Odd Lots

Rory Johnston on How Oil Could Surge to Over $200 a Barrel

March 10, 2026

Key Takeaways Copied to clipboard!

  • The complete closure of the Strait of Hormuz, a scenario typically reserved for worst-case industry thought experiments, is a physical supply disruption so large that market mechanisms alone cannot easily fix it, potentially leading oil prices to $200 a barrel or beyond. 
  • The immediate, extreme spike in refined product prices, like jet fuel hitting over $200 a barrel in Asia, is driven by refiners preemptively reducing run rates to extend their operational runway due to the lack of crude feedstock, rather than just crude oil pricing. 
  • If the Strait of Hormuz remains closed, demand destruction will manifest not just as higher prices in wealthy nations, but as outright shortages in lower-income countries unable to afford the inflated costs. 

Segments

Sponsor Read: PipeDrive CRM
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(00:00:00)
  • Key Takeaway: PipeDrive offers a simple CRM solution for SMBs centered around a visual sales pipeline.
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Sponsor Read: IBM AI
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  • Key Takeaway: IBM embeds AI across HR, IT, and procurement to reduce costs and free up strategic work hours.
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Sponsor Read: Cincinnati Insurance
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(00:01:30)
  • Key Takeaway: Cincinnati Insurance emphasizes personal attention and relationship-based service for navigating life’s disruptions.
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Oil Market Status Check
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(00:02:49)
  • Key Takeaway: Oil has technically entered a bear market (down 20% from its high near $120 Brent), but remains volatile, up 8% from the prior Friday.
  • Summary: The hosts confirm that oil prices have fallen over 20% from the peak near $120 per barrel, meeting the definition of a bear market. Despite this drop, the market remains extremely volatile, showing significant recent upward movement. This volatility highlights how current numbers are losing conventional meaning.
Unpriced Iran War Risk
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(00:03:44)
  • Key Takeaway: The massive oil price surge following the Iran attack was largely unpriced, despite prior awareness of geopolitical risk.
  • Summary: The market had already priced in some Iran war risk, but the subsequent surge demonstrated how much the severity of the event was unexpected by traders. Existing oil supply buffers, like floating storage, are now becoming vulnerabilities because oil cannot pass through the Strait of Hormuz.
Commodity Analyst Alarm Level
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(00:05:01)
  • Key Takeaway: Even typically level-headed commodity analysts are highly alarmed by the current situation, viewing it as one of the worst oil shocks.
  • Summary: Many commodity analysts are often perceived as ‘perma-doomers’ due to their focus on risks. However, even the least alarmist voices are expressing significant concern over the current oil shock. This event is being discussed as potentially one of the worst oil shocks ever seen.
Guest Introduction and Context
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(00:06:16)
  • Key Takeaway: Rory Johnston of Commodity Context is joining to discuss how oil could plausibly reach $200 a barrel based on the unfolding war scenario.
  • Summary: Rory Johnston, an oil expert, is joining the Odd Lots podcast to analyze the extreme market reaction. The discussion will focus on the potential for oil prices to hit $200 per barrel depending on the war’s duration. Johnston is generally level-headed but is alarmed by the current disruption.
Market Resilience vs. Hormuz Shock
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(00:06:31)
  • Key Takeaway: The oil market has historically shown resilience to shocks like COVID and the Ukraine invasion, but the Strait of Hormuz closure is a uniquely physical problem that markets cannot easily fix.
  • Summary: Prior to the recent attack, Brent crude was around $72, surging to $100, despite prior anticipation of Iran risk. The market has proven resilient to past stressors, leading some to become overly sanguine. The closure of the Strait of Hormuz is different because it is a massive, physical blockage that defies typical market fixes.
Hormuz Closure as Thought Experiment
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(00:08:37)
  • Key Takeaway: The current closure of the Strait of Hormuz is a scenario previously used only as a terrifying, illustrative thought experiment for new industry analysts.
  • Summary: The buildup of US military personnel in the Middle East was significant, but the actual event was unexpected by many analysts, including the guest. This scenario was historically used to teach new analysts how the entire system would break down. Speedrunning this thought experiment in real-time is terrifying.
Supply Chain vs. Geopolitics Analysis
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(00:09:22)
  • Key Takeaway: Oil analysts focus more on supply chain adaptations and data signals than on predicting the end date of geopolitical conflicts.
  • Summary: When massive dislocations occur, standard market signals become unreliable as they fly in different directions. The focus remains on understanding the underlying market impact of the massive supply loss. Geopolitical outcomes are secondary to tracking the physical flow disruption.
