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

PodcastOdd LotsRory JohnstonJun 26

China’s unexplained builds and a roughly 5 million b/d drop in crude imports — offset in part by at least six underground SPR caverns (~131 million barrels) and 3–3.5 million b/d cuts in refining runs — materially shifted Asia’s supply balance. The Strait of Hormuz closure removed about 13 million b/d of Gulf output and left well over 100 million barrels tied up as floating stocks, yet Brent spiked near $120/bbl then retraced below $74/bbl as markets adapted and contango emerged amid short‑term oversupply. Speakers emphasized that inventory buffers and SPR refills (including ADNOC’s planned 50 million‑barrel build for India), plus new regional capacity like the Dangote refinery, will shape oil demand and price dynamics over the next one to three years.

Oil Energy Markets Geopolitical Risk

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Key Takeaways

China’s crude import swing—roughly a 5 million b/d reduction from the pre‑war average that accounted for over half of the spot market supply hit to Asia—was large enough to rival or exceed collective IEA/IEA‑member SPR releases, and coupled with reports of strategic stockpiling and Beijing’s silence (no public rationale), the behavior creates major uncertainty about when China will resume being a competitive importer.

Domestic policy and opacity complicate interpretation of the demand shock: Beijing throttled retail fuel prices (Beijing petrol rose ~30% while global petrol roughly doubled) and does not publish reliable demand/inventory data, so the observed import falls could reflect clandestine stock releases or price suppression rather than pure demand destruction—consistent with at least six underground SPR caverns (~131 million barrels) and rapid drawdowns of refined‑product stocks.

The Strait of Hormuz closure was the largest supply disruption on record (pre‑war flows ~20 million b/d; net Gulf output down ~13 million b/d), yet the market’s adaptation—heavy releases of floating stocks, muted financial‑market responses, and behavioral changes among prop traders (risk limits throttled down ~90%)—helped keep prices from reaching extreme levels.

GEO-POLITICS

China Stockpiling — Market participants say China’s builds plausibly represent strategic stockpiling tied to increased Beijing bellicosity and saber‑rattling around Taiwan, keeping barrels off the open market. With no clear public rationale from Beijing, motives and mechanics remain unclear and timing for China to re‑enter as a competitive importer is uncertain.

“And at the time, the worry was that it was in anticipation of a war or an invasion of Taiwan.”—

ECONOMY

China Price Controls — China throttled domestic retail fuel prices (Beijing petrol rose ~30% while global petrol roughly doubled) and does not publish reliable official demand or inventory data. That opacity makes it hard to tell whether the import falls reflect genuine demand destruction—implied drops were as steep as China’s 2022 COVID‑zero shock—or instead stem from stock releases or policy‑driven price suppression.

“Prices of petrol in Beijing only rose maybe 30% versus the doubling we saw globally.”—

MARKETS

China Import Swing — Chinese crude imports fell roughly 5 million barrels per day from the pre‑war average, accounting for upwards of half the spot‑market supply hit to Asia. Cumulatively that reduction is in the same ballpark as — and likely exceeded — the collective IEA/IEA‑member SPR releases, underscoring China’s outsized impact on global balances.

“Chinese oil imports, crude oil imports into China, the world's largest crude oil importer, fell by upwards of 5,000,000 barrels a day between their, you know, the 3 month average…”—

Hidden SPRs — Visible floating‑roof inventories stayed high, but China has at least six underground SPR caverns (~131 million barrels) not visible to satellites and plausibly used to reconcile falling imports with only modest refining‑run declines. These blind spots mean apparent large demand drops could instead reflect clandestine drawdowns from underground reserves.

“Now, the 1 thing we can say is that the inventories we can see, these are the floating roof storage tanks for crude oil, those are still very, very high…”—

Refining Runs — Chinese crude refining runs fell sharply by about 3–3.5 million b/d and refined‑product stockpiles were likely drawn down rapidly to balance markets. Electrification (high EV sales share of new vehicles) cannot by itself explain the abrupt demand decline because the overall vehicle fleet remains overwhelmingly internal‑combustion.

“But above and beyond that, we know that crude crude refining run rates also fell dramatically by 3 to 3 and a half million barrels a day.”—

FORECASTS

Inventory Floor — Inventory releases (SPR and commercial) respond to price but have a floor: once buffers are exhausted the inventory‑response channel can disappear and prices could spike if disruptions recur. Therefore the existence and level of reserve buffers critically determine downside protection.

“this is not supply responding to price. It's inventory responding to price and inventory, unlike production, has a floor.”—

Hormuz Crisis Framing

Hosts set the stage on the Strait of Hormuz closure, noting Brent briefly spiked near $120/bbl before retracing and preview the interview with Rory Johnston.

Rory's $200 Call

Rory explains why he and many others expected prices could reach $150–$200: the roughly 13 million b/d Gulf output disruption and fears of demand destruction.

China's Import Pullback

Rory details China's ~5 million b/d drop in crude imports, how that removed competition in Asia, and why it played a central role in dampening prices.

Hidden SPR Draws

Discussion of unseen inventories: underground SPR caverns (≈131 million barrels) and likely silent crude releases that helped offset the supply shock.

Refining And Substitution

Speakers cover collapsed refining runs (~3–3.5 million b/d), potential shifts to gas or coal feedstocks, and why EV penetration doesn't explain the full import drop.

China's Motives

Rory weighs theories for China's behavior—strategic stockpiling, goodwill to neighbors, or geopolitical bargaining—concluding the true motive remains unclear.

SPR Releases & Market Response

Conversation shifts to inventory mechanics: US and other SPR releases, trapped floating stocks in Hormuz, contango formation, and why markets adapted.

Self-Critique & Jawboning

Rory reflects on what he misread—China's scale of import reduction and the power of jawboning—explaining why markets proved more resilient than expected.