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MacroVoices #539 Rory Johnston: Hormuz Crisis, is it Really Over?

Macro Voices58m 17s

Rory Johnston discusses how the Strait of Hormuz crisis has evolved from an expected supply shock into a managed situation through Chinese demand destruction and SPR releases, resulting in unexpected crude oil contango despite four months of closure. The petroleum market shows a critical split where refined products remain tight while crude oil faces downward pressure from oversupply that refineries cannot fully process.

Summary

In this MacroVoices episode from July 2, 2026, Rory Johnston of Commodity Context explains the surprising developments in the Hormuz crisis. Initially, experts predicted $200 oil if the strait remained closed through June, but this proved incorrect due to two major factors: China cutting crude imports by 5 million barrels per day (far exceeding expectations) and strategic petroleum reserves being deployed globally. Johnston reveals that flows out of Hormuz have actually surged to 130% of pre-war levels through combinations of direct transits and alternative routes (Yanbu, Fujairah), but much of this supply surge is being artificially boosted by drawdowns of stranded floating crude that cannot be sustained beyond a few weeks. The critical bottleneck is that fresh loadings from production restarts are only 5-6 million barrels per day while exits are 12 million barrels per day, indicating upstream production recovery is lagging expectations. Interestingly, inbound empty tankers (ballast tankers) have returned faster than anticipated, suggesting the constraint is on production capacity, not logistical ability to evacuate crude. Johnston emphasizes that the geopolitical situation remains unstable, with Iran demonstrating it can close Hormuz but struggling to enforce toll collection or control shipping routes effectively. The U.S. and Iran pursue mutually exclusive objectives regarding Hormuz management, creating a fragile ceasefire where both sides avoid full escalation but Iran cannot enforce its claimed control as ships transit southern and center routes outside Iranian oversight. The petroleum market has split into two distinct stories: crude oil faces unprecedented weakness with prompt contango spreads (indicating oversupply), while refined product crack spreads have hit multi-year highs at 60 dollars per barrel for diesel and 50 for gasoline, suggesting refining bottlenecks are the real constraint. This occurs because Middle Eastern refining capacity remains damaged and Russian refined product exports have collapsed due to Ukrainian attacks, while crude output from all sources has surged. The market is currently in temporary surplus of crude but deficit in finished products, creating a situation where oil sits in tankers at sea or in floating storage while refineries cannot process it all. Johnston argues that China's withdrawal from the market appears to be a policy choice rather than demand destruction, as domestic Chinese fuel prices only rose 30% versus doubling elsewhere, and mobility indicators show no real disruption. Regarding SPR capacity, Johnston indicates the U.S. SPR at 330 million barrels could sustain current drawdown rates for months longer, and salt cavern design allows drawdown to near-complete depletion unlike tank storage. Looking forward, Johnston expects crude prices to remain supported by elevated short positioning near all-time levels, but contango spreads and near-term supply glut should provide downside protection in the $70 range. The optimistic scenario assumes China re-enters the market and Middle Eastern refineries recover within high weeks to low months, though Saudi Arabia's surprisingly slow loading restart raises questions about whether discretionary supply management is occurring. If the ceasefire breaks down, Iran would likely first attempt harder enforcement of Hormuz closure before escalating to broader infrastructure attacks like hitting Saudi pipelines or closing Bab al-Mandeb, a scenario Johnston assesses as lower probability given Iran's demonstrated preference to avoid full re-escalation.

About this episode

MacroVoices Erik Townsend & Patrick Ceresna welcome, Rory Johnston. They discuss the Hormuz crisis, China’s role in tempering global oil demand, and the outlook for what comes next as negotiations evolve in the middle east. https://bit.ly/4eIFMaO    🔻Download Big Picture Trading Chartbook 📈📉: https://bit.ly/4fbzxMJ   ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://secure.bigpicturetrading.com/membership/signup/fOY4YJYX   🔴 Subscribe to Patrick’s Youtube Channel: https://www.youtube.com/@Patrick_Ceresna   🔴 Subscribe to Erik's Substack: https://eriktownsend.substack.com/

Key Insights

  • Johnston argues that despite four months of Hormuz closure, crude oil prices crashed to pre-crisis levels because China deliberately cut imports by 5 million barrels per day (a policy choice rather than demand destruction) while global SPRs released approximately 3.5-4 million barrels per day, together overwhelming the supply shock.
  • The current petroleum market exhibits a critical structural split where crude oil trades in contango (indicating oversupply) while diesel and gasoline crack spreads hit all-time highs because refining capacity is the true bottleneck, not crude availability.
  • Johnston contends that 130% of pre-war supply flowing from the Middle East is artificially inflated by drawdowns of 4+ million barrels per day of stranded floating crude that can only sustain for another 1-2 weeks, after which fresh production loadings (currently only 5-6 million barrels per day) will reveal the actual recovery pace is much slower.
  • Iran has demonstrated the ability to close Hormuz but lacks the operational control to enforce toll collection or prevent ships from transiting southern and center routes outside Iranian oversight, creating an unstable situation where both the U.S. and Iran pursue mutually exclusive objectives.
  • The market is pricing in an optimistic scenario assuming China returns as a buyer and Middle Eastern refineries recover within weeks to months, but this assumption faces multiple risks including China's opaque return timeline and Saudi Arabia's surprisingly slow production restart despite expectations of fastest recovery.
  • Johnston states that U.S. SPR drawdowns have slowed to under 1 million barrels per day for the first time since peak crisis pace, and salt cavern design allows drawdown to near-complete depletion, potentially enabling several additional months of supply relief if needed.
  • Large speculators in the S&P 500 covered 150,000 short contracts in a single week to reach their least short positioning all year, meaning the natural dip-buying support from shorts covering has been eliminated just as semiconductor weakness threatens index support.
  • Johnston expects crude prices to find support around the $70 level due to near-maximum short positioning that requires covering, combined with elevated short interest providing 10-15 dollars per barrel of upside from positioning normalization alone if fundamentals shift.

Topics

Strait of Hormuz Crisis and Geopolitical TensionsCrude Oil Market Dynamics and Contango SpreadsStrategic Petroleum Reserve Deployment and CapacityChina's Role in Oil Market Demand ManagementPetroleum Refining Bottlenecks and Crack SpreadsTanker Market Recovery and LogisticsCommitment of Traders Positioning and Market CrowdingEnergy Market Trading Strategies and Risk Management

Transcript

This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices Episode 539 was produced on July 2nd, 2026. I'm Eric Townsend. Commodity Context founder Rory Johnston returns as this week's feature interview guest. Rory and I will discuss the Hormuz crisis, China's role in tempering global oil demand, and the outlook for what comes next as negotiations evolve in the Middle East. We're excited to introduce a show format change…

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