Scale of Hormuz Disruption
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(00:09:52)
  • Key Takeaway: The 20 million barrels per day flowing through Hormuz represents a supply shock equivalent to the peak demand destruction seen during the 2020 pandemic lockdowns.
  • Summary: The 20 million barrels per day passing through the Strait is comparable in scale to the demand destruction experienced in March/April 2020 when global activity halted. If the strait remains closed, the market must adjust to this loss via price signals alone, necessitating prices over $200. Product markets, like Asian jet fuel, are already reflecting this, having briefly exceeded $200.
Crude vs. Product Markets
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(00:10:58)
  • Key Takeaway: Refined product markets react first because refiners preemptively reduce runs to avoid the worst-case scenario: shutting down their complex refining chemistry sets.
  • Summary: Consumers use refined products (gasoline, jet fuel), not crude oil directly, which is distilled in refineries. The crack spread measures the premium refiners earn over crude feedstock costs. Refiners are reducing runs to extend their runway, as restarting a shut-down facility is extremely difficult and costly, causing immediate product market spikes.
Inventory Lag and Product Impact
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(00:13:24)
  • Key Takeaway: The full impact of crude supply loss will take weeks or months to materialize as existing cargoes reach destinations, but Asian product markets are immediately feeling the pinch from preemptive refinery slowdowns.
  • Summary: Crude oil currently flowing out of the Gulf will take time to reach end-users, delaying inventory drain realization. However, Asian refiners are already cutting runs due to the impending feedstock gap. Jet fuel, which typically has low inventory cover, saw an immediate price surge as airlines scrambled for supply.
Sponsor Read: Public Investing
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(00:14:03)
  • Key Takeaway: Public’s Generated Assets tool uses AI to create customized, investable indexes based on user prompts, which can then be backtested.
  • Summary: Public offers access to stocks, options, bonds, and crypto, integrating AI tools for portfolio building. Investors can input specific criteria, like ‘small cap stocks with improving operating margins,’ to generate a unique index. This allows for investing in concepts that lack existing ETFs.
Sponsor Read: IBM AI (Repeat)
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(00:16:15)
  • Key Takeaway: IBM embeds AI across HR, IT, and procurement to reduce costs and free up strategic work hours.
  • Summary: AI for business may not automatically fit existing workflows, as IBM observed firsthand. By embedding AI deeply into core processes, IBM achieved millions in cost reductions and task automation. The focus is on putting AI where it directly impacts business movement.
SPR Release Hesitancy
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(00:16:46)
  • Key Takeaway: Tapping the Strategic Petroleum Reserve (SPR) is the intended mitigation for this exact supply risk, yet G7 nations are reluctant, possibly due to political constraints or underestimating the crisis’s duration.
  • Summary: The SPR was created precisely to mitigate risks like the Strait of Hormuz closure, making the current hesitation ‘insane’ to the guest. Political entanglement, specifically the Trump administration criticizing the Biden administration’s 2022 release, may be causing reluctance. Furthermore, the collective SPR release rate cannot fully fill the 20 million barrel daily gap, suggesting early action is needed.
Potential Export Ban Dangers
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(00:20:08)
  • Key Takeaway: Renewing US export bans on crude and refined products would be a disastrous policy, leading to regional shutdowns and shortages due to complex trade imbalances.
  • Summary: While an export ban might temporarily lower US pump prices, it would cause US Gulf Coast diesel inventories to overflow, forcing refinery run cuts. The US Gulf Coast is a net diesel exporter, while the East Coast is a net gasoline importer, requiring complex inter-regional trade. Closing borders would ossify these regional imbalances, potentially creating scarcity in North America.
Duration and Compounding Effects
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(00:21:58)
  • Key Takeaway: The longer the Strait of Hormuz remains closed, the worse the situation compounds because production is being forcibly shut in and system inventories are being depleted.
  • Summary: An initial closure is like a kink in a hose that can be quickly fixed, but a prolonged closure creates a massive ‘air gap’ in global flow. Countries like Iraq have already shut in over 3 million barrels per day due to lack of storage for non-exportable oil. Even if flow resumed tomorrow, supply chains would take months to normalize due to lost runs and depleted inventories.
Demand Destruction Nuances
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(00:25:21)
  • Key Takeaway: Demand destruction from high oil prices will primarily affect lower-income countries through outright shortages, while wealthier nations will experience reduced consumer spending capacity.
  • Summary: Demand destruction has two angles: prices causing recessionary job losses, or prices being too high for consumers to afford necessities. Wealthy nations will likely pay the high prices to secure barrels, sapping consumer energy. Lower-income countries, however, will be unable to attract supplies and will face outright shortages, not just high prices.
