YouSaid · the spoken record

Rory Johnston

lines on the record: 119
first: 2022-09-29
most recent: 2022-09-29
sittings or episodes: 1
sources: podcast

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“This morning's route. So all of those signals are saying that not only is the financial asset the flat price falling apart, but perception of demand is also falling apart and perception of like spot market balances. So I think that's the kind of thing that whether or not we are an outright oversupply right now, it is still debatable, even if my models are showing it is. But what we do know is that the physical market has fundamentally and materially deteriorated over the past like two months. That's undeniable. Deteriorated how in terms of price price price price price”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“We are still backwarded. So I think the one thing, and I'll admit this, my models are showing us an oversupply, but we're in backwardation. That's kind of weird. So like, how do you square that? I think one of the things you can square it by is we still have an overall very, very low level of inventory. So there is still this kind of like, you know, lingering, just feeling of insecurity on the inventory side that people want more. So if they can, they're going to try and get it back into inventory, which I think is probably what this is reflecting. But what we're seeing even the last couple days, this week, we've seen prompt spread. So the difference between the first and second month in Brent drop back down from about a buck 50 down to a buck. The other bellwether that people often look at is the December versus, you know, it's basically the deck deck, the December 2022 versus the December 2023 spread. That's also falling off with this morning's rally.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. Yeah. But so oil background. I'm just looking again. This is the morning of September 23rd. So November WTI oil is 79. And then May 2023 oil is 75. So you still have a few bucks of background there. So what you said was in, we were in hyper background right when the war started. What are we seeing now in the backward nation? And is it bullish or bearish?”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. And we're going to penalize you through an opportunity cost because theoretically you should be able to sell this barrel, buy it down the futures curve for a guaranteed profit. And it's the opposite. You're not using any costs. You just don't have to hold oil for that period of time. So I think the fact even that by the time we saw that exceptionally high background, I think related to that, inventory draws had actually kind of slowed down. I think that was part of why the background was getting so extreme, even with that kind of opportunity cost, refiners and other commercial participants were like, no, no, we need this oil. Like we need this oil inventory. We need it just in case something happens, particularly in a moment of worry of like a loss of Russian supply. And there's this idea in the academic literature called precautionary demand, which is basically this idea that you create demand now because you're worried you're not going to be able to do that.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. And I think that it goes back to my point about how the oil market always clears in the spot market, right? And basically the importance of the futures curve is the shape of it relative to the spot market and what kind of arbitrage opportunities it facilitates to clear the market as needed. So in a contango where the market is, quote, forecasting that the price will go up as you were saying to the untrained eye, what it's actually doing is it's discounting current barrels so that you can pay for inventory storage and then you can basically lock in a profit by putting that barrel in storage, by buying it today, and selling it down the curve, and you've basically arbed yourself a profit without really much risk. On the flip side in a background, you're essentially creating an opportunity cost to holding inventory saying like every barrel we need right now, like sent to the market. Sell it right now. Sell it now.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so let me explain that. So you look at the prior data, but the data is always prior looking because, you know, the data you get in September is going to be what actually was happening in August. So the sort of most instantaneous data is the actual prices. And backwardation is where front month prices, like the price of oil, if you want to buy it in September or in August, is more expensive than in December or March of next year. So you have a downward sloping futures curve. And that is, it actually to the untrained eye, and I thought this for a very long time, that seems bearish. It's like, oh, the market is telling you that the price is going to go down, but that is actually a bullish sign. Downward slipping is bullish. Contango is bearish.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“That's by my numbers, yes. Now, I think you will have people debate that, and this is what oil analysts do. We debate global supply demand balances at infinitum. And I think the important thing is for me, I always look at it, like, does it make sense with the price action we're seeing? Does it make sense with the calendar spreads we're seeing? Because not only have flot prices collapsed, you know, as of earlier in the year and like, you know, May and early June, we saw backwardation in the crude market at like exceptional record.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so you say right now the oil market is actually in surplus. More barrels I'll be creating every day than are being used so that those excess barrels are going into production. So that's including the Chinese demand destruction, including Russia not actually producing fewer barrels. It's like pretty much close because it's exporting to India and China, including the SPR, that's including everything. It's surplus right now.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“So, yeah, you know, I still think, you know, looking forward, I think there's a lot of, you know, optimistic reasons to kind of think that Crude is not going to stay this low. But that doesn't matter right now because fundamentally Crude will always clear in the spot market. And that's what we're seeing right now is this clearing in the spot market and it's clearing for lower and lower and lower prices.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“That the pandemic is still always going to have these much larger than usual effects on oil demand because of its effects on mobility. So I think that right now, and I think the other thing that we've seen is like there's three major, at least kind of centers of very different kind of macro narratives going on. We have the US and kind of, I'm in Canada, so you have North America, which is strong labor markets, kind of underlying inflationary pressure. You have Europe undergoing kind of an energy crisis. And then you have China kind of killing its own economy in many ways, like kind of locking down consistently. And I just released a piece yesterday on kind of, you know, China's oil demand implosion. And if nothing.