Rory Johnston — the most unbalanced oil market ever

Who he is: a "professional barrel counter"

• Independent oil analyst covering crude and refined products; previously led commodity economics at Scotiabank (Toronto), covering ~two dozen commodities including uranium.
• Commodity Context began as a newsletter when oil went negative in 2020 and became a paid business after Russia invaded Ukraine in 2022; it is now a family business run with his wife.
• Historically seen as closer to a "perma-bear" — the $200 crude call made him known to a wider audience this year and was unusual for him.

The most unbalanced market he has ever seen

• Going in, the market was "supremely oversupplied"; he expected Brent around $50 this year without the war.
• Then the largest supply shock in the market's history (Hormuz closure). The market is now in an acute historic deficit between a trailing surplus and a forward surplus.
• On top of that, a record dislocation between crude and products: diesel cracks vs Brent ~$113–114/bbl and NY Harbor diesel ~$220/bbl — "that's not a niche price, that's the main benchmark."
• Hormuz is a war, and an American war in the Middle East, so flow numbers have become political; much of the market debate is "politics layered on top of the market."

Hormuz flows: from 2 to ~12 million barrels a day

• Pre-war: ~20–21 mb/d — 15 crude, 5 refined products (diesel, jet, NGLs).
• March–April: ~2 mb/d out, all Iranian; then the US blockade crushed Iranian flows while "Project Freedom" convoys began, on and off.
• The June MOU released 150m+ barrels of crude and products trapped on captive vessels; 7-day flows briefly topped 15 mb/d — not sustainable, because fresh loadings were never that high. Flows then fell back to ~5 mb/d when fighting flared.
• Latest: a 7-day high of 11.98 mb/d (last Sunday) — ~60% of pre-war, sustained by 10+ mb/d of fresh loadings. He excludes the MOU bump as "not a good comp."

The White House numbers: exaggeration then, true now

• When Energy Secretary Chris Wright first cited 10 mb/d through Hormuz, those were "effectively lies … purposely deceitful" versus what was actually flowing.
• Flows have since reached those levels, but "they were just early" is "not how numbers work" — the balance of evidence is that the barrels were not flowing then.
• His read: an administration that likes picking fights with analysts chose an implausibly high number when an accurate one (7, then 10, then 12) would have calmed the market.

The Saudi reroute is smaller than its nameplate — and it just went down

• The East-West (Petroline) system is ~7 mb/d nameplate (5 mb/d main trunk + a 2 mb/d NGL line converted to crude), but the incremental swing was only ~3.5 mb/d because the pipe already carried oil pre-war.
• The right measure is the change in Red Sea / Saudi West Coast net exports: ~2 mb/d pre-war → ~5.5 mb/d before the Houthi blockade.
• The August Houthi ban on Saudi Red Sea activity (Bab el-Mandeb) pushed some Saudi loadings back into the Gulf — so part of the "Hormuz recovery" is reshuffled Saudi volume, not new supply. Barrels that still left the Red Sea went north via Suez/SUMED, often to Europe and the US rather than Asia.
• Last Thursday's attacks on multiple East-West pumping stations (seen in NASA fire data and Sentinel imagery) took the pipe down; Saudi Arabia says 3–5 weeks to restart. That removes ~4 mb/d of Yanbu exports, is tightening Brent, and could even force the Saudi West Coast to import crude for its own refineries.

Why $200 was on the table

• Even after the East-West and ADCOP reroutes and record OECD strategic-reserve draws, the market still faced an 8–10 mb/d gap — COVID-peak-scale demand destruction, to be achieved by price alone.
• Past price spikes to $130–150 destroyed demand, but they were driven by only 2–3 mb/d deficits; a 3–4x larger gap implied a higher threshold — "that's where $200 came from."
• Caveat he flagged at the time: refined-product prices, not crude, drive demand destruction, and the crude/product split was the part he was least sure of.

The "Beijing swing": what saved round one

• From the three months before the war to the June–July low, China cut crude imports by 5.4 mb/d — the largest import cut by any country on record.
• The tell: by late June the rest of Asia's imports had fully recovered, yet China's kept falling — China was "making room for the rest of Asia."
• China "turned every single knob" of an energy-security system built for a decade against the Malacca Dilemma (a US blockade of Malacca in a Taiwan conflict): more coal-to-chemicals, inventory draws and so on.
• He rejects the "40% demand destruction in 3 months" claim as "completely implausible."

