# $200 Oil by June?—The Biggest Oil Shock in History | Rory Johnston on The Hormuz Crisis *Author: David Hoffman, Ryan Sean Adams* *Published: Apr 29, 2026* *Source: https://www.bankless.com/podcast/the-biggest-oil-shock-in-history-rory-johnston* --- Rory: [0:00] I mean, the major factor, the reason equity markets are so high right now is Rory: [0:03] all of this enthusiasm, all this optimism around AI penetration, everything else. We are debating, you know, we have the world, we have all time high equity markets driven by the most energy intensive technology we've ever developed in the middle of the largest energy shock in history. It's a very, very funny juxtaposition. David: [0:25] Bankless Nation, we are here with Rory Johnston. He is the most cited independent oil analyst out of the Hormuz crisis. He writes the Commodity Context Substack. Lynn Alden calls him her oil quant. Rory Johnston, welcome to Bankless. Rory: [0:42] Thank you so much for having me. David: [0:42] There is a ton of material that I want to get through. Current events just command your insight and attention and podcasters do the same for all of your analysis. Rory, we've never done an oil episode before. So before we get into the meat of like the current events, there's like a college crash course speed run that we kind of want to just like get through. Kind of just to set the table because I think we're going to be asking some questions that kind of will require some of these bits of knowledge. Are you ready for that? Rory: [1:14] Please, ask away. Ryan: [1:15] Dumb questions first. Rory: [1:17] I love it. 101. David: [1:18] What is a barrel of oil? Ryan: [1:21] That's pretty dumb. Rory: [1:23] Yeah, I like that. I like that. So a barrel of oil is the unit of measure that we measure the global economy or the global oil market by. It's roughly 42 fluid gallons, which seems an arbitrary measure, but this is back in the day when oil was actually transported and shipped on physical barrels and it basically just stuck. And when we talk about the global oil market, we typically talk about it in terms of flowing barrels. And an important thing to know and remember about the oil market is that it's basically like one giant flowing chemistry set. It doesn't like to turn off. It doesn't like to pause. That causes a bunch of issues, as we will see as we get into the actual Hormuz crisis right now. But in terms of the total background of how much of this stuff we're consuming and producing daily, roughly prior to the Hormuz crisis, the world was producing and consuming roughly 105 million barrels of oil every single day. Rory: [2:22] But for ease of math, let's just say 100 million barrels. That makes all the math we're going to talk about really, really easy. And that's essentially, you know, this is the largest source of energy. This is the big one. Everything from, you know, transportation. Obviously, you know, the largest chunk of oil is used in transportation between diesel, gasoline, and jet fuel. That's over 50%. But you also have a lot of oil used in non-transportation means. Things like, you know, asphalt that goes on the road, or you have petrochemical feeds that go into plastics and other chemical processes. So much of everything comes from oil. And as we are going to feel, if this crisis in the Middle East persists, we're going to lose the marginal volume and supply of so, so many things that we've kind of come to take for granted in this kind of modern economy. David: [3:17] So just to even ask an even dumber question, when we say barrels of oil, like one million barrels of oil, a barrel of oil is, is it a unit of measurement or is one barrel of oil literally a barrel on a ship and that barrel is 42 gallons and that's actually like an actual barrel somewhere? Rory: [3:38] Back in history, they were actual wooden barrels, and you actually literally had, like, there were shortages of wood for barrels. Like, there were various points where the barrel was worth more than the oil that was in it. Like, there was this whole kind of secondary market for barrels. But thankfully, we've done away with the barrels. And, you know, now you have very large, you know, vats of oil, tankers. David: [4:00] Which is measured in barrels of oil. But the idea of a barrel is now just a unit of measurement, and there's not actual like millions of barrels. Rory: [4:10] Correct. So the largest, the normal largest tankers we have in the market right now are called Very Large Crude Carriers or VLCCs. And they carry roughly 2 million barrels of oil. Okay. So just to put in perspective kind of the volumes we're talking about. Ryan: [4:27] Okay. Okay, so 100 million barrels of oil, that's the unit consumed every day. How is this transported? Is it mostly shipping lanes? Is there some pipelines? What percentage is in shipping versus pipelines? Rory: [4:40] Yeah, so the vast majority of oil gets to its end destination by tanker, which is why, as we're going to be talking about, the shipping industry plays at the very, very