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think that's what's kind of confusing, right? So, to answer your flat question, I think it's this idea, it's definitely demand. The concern is demand that we're going to have some kind of recession. We're going to have demand fall back even further to put in the context. I was saying earlier we had that protracted supply deficit for most of last year and into the beginning of this year. And then Russia happened. We thought everything was going to blow up entirely. And then we actually didn't lose as many Russian barrels as we thought we were. And then China basically locked up its entire economy. So in a normal recession, we're kind of talking in the order of like flat growth in demand. But what we're seeing right now in China is like negative two to three million barrels a day of kind of demand laws. So we're in this funny moment where we do have this kind of general macro dourness, but at a moment where we're also kind of still fighting the pandemic.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“It's an accurate answer. And is speculation about demand? In other words, what is the macro risk factor? So we're recording on Friday, September 23rd on a day where stocks are selling off. It's two days after the FOMC meeting. Bond yields are rising again. Pretty much anything that's not And is speculation about? The dollar is crashing. And is it crashing because of demand destruction? There's the demand side, there's the supply side. But yeah, how sensitive to a recession, let's say, is oil if we have a deep recession. How bad do you think oil could be? And could you put that in the context of today's price action? Yeah.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“The fastest drawdown on record by a long shot. So that was the backdrop really that we had going into the beginning of this year. You know, markets were tight, inventories were drawing, everyone was talking about shale and how it wasn't ramping up as quickly. I think that is still one of the most important structural stories. But that's what was driving us higher as we began the year 70, 80 bucks, kept going higher. We were heading towards $100 even before Russia invaded Ukraine. And then that kind of completely blew up all expectations. And to your question, you were kind of asking earlier, like, is this speculation or is this fundamentals? I think it's, I think it's very legitimate speculation about the fundamentals, which I think is like a Weasley compode answer, but it's, you know,”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“100 million barrels a day every single day. Pretty shocking that you're only ever really off on the kind of balance by one or two percent. That's pretty impressive. But that's why, you know, it's little tiny bits of crude at the margin can really move prices, which is why when it was 9 million barrels a day, completely all bets were off. And what we've seen since then, basically since markets were completely glutted in early 2020 on the pandemic, then we went through this prolonged period. One of the longest, one of like the longer periods we've seen of sustained deficits, of sustained supply deficits in the market. And we went from an all-time high inventory position globally to basically back below what we would have considered normal inventories in that kind of 2010 to 2014 high inventory period. So, you know, we went from really glutted to really tight in the span of a year, which again was.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“100%, right? And at the end of the day, when you have big dislocations in the supply and demand balance of oil, I mean, and that was April 2020 was the mother of all dislocations. And OPEC, you know, helped and added, let's say, a million barrels extra. But I think the actual prevailing supply demand balance in April of 2020 was not like, it was in surplus of like 9 million barrels a day. Like something that we just never even seen historically, even close normally in a normal oversupplied market, like the market that tanked prices from 2014 to 2016, that was kind of a consistent oversupply of something in the order of like one and a half to two million barrels a day. That's normally the kinds of surpluses we're talking about. And same on the deficit side, it really doesn't, you know, you're pretty range bound between, you know, plus two, minus 2 million barrels a day, which is kind of shocking when you think about how big the oil market is, you know, hundreds of millions of barrels.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“That divergence between technical analysis, macro, what you're seeing on the chart, what anyone can really do just by looking at trading view or something like that, and the actual physical world of oil where millions of barrels of oil are being created and used and shipped every single day, that's a world that fascinates me because, you know, it's quite easy to, you can look at the price of oil and you can do a 20 day moving average on it in the same way you could do it on the S&P 500 or on Bitcoin. But unlike Bitcoin, there are real barrels that are going there. And if, you know, let's say as in April 2020, the OPEC flooded the market with barrels of oil and demand was destroyed. Oil price went negative.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“So I think, you know, yeah, and we'll kind of get into this kind of broader, the commodity context of oil and kind of what the backdrop is for all of this kind of macro tumult, but at the end of the day, that's what's driving us down. And even though oil always has to have a kind of fundamental clearance mechanism because it is a physical commodity, it is still typically sees price formation through financial instruments. And it's like the mother of all risk assets. So particularly in risk-off moments like this, you're going to get really, really violent kind of pukes to the downside, which I think is exactly what we're seeing today.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“To what's happened in the product market, to this geopolitical news, all these things can affect it. So it always frustrates me that people default to, oh, it's the dollar. But today it looks like it's the dollar.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I'm looking at Brent right now on my screen, and we're at just about 86 bucks, which is the lowest price since January, which is kind of surreal to think about that like we've not only erased all of the kind of Ukraine stuff, we're now all the way back to the beginning of January where it was this question of, you know, everyone was thinking about shale. And like that was the big thing everyone was talking about. So I think, you know, and we'll kind of get through this in totality, but I think today it's very clearly just a complete macro puke of risk assets across the board. Copper's following crude down. Crude basically looks like a perfectly inverted chart of DXY. I was saying to you earlier that this idea that it's so often you see like the kind of daily responses about what was moving oil and everyone's like, oh, it's the dollar or oh, it was macro. And, you know, there's actually a lot of things that drive oil around at any given day from the shape of the curve.”
2022-09-29 · Forward Guidance · Oil Will Trade Flat To Down Until Biden Backs Down & China Re-Opens | Rory Johnston · IDENTIFIED FROM THE TRANSCRIPT