the crisis, most people who have anything, some remote knowledge of the stuff would be like, that's a big deal, right? Given the space scale of production shutters, you mentioned a billion dollars, billion barrels, a billion barrels of oil taken away by the end of May, if this continues, why aren't oil prices higher? I mean, I'm looking at equity markets, Ryan can speak to this. I mean, we have what SP 500 barely 1% off its highs. Everything seems to be like less than one percent right now. Yeah, less than one percent. And I'm like, wait, what's the disconnect here? We're missing all these barrels of oil. And is it one or two things, which is basically demand destruction? I mean, you know, I was joking to someone like India's frying less samosas, uh, you know, maybe that's why. But no, I mean, you know, there's so demand destruction, and of course, at some price, and then some companies is a lot of airlines are like, oh, we're taking away airline capacity. A lot of gulf carriers have said, oh, we're reducing it to only one flight a day for Air India and all these different, you know, airlines across the world, right? So demand destruction and a lot of strategic petroleum reserve releases, right? So, how much is that covering, you know, for these missing barrels? And I'm curious where you like why you why do you think oil's not at you know, like honestly, I would have thought oil should be at $150, $200 a barrel, and it's not.
SPEAKER_00I would have also thought that, to be very clear. And I think the one thing I will say is that unlike virtually every other moment in the oil market, like I published uh I tweeted a tweet uh a chart last night, if you wanted to throw that up as well, showing the difference between Brent and dated Brent. Um, and normally the things are are like they trade at the hip. Again, normally we talk about term structure in like sense or like low single-digit dollars per barrel. When we're talking about these crazy blowouts, it's just very, very clear to me, and this is where I was like, in almost all circumstances, I will say that the oil market is not pricing any kind of prediction or forecast. In the current moment, it's hard to escape the fact that clearly between equity markets being very, very high and oil markets being, I mean, we're at $95 a barrel. So we're still up, you know, like, you know, 30 something bucks a barrel over pre-war, but again, not anywhere near what you'd expect it to be. There is a there is a there is an assumption baked into all markets right now that this is going to be temporary. And I should say that was my that remains my prior as well. And that's still my like this could get so bad that nobody's going to let it get that bad. Exactly. And and one thing I keep saying, like, like the people who know the most about the oil market are the most pessimistic about the consequences of Hormuz being closed, but in a weird paradoxal way, like I include myself in this in this bucket, um, are the most optimistic that someone's gonna figure out how to stop it before the world breaks. Um but I thought that on week one and two as well. And now we're on week six. Sure. So my view on what the consequences are has remained unchanged. Um it seems that the market has just been able to remain much more sanguine for much longer. I would say my sanguineity, if that's a word, has has kind of eroded. Um, and I'm now like, okay, just show me. I'm like, I'm done, I'm done forward looking. Like, just show me a ship going through the straight. Show me a dozen ships going through the strait, and I will start to believe it.
SPEAKER_01That way Sona can go back to sleep. He stays up all night watching these things. Me too. I mean, that's a little bit more than a little bit. Both of you can go back to bed.
SPEAKER_02Yesterday, two ships went through and then it turned back. It's like fascinating in the craziest way possible.
SPEAKER_00Totally. And and again, I think it's important that I again let's put back on my permabear hat for a hot sec here. Um, there was a way through my mental model of the market for the world to process a billion barrels of oil out of the market without that much long-term pricing consequence. And then before the crisis when you came in, we had a surplus too, right? We did. Yeah. So so there was a surplus going in. Uh now, again, that surplus was maybe two million barrels a day versus 13 million barrels a day loss. So it's it's it helps, but it's not like it's not the it's not the silver bullet. Um, but also during that period, we had built up a lot of stocks. So the stocks have been drawn down. We had a little buffer room. So there's a little bit of runway that the market would be like, okay, yep, yep, yep. You know, actually, in some ways, this is great for us because, well, we were looking at, you know, $40 or sub-50 dollar crude before this. So yeah, okay, this isn't the worst thing. Um, and the longer that goes on, the more that total hole grows to be. But let's say a billion barrels again. There are, so far we've already released 400 million barrels, the IEA coordinated release of SPR stocks. There's roughly total IEA stocks are roughly 1.2 billion barrels of the strategic or commercially directed strategic stockpiles. Theoretically, that entire hole can be filled with strategic stocks. And if that happened, in my pricing model, at least, in my my head, um that could come out with very little long-term pricing consequences. Uh, because for me, prices are driven by basically the residual balance in the market and its effect on commercial stockpiles.
SPEAKER_02Like, what's the gap that you cannot?