core of the oil industry because of this transit. For different regions, however, you have differences. So I'm up in Toronto and Canada. The vast majority of Canadian oil gets to U.S. refineries and U.S. Consumers via pipeline. It's actually kind of a unique aspect of the Canadian oil trade that's different from most producers like even in the United States. You know, you produce a bunch of oil in the Permian Basin in West Texas. You ship that to the coast, the US Gulf Coast, and then you ship them out to tankers from there. Same with Russia, same with Saudi Arabia. Most global oil exporters export their barrels to what we call tidewater or basically onto the big open ocean. And tanker transit is generally so cheap, Again, in normal, non-Hormuz moments, Transferring oil on tankers is so cheap that you can, as soon as you get to tidewater, you're basically on the global oil market. And that's kind of what we talk about. Ryan: [5:45] And is every barrel of oil fungible with another barrel of oil? Because I've noticed there's these separate oil markets. There's like Brent crude and what's the American one called? WTI. Rory: [5:57] West Texas Intermediate. Ryan: [5:59] Yes. And these trade at different rates and such. But when we're talking about one barrel of oil as the unit of account here and the unit of measure here, is that fungible for every other type, like barrel of oil, or are there differences here that are subtle? Rory: [6:14] There are subtle and sometimes not so subtle differences. So in terms of that 100, again, we're just going to go back to the 100 million barrels reference here. The bulk of that is what we would consider crude oil specifically. But also in there you have a bunch of other what we'll call like petroleum liquids or associated products. Things like ethanol is actually counted in those totals. On the biofuel side, you also have natural gas liquids that are produced from the oil and gas sector but are typically more from the natural gas space. So the United States, actually this becomes important when we talk about the United States being a net petroleum exporter, which is a big thing in the current narrative right now. The United States remains a net importer of crude oil, but in terms of total products, the vast majority of the growth of which has been in what we call natural gas liquids. So, ethane, propane, butane, these can and are extracted from oil. In terms of volume, they're predominantly extracted, particularly in the United States, from natural gas streams. Rory: [7:13] So in the Rory: [7:13] Processing natural gas, you extract these heavier molecules. And at the end of the day, oil and gas, and coal for that matter, are basically all the same thing at different stages. They're all hydrocarbons, which are just mixed, you know, a soup of hydrogen and carbon. And the density of that, so, you know, as you go up the chains, you add more and more carbon molecules, and you go from like ethane to propane to butane. You go all the way up into things like, you know, at the heaviest end, you have things like asphaltines, which, as the name indicates, goes into asphalt. So this is the way this all goes together. But even on the crude oil side, your question, not all crude oils are the same. The most important differences on a quality basis are what we talk about the density, or essentially how many, how long those hydrocarbon chains are, and the sulfur content. So in the density, the important part here is that when we refine oil, because again, none of us consume crude oil proper, we consume gasoline or diesel or whatever else. And those are all fractions of the crude oil barrel. So in the refining process, you basically put into a big distillation tower, you heat it, and these different fractions of the barrel condense at different points in this big, huge tower. And those are, so at the bottom, You have your, you know, sludgy asphalt and fuel oil that goes into shipping. Rory: [8:35] And then in the middle, you've got your diesel and you've got, you know, your jet fuel above that and your gasoline above that. And at the top, you have these like super light gases like propane. Rory: [8:45] That is essentially how, you know, that's how oil is refined in the products. And the heavier your crude oil, the more intensive it needs to be refined to get a higher portion of those, you know, lighter, more valuable feedstocks. Rory: [8:59] So you talk about WTI and Brent. Ironically, these are actually very similar, light, sweet, global benchmark grades of crude. But for instance, the main Canadian type of crude that's exported called Western Canadian Select is a heavy, sour crude. So it typically trades at a discount to these light, sweet barrels. But that is essentially how this goes about. And I think the other important thing that we're going to get to here is that, like all commodities, in particular oil, the price you see on your screen for, let's say, a given futures price is for a particular grade of crude at a particular location at a