The diesel cross-check: activity up, apparent demand down 20%

• A product-by-product balance tied to end-use activity: jet fuel squares (flight cancellations, kerosene prioritization, export curbs).
• Diesel does not: ~70% of Chinese diesel goes to road freight; road freight was up >3.5% YoY in June while apparent diesel demand was down 20%. LNG trucks and electrification cannot explain a 20% drop in 3 months.
• Conclusion: a discretionary policy choice funded by an invisible stock draw — at least 100m bbl of commercial crude, probably another ~100m bbl of strategic crude, with diesel "in a similar-ish ballpark," roughly the scale of the whole OECD/IEA release. That is inherently unsustainable, and China is now coming back to buy while drawing invisible stocks harder.

Why Beijing did it

• The least-conspiratorial answer: with property in structural decline for five years, exports are China's growth engine, and a Hormuz-driven global recession would hit it hard.
• Having diversified away from the US in the trade war, China's alternative markets are Asia and Europe — the two regions hit hardest by Hormuz. So Beijing backstopped its own export markets.
• It cannot go on indefinitely — part of why the market is tightening again is China returning as a buyer. (Host Mart says he holds the same theory.)

Deficit arithmetic: smaller is not the same as over

• Prompt Brent is $107.50, but Dated Brent, the physical benchmark, closed at $131.77 — close to the April all-time highs.
• Too many macro traders sell a slightly smaller deficit. As long as the market is in deficit, inventories keep drawing and the market keeps tightening until it reaches an actual surplus.
• The war must end — if not by Q1, prices would be high enough to "force itself open," possibly through a "unilateral TACO" in which the US simply sails the 5th Fleet home.

The other side: $50, maybe $40, by mid-to-late next year

• After the war he expects "a very, very rude other side": $50 or even $40 Brent by mid-to-end 2027.
• The pre-war glut has grown: another year of non-OPEC growth in the Americas, weaker demand growth because of high prices, the UAE's exit from OPEC ("unbounded to the upside"), and starved producers chasing price and market share.

Diesel: Russia, and China's teapots as the release valve

• Beyond Hormuz, Ukrainian strikes have throttled up to half of Russia's refining fleet and Moscow has banned product exports, including diesel (~1 mb/d of Russian diesel exports lost).
• China is the world's main spare refining capacity. In winter 2022–23 it roughly doubled product exports, much of it diesel from independent teapot refiners.
• It has held back because Beijing has spent a decade trying to wind down the teapots. But with diesel now the problem, he can see higher Chinese diesel export quotas — tightening crude but mainly pulling diesel cracks down.

The big risk: a US diesel export ban before the midterms

• Talk of US refined-product export restrictions has grown, including the first public openness from Senate Majority Leader Thune. To matter before the midterms, it has to happen in the next ~3 weeks. He hears the MAGA-nationalist wing is pushing it.
• US diesel exports are up ~50–70% during the crisis, covering about half the lost Russian volume. Diesel is a quarter to a fifth the size of crude, so a ~1.5 mb/d loss has 4–5x the proportional impact. The global diesel market "would just break."
• At home it would be a sugar high — perhaps $1–2/gal off diesel — but the structurally exporting US Gulf Coast would build 1–1.5 mb/d of inventory, US cracks would go negative while global cracks sit above $100, refiners would cut runs, and the Gulf Coast might even need to import gasoline.
• It would also hurt Western Canadian crude, because the refineries that buy it would "go into hibernation."

Positioning: fundamentals bullish, flows bearish

• From his Friday Oil Context Weekly (CFTC Commitments of Traders across the "big 6" crude contracts — ICE and CME Brent, WTI, Dubai): net speculative length is ~4.5% of open interest, near April's highs, with high longs and relatively low shorts. Diesel is ~9%, its highest since 2024. Gasoline is also stretched.
• Read: little dry powder left for the next rally, plenty of liquidation and short-building fuel for the next drop — drawdowns will be sharper than melt-ups. The data does not yet include last Thursday's East-West rally.
• His scenario: some trigger (e.g. a partial East-West restart) sets off a $10–15/bbl flush over the next couple of weeks — well timed for the White House — then a more sustainable rise through year-end.
• Around $110 Brent is the "jawbone zone": one Truth Social post can take $15 off on a Monday. Expect volatility, but "the line keeps jostling, but it's heading up."