SPEAKER_00Exactly. And and if and if, you know, in my mind, SPR releases are effectively, they're not a stock drawdown, they're a supply addition to the market. So it so there's a flow issue. You can't like the total SPR drawdown is more like 3.3 million barrels a day, is what I'm modeling, versus 13 million barrels off the line. But in terms of the total volume, if the market, again, if the market wants to look through this and have a kind of a longer-term view, yeah, you can say that maybe this all gets kind of absorbed by strategic stocks. That said, at the other day, that means we have basically if that happened, we would have basically no strategic stocks left in the global economy. So that's also a problem. Um, so I you can make a way where it's, but I the best explanation I have is that this market wants to be bullish equities, and oil is a problem. So they want to be bearish oil. Now, again, my the past half decade of my life, I've mostly made fun of permables who say, Oh, the the market's not not agreeing with me. Whoa. And I'm like, okay, I might be a slightly more sympathetic now than I was then, and I might be a little nicer in the future. Um, but no, I think like, yeah, that there's something to that. And I think that the market does have it out for crude right now. Um, and we will see. I mean, if and I think the equity market just wants to go back to talking about AI. I don't know. It does, it does, absolutely. Um, and not not like any not like AI is energy intensive or anything like that. No, no, not like these things could be related in the long term. Um, but overall, I just do think that like if this ends tomorrow, we could exit this without a generational shock in prices. Um but I don't think it's gonna end tomorrow. And I think again, I've I've been burned too many times with my optimism of when this thing's going to end to believe that it's wrapping tomorrow. And I think that price I think that to open to reopen the straight, I think Trump is going to need to make painful concessions, uh, whether or not personally or politically. And I just don't think that the market pain is harsh enough yet to force him to make those concessions. That will likely be both around domestic enrichment in Iran and likely around some kind of go-forward control of the Strait of Formuus, which again, let's remember, prior to this war, the disagreement was also about enrichment. And Iran wasn't trying to control the Strait of Four Moose, at least it wasn't demanding control. So we've backpedaled on a lot of these strategic goals. Sure, the Iranian military for whatever it was before has been destroyed. Yeah, no more Iranian military, no more Iranian Navy. But they will control to some level the Strait of Hormous going forward. And I think that is it's people are like, it's untenable, it'll never happen, the Gulf states would never tolerate it. Like, sure, they will be, they will not like it. Um, it's terrible for them. But I also think that the current situation is is existential for them. So terrible is better than existential, as a baseline for me.
SPEAKER_02It's like paradoxes all around. It's like, you know, why could this get better? Because it simply is too the worst case is so bad, right?
SPEAKER_00It's it's a really, really low bar to get better.
SPEAKER_02Um and then on the US side, it's like, wait, the equity market's doing fine. You're close to all-time highs, so we could stretch this out for a little longer.
SPEAKER_00You know, I think this is the ultimate paradox of Trump and taco or whatever we want to call it, is that when he jawbones down, yeah, equities spike, crude drops, and any of the pressure that had been convincing the market that Trump was about to make a concession or taco or whatever gets ripped out of the market. So it's this kind of constant cycle of, okay, like we're gonna grind back up to 110 Brent, and then we're gonna get another headline. Another job. And it's gonna be this repeatedly over and over and over. Until, and I think I think what will fundamentally happen here is if this extends through May, at that stage we will have realized physical shortages across all consuming regions on the planet. We just have you back. And I yeah, let's do it, let's do it again then. And you know what? I'll plan it, so I'll be smoking a brisket. Well, there you go.
SPEAKER_02Yeah, maybe all three of us should be in like roads or something.
SPEAKER_00Yes, so uh let's talk again in May when everyone's running out of jet fuel.
SPEAKER_02I I am in the market for a smoker, so if any of if you guys want to give me recommendations, uh anyone wants to put it in the comments? Uh Yoder. Yoder. I'm Yoder, best friend.
SPEAKER_01Okay, all right. Okay, all right. Well, this was awesome. We've gone right about an hour. Um, really, really appreciate this, Roy. Of all listeners, this was likes, there's thumbs up, those comments, positive or negative. We can't leave the witness. Um, but that goes a long way with the algorithm. But Roy, this is awesome. Thank you so much for taking the time with us. Just so you know, you've probably done a lot of these with Riverside, but I'm gonna hit stop. Don't like log off right away. We've got to let it upload as long as I hit stop. You know, you've done a lot of these, I know. So with all that, everybody, thank you to all listeners. Sooner and I will be back next week with a regular one. Who knows where the world is in a week, but we'll be talking about. But this was amazing. Uh, thanks to Podpony, our producer, as always. We'll see everybody next week. Take care. Thank you. Thank you. Thank you. Information provided on facts versus feelings with Son of Arge and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliate. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested indirectly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWM L L Cha.
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