particular point in time. And all three of those things are really important, as we will see as we continue down this conversation. Ryan: [9:42] Okay, but sweet versus sour. Rory: [9:45] What are we talking about? Are we tasting the oil? Yes, that is the sulfur content. Okay, I see. So we don't like sulfur because sulfur causes acid rain and other environmental kind of issues. So we extract sulfur from crude oil before in the refining process so it's not in your kind of end gasoline or whatever. That's what, you know, you've got a lot of this smog, you've got a lot of this acid rain back in, you know, earlier decades. But because that is essentially just an environmental pollutant. Rory: [10:16] The higher your sulfur content, Rory: [10:18] The less valuable your grade of crude is because you need to pay money to extract that from the oil. And the more sour it is? Yeah, the more sour. So we talk about sweet crudes. They have a low sulfur content. And typically, it's not always perfect, but typically a light crude, which means low density, has lighter sulfur or it's sweeter. And the heavier you go, the more sulfur, and that's when you get the sour grade. Ryan: [10:42] Let's look at a barrel of oil now across another dimension, which is the dimension of time. So is oil more or less important than it was, say, 50 years ago in the 1970s? Rory: [10:54] It's an interesting question. By some measures, it's more, sorry, by some measures, it's less important because we have grown the size of our economies faster than we have grown our consumption of oil and gas. So the energy intensity of our economy today is much less intensive than it was, let's say, in the 1970s. Ryan: [11:13] So it's much less concentrated in terms of energy. Rory: [11:17] Yes, and that's why, you know, and historically we had seen periods where like oil and gas were more than 10% of the S&P 500 index. They are a much lower percentage now because you have other sectors of the economy that are contributing more to the economic space. On the flip side, there's another way of looking at that, which is to say each barrel of oil now supports more economic activity today than it did in the 1970s. So as we get down this this road of like in one in one lens, if oil prices just got more expensive, the lower energy intensity of our economies means that it doesn't hurt us quite as much as it would have in the 1970s because we have we are making more money and an oil and, you know, you know, filling up the family minivan is a smaller portion of our household disposable income today than it was back then. But if, let's say, you start forcibly shedding demand, which is what we're likely going to need to do if Hormuz remains closed for any longer period of time, you have more and more elements of the economy that now depend on those barrels Rory: [12:17] of oil. So it's a little bit of both in a funny way. David: [12:20] I guess one of the questions would be, like, to what degree has other sources of energy displaced oil? So maybe that's another same question. Like is oil, as of all sources of energy, are we more or less dependent on oil today than we were 50 years ago? Rory: [12:38] As a portion of all energy, less dependent for sure. And what we saw, so like let's say if we go back to the 1970s, when we came out of that, we had a pretty protracted period of demand decline because of those high prices. And what you saw was shedding of kind of low-hanging fruit for oil consumption. So this would be things like oil used in electricity generation. That used to be pretty common. That's a very expensive way of generating electricity. It was much cheaper to go, you know, coming out of the 70s, you had the explosion investment in nuclear power plants, in effort gas, in coal, and in all the renewables that we now have penetrating the grid as well. So all this together has kind of provided more competition for oil, but it's also pushed oil into a kind of a more specialized niches in which it is harder to displace. So, for instance... Rory: [13:28] Now, you know, we're talking about coal or gas in competition with oil. Really what we're talking about is mainly only in, you know, in transportation as facilitated through electrification. That if you haven't electrified your fleet, there's no way that you can't put natural gas or coal into an internal combustion engine. So you need to, you know, have a step there. So if this goes on, and we haven't even gotten to Hormuz yet, but if this crisis goes on, there are more avenues through which the world will be able to invest heavily and over time diversify away from, let's say, permanently higher oil prices. You know, we've already seen China drive electric vehicle penetration to more than half of their new vehicle sales every year. We're going to see more and more countries do that as well, particularly in East Asia, where you see the kind of epicenter of the fear and concern coming from hormones. Ryan: [14:22] Rory, when I was growing up, I used to hear this idea, I think was