Sponsor Read: Public Investing (Repeat)
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(00:27:53)
  • Key Takeaway: Public’s Generated Assets tool uses AI to create customized, investable indexes based on user prompts, which can then be backtested.
  • Summary: Public offers access to stocks, options, bonds, and crypto, integrating AI tools for portfolio building. Investors can input specific criteria, like ‘small cap stocks with improving operating margins,’ to generate a unique index. This allows for investing in concepts that lack existing ETFs.
Sponsor Read: IBM AI (Repeat)
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(00:29:06)
  • Key Takeaway: IBM embeds AI across HR, IT, and procurement to reduce costs and free up strategic work hours.
  • Summary: AI for business may not automatically fit existing workflows, as IBM observed firsthand. By embedding AI deeply into core processes, IBM achieved millions in cost reductions and task automation. The focus is on putting AI where it directly impacts business movement.
Sponsor Read: Wise International Money
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(00:29:36)
  • Key Takeaway: The Wise account allows users to send, spend, and receive money globally across 40+ currencies using the mid-market exchange rate without hidden fees.
  • Summary: Many transfer providers hide costs through inflated exchange rates, but Wise avoids this by offering the real mid-market rate. The Wise travel card ensures no markups on purchases abroad. Wise runs daily checks to prevent fraud and is trusted by 15 million people for transparent international transactions.
Math to $200 Barrel
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(00:30:36)
  • Key Takeaway: Prices must rise high enough to incentivize tankers to risk crossing the effectively closed Strait of Hormuz or force global demand destruction.
  • Summary: The current closure is unprecedented, as oil flowed even during the 1980s Tanker Wars with military escorts. The market must incentivize seafarers to take extreme risks or force consumers to stop moving entirely. Crude prices on the non-exporting side of the strait are effectively negative due to stranded barrels, creating a massive incentive spread.
OPEC Relevance and Russian Benefit
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(00:33:19)
  • Key Takeaway: OPEC’s spare capacity is largely trapped behind the Strait of Hormuz, making Russia the single greatest beneficiary of the current crisis by regaining leverage over Indian imports.
  • Summary: Virtually all OPEC spare capacity resides in countries whose exports are blocked by the Strait of Hormuz, neutralizing their ability to respond normally. Russia benefits as India, facing US sanctions pressure, is now returning to import Russian crude due to global supply needs. The White House even granted India a waiver for sanctions to facilitate this shift.
US Export Ban Fallout
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(00:36:34)
  • Key Takeaway: A US crude or product export ban, while initially lowering pump prices, would quickly lead to regional inventory overflows and subsequent production cuts, creating scarcity.
  • Summary: The US Gulf Coast exports significant diesel, and banning exports would cause diesel tanks to overflow, forcing refinery run cuts. This reduction would eventually impact gasoline supply, turning the US into an importer of fuels. Policies designed to avoid pump price spikes could paradoxically create outright scarcity in North America.
Post-Conversation Reflections
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(00:40:32)
  • Key Takeaway: The dynamic between product market blowouts and crude prices reveals immediate supply chain stress caused by refiners preemptively slowing operations.
  • Summary: The guest’s explanation of why product markets spiked ahead of crude clarified the immediate impact of refiners reducing runs due to feedstock uncertainty. The potential fallout includes crippling oil austerity for poorer nations and Russia emerging as a key swing producer, dictating energy flows politically.
Sponsor Read: Fidelity IRA
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(00:44:31)
  • Key Takeaway: Funding a Fidelity IRA before the tax deadline allows individuals to reduce 2025 taxable income (Traditional) or secure tax-free retirement withdrawals (Roth).
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Sponsor Read: TD Banking
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(00:45:01)
  • Key Takeaway: TD Bank focuses on making banking more human by designing products around how they help people, such as early payment access and easy card replacement.
  • Summary: TD questions how progress can make services more human in an increasingly automated world. Their product design centers on improving people’s lives through simplicity and intuition. This approach aims to make banking seamless, simple, and fundamentally more human.
Sponsor Read: Mint Mobile
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  • Key Takeaway: Mint Mobile offers premium wireless service for $15 per month, encouraging consumers to switch from overpaying major carriers.
  • Summary: Ryan Reynolds urges listeners to stop paying too much for wireless service. Mint Mobile provides premium service at a significantly lower cost of $15 monthly. This introductory rate requires a three-month payment upfront.