Stijn Schmitz welcomes Rory Johnston to the show. Rory Johnston is a Commodity Market Research Specializing in Oil and Gas. Johnston describes an unprecedented period of volatility in oil markets, where the supply-demand balance swung radically within a single month. Following a ceasefire in the Strait of Hormuz, a surge of previously stranded tankers created a temporary mini-glut, flipping market structures from severe backwardation into contango. However, this glut proved fleeting as inbound empty tankers, initially driven by the most risk-tolerant owners, have dried up, leaving Gulf loadings constrained by available shipping capacity. Consequently, supply is tightening aggressively again.

The most significant factor absorbing the supply shock is China, which swung its crude imports down by five million barrels per day without clear economic damage domestically. Johnston explores speculative explanations, including massive refined product stock releases, a coal-to-petrochemical feedstock switch, or a geopolitical understanding with the US. He also suggests China may be using the crisis as a successful dry run for weathering a potential blockade in a Taiwan conflict scenario. This swing, totaling roughly half a billion barrels, dwarfs the collective releases from IEA member states. Beyond crude, the refined products market, particularly diesel, is critically tight. Diesel crack spreads have soared to staggering levels, driven by drone attacks damaging Russian refineries, prior damage in the Middle East, and China slashing product exports. Johnston clarifies that strategic petroleum reserves function as a supply boost, not passive inventory, and that operational tank minimums at hubs like Cushing primarily affect regional price differentials to discourage exports, not trigger infinite crude spikes.

He concludes that the overriding vulnerability is refining capacity, which is easy to target and hard to defend, making North American facilities a potentially valuable geopolitical safe haven in the current drone warfare era.

Timestamps:
00:00:00 – Introduction
00:00:29 – Guest Rory Johnson Introduction
00:01:06 – Energy Supply Demand Dynamics
00:04:30 – Mini-Glut and Market Flip
00:07:45 – Hormuz Traffic and Tankers
00:10:44 – China Import Swing Explained
00:15:00 – China Inventory Releases Analyzed
00:20:45 – Western SPR and Inventories
00:25:30 – Commercial vs Strategic Stocks
00:29:00 – Global Oil Deficit Calculation
00:34:00 – Refining Capacity Tightness
00:42:00 – Product Shortages and Prices
00:48:00 – Refinery Investment Outlook
00:52:50 – Concluding Thoughts

Guest Links:
Substack: https://www.commoditycontext.com/
X: https://x.com/Rory_Johnston

Rory Johnston is a Toronto-based oil market researcher, the founder of Commodity Context, a lecturer at the University of Toronto’s Munk School of Global Affairs and Public Policy, host of the Oil Ground Up podcast, as well as a Fellow with both the Canadian Global Affairs Institute and the Payne Institute for Public Policy at the Colorado School of Mines.

He is a leading voice on oil market analysis, advising institutional investors, global policy makers, and corporate decision makers. His views are regularly quoted in major international media including the Financial Times, New York Times, Wall Street Journal, Bloomberg News, Reuters, BNN Bloomberg, CBC, and Financial Post, and he frequently appears on numerous market and industry podcasts (e.g., Bloomberg’s Odd Lots, Hidden Forces, etc.).

Prior to founding Commodity Context, Rory led commodity economics research at Scotiabank where he set the bank’s energy and metals price forecasts, advised the bank’s executives and clients, and sat on the bank’s senior credit committee for commodity-exposed sectors.