referred to as like peak oil. this idea that at one point in time, we would sort of hit humanity, not just us, but all of humanity would hit its peak in terms of oil production and oil consumption. And then on the other side of that curve, it would start to slope downward because effectively we'd run out of oil where it would get more and more expensive to get the remaining oil in the reserves that we found. And therefore we would run out. I mean, oil is not an everlasting component. There's a limited amount of it that is accessible to us. And at some point we'll peak and run out. I don't hear as much about peak oil anymore. Is that like, why? Why don't I hear about this? Rory: [15:05] So because we have a lot of it, I think is the answer. Like, so if what's funny, one of the biggest changes of the course of my career, and I really own, like, I'm not in this that long. I really, I got my first job in the industry in like the early 2010s. When I joined the industry, peak oil meant what you're describing, which is peak oil supply. Yeah. Now, peak oil means peak oil demand. And I think it's important to kind of understand that evolution is pretty critical to how we understand the market. Ryan: [15:33] Oh, and so wait, that means like at some point in time, rather than our supply runs out, you're saying the shift has been at some point in time, we stopped demanding as much, right? Exactly. Rory: [15:44] We'll have better substitutes. Ryan: [15:46] I suppose. Rory: [15:46] Exactly. And I think, you know, back in the early 2010s and the mid 2000s, when you saw the massive run up in oil prices during 2008, 2007, 2008, a lot of that was driven by these. Rory: [16:01] Peak oil supply fears, that we didn't have enough of it, demand was growing gangbusters, and there was no possible way that we would keep up with the truly voracious pace of demand growth. But then we had this little thing called the shale revolution. Rory: [16:14] And all of a sudden, well, the United States was a massive net importer at that stage. The heyday of oil production from conventional fields was well behind us. The important thing to remember about oil supply is that it's functionally, and this is actually true of all commodities that are produced or extracted from the ground or anything else. It's essentially a competition on never ending between declining geology or basically running out of the easy oil in the ground or copper or whatever else, and then increasing technology and ingenuity and industry know-how that kind of goes the other direction. So in the case of shale, for the long time, Like we knew this stuff was there, but there was no really good way to economically extract it. And that was after decades of trial and error, generally under, you know, publicized at the time. And it was only really obvious in hindsight what we had been building towards. But there was this combination of horizontal drilling and hydraulic fracturing. And again, for those that aren't aware what this is or what we talk about when we talk about fracking, is essentially normal oil. When we talk about conventional oil, you think about oil having kind of seeped up through the ground and then getting trapped under a rock. So when we think of what we talk like some kind of cap rock or something like that, it basically stops the oil and it pools in this big kind of cauldron under the ground. I think that's what most people think about. They think like a big straw into like a jelly donut or this is the- A. Ryan: [17:44] Drink for a Rory: [17:44] Milkshake. Yeah, yeah, yeah, you drink your milkshake. It's literally exactly that. Or you have like Beverly Hillbillies, right? Where it's, you know, this is, you know, you're, you're, Dig down and all of a sudden there's a massive gusher and it's all this pressure that's going on. And it's the pressure in that reservoir that drives that production. And that's why you get these massive gushers. Shale is different because essentially you're going to effectively the source rock where that oil, if the Permian Basin gave it another 50, 100 million years, and you'd have all that oil that could have conceivably gone into more conventional reservoirs. But what we've done in West Texas or the Bakken in North Dakota is you go to the source rock and rather than these big pools, you have these big kind of sheets of shale or other sedimentary rocks, which is generally where these hydrocarbons form, but they're generally thin. So what you do with this, with why horizontal drilling is important. There's a, if people should Google this, but there's basically a, this great meme that shows that conventional oil drilling is like the jelly donut. And then fracking is like tiramisu. So it's kind of like going sideways through these layers. So because they're thin, you drill sideways. Rory: [18:52] And you pump all of this massive pressure. This is the fracking part. You fracture the rocks. And then you basically pull it up from the source rock. And this is, I think, things like this have vastly expanded global oil supply. And we've gotten so good at doing it is that it's also reduced the cost of marginal supply. So that's why we basically went from now we have all the supply. And at the same time as all this new supply was coming online, We had the energy transition that became like the primary driving objective of many Western governments. Rory: [19:25] You know, Eastern governments as well. And so basically, we stopped talking about running out of supply. And all of a sudden, it was like, okay, what if what if all the vehicles are EVs now? What does that do for oil? And then all of a sudden, you start talking about, you know, we have seen this at the pace of oil demand growth and percentage over a year over year terms, slowly declines. And, you know, who knows if this persists at this current pace. But I think the general view is that over the next two, three decades, we will see a peak, kind of a natural organic peak in oil demand. And then supply basically rationalizes itself to whatever that new demand level is. So that's this big transition between peak oil meaning supply and peak oil meaning demand. And I'd argue like the single most important narrative shift or macro level shift in the industry since I've joined. Ryan: [20:13] It's probably a good thing, right? I mean, I mean, it's probably a good thing to switch demand to a substitute rather than to run out. Rory: [20:20] I mean, absolutely. I mean, I mean, and also, even if we weren't switching demand, it's a good thing that we're not going to run out, right? Yeah. What's funny about, and I think, again, normally in this industry, and this is going to be very, I think this is important context for when I get really alarmist in a couple minutes talking about Hormuz. Normally in this industry, I'm considered kind of a bearish person for oil markets. I know most of you will think bearish means bearish stocks, but I'm meaning bearish for oil prices specifically. So I think that generally, you know, the oil market has become much more flexible, much more able to fill in for these supply holes without spiking prices. And that's good. I think that's a testament to the ingenuity of the industry, of humanity writ large. If you look at kind of the people that are permabullish for oil or really any commodity, in a way there it's an inherently human pessimistic view. It's basically arguing that our demand for these things is going to outstrip our capacity to produce them in a cost effective manner. I have a lot more optimism that people can figure out ways to do this cheaply, safely, and kind of efficiently in this context. As we're going to see when we talk about Hormuz, that I think is just such a big, gigantic, you know, dead drop. You know, we're Wile E. Coyote over the side of the cliff. Rory: [21:45] Yeah, I'm pretty pessimistic about the kind of pricing consequences of this because it's just such a big supply hole and this market just doesn't move that quickly. So even I think at the end of the day, it's one of those things like you can Rory: [21:58] either have the volume, the price or the time and it's the classic choose two of three. We're in a situation where we're not going to get enough supply, Rory: [22:08] which is why we're going to see absolute gangbuster prices if this disruption continues. Ryan: [22:14] Rory, one other thing for table stakes, which is the question that as you look at the world, it strikes me that there are some regions of the world that are hydrocarbon rich, and some that are hydrocarbon poor or constrained. Rory: [22:30] Can you map that out for us? Ryan: [22:31] Obviously, the Middle East, we know, is sort of very hydrocarbon, very oil rich. What areas of the world are rich and which are more constrained? They don't have enough hydrocarbons to support the industry that they are producing. Rory: [22:45] Yeah, it's interesting. It's like one of the interesting things about hydrocarbons is that they come from organic matter. Whereas when you're talking about copper or nickel or iron or whatever. These are reserves and kind of elements in the earth that kind of press out, but they're inorganic, right? Whereas organic matter is actually more distributed across the world than most mined metals. So oil feels concentrated, and it is in these certain regions, but relative to metals, it's actually fairly well distributed. As an example, Now, Chile is the world's largest producer of copper and exporter of copper. I haven't followed the latest, you know, couple of years. I used to cover this when I was an economist at Scotiabank. Like the classic moment, you know, comment on that was. Rory: [23:37] Chile alone accounted for a larger share of global copper supply than the entirety of OPEC accounted for in terms of global oil supply. So in minerals, they're even more generally concentrated than hydrocarbons, again, because of that organic impact and organic aspect. And plant life, and this is basically old, you know, millions, you know, tens, hundreds of millions of years old, like microorganisms were relatively better distributed throughout the world's oceans and, you know, early, early land areas than, you know, minerals were. But in terms of where, so there's the initial endowment of oil in the ground. And then there's also this element of like your willingness to produce it. A great example here being like, there is oil and gas. There is more oil and gas in Europe right now that could be produced that European governments given a heavier tilt towards energy transition and ESG and everything else have actively decided not to produce. So for instance, fracking for natural gas in the UK or other things like this. So there's a willingness to kind of pursue these opportunities as well. Also things like Venezuela, it technically boasts the world's largest oil reserves at over 300 billion barrels. Rory: [24:55] But right now they're only producing around a million barrels a day. So they are a medium, small, medium-sized oil producer, despite having the world's largest reserves and theoretically the most potential. So there's, again, this kind of juxtaposition between endowment and actual realized ability. But in terms of where the actual largest sources of supply are outside of the Middle East, you've got Russia, which is also a massive producer. Rory: [25:24] And you've got the Americas writ large. And I think obviously the United States has grown into this massive energy superpower thanks to the fracking and shale revolution. But when you look outside of OPEC generally, five countries in the Americas tend to dominate the discussion of non-OPEC plus production. And the plus is basically, they got some friends in there with Russia and a couple other people as well. But outside of that, you're looking at essentially Canada, the United States, Guyana, Brazil, and Argentina. All five in the Americas, and that is the vast majority of non-OPEC supply growth. But again, for perspective here, we're looking at ballpark, kind of one and a half million barrels a day of growth expected this year from those non-OPEC countries. Relative to right now, the volume of supply loss we're seeing in the Middle East is 13 million barrels a day. So we will see growth of supply elsewhere. It's just not enough. It's like that kind of, you know, the, you know, the guy in the back of the Jeep in Jurassic Park, and he's like, must go faster, must go faster. That's the type of crisis word right now. I see. David: [26:30] I see. A few last terms just to get through before we can get to current events. What is spare capacity? Rory: [26:36] Yeah, good question in this context as well. So spare capacity essentially is the ability, the active ability, and there's technical definitions for this. And it's basically like, if you can, capacity you can activate, you know, within, I think it's within 30 days and maintain for 90 days. And essentially it's capacity that you're holding in reserve, not pumping into the market. David: [26:57] And that is production capacity. And so like you could produce at 100% in theory, but like you only choose to produce at 75% for some reasons. And so you could choose to unlock the remaining 25% and that's spare capacity. Yeah. Rory: [27:12] Exactly. Now, the vast majority, it's weird, right? Because if you think about, let's say, U.S. Production, U.S. has no spare capacity because the United States has a bunch of atomistic, individual, competitive private sector actors that just determine the overall level of U.S. production growth. Whereas in Saudi Arabia, one company, Saudi Aramco, has a monopoly on all production. And Saudi Aramco is a personally owned asset, essentially, of the king of Saudi of the royal family. So one guy, the head of Saudi Arabia, can determine, can decide how much is produced. So that's OPEC's main job. And the OPEC stands for the Organization of Petroleum Exporting Countries. And it was designed to attempt to add some market management to this element. And the main way they do that is by deciding by policy choice, rather than by pure kind of economic incentive if they're going to produce more or less. So they had, for instance, through COVID, at the beginning of COVID, they basically cut production in April of 2020 by nearly 10 million barrels a day, roughly 10% of the global market. And they did that to kind of help save the market from itself. You know, demand had collapsed. And if they had not done that, we would have overrun all of our storage tanks and oil prices would have gone even deeper into negative territory than they actually did. Rory: [28:36] But generally, you know, Rory: [28:37] Saudi Arabia, the UAE, Kuwait, these countries tend to hold some amount of their total production capacity in reserve with the idea being that they – and they view this not just as an economic asset but as a geopolitical and a diplomatic asset because they have power by saying that we can increase production if you need it. Or better watch out, we can cut back production. It's a political playing. David: [29:05] Card for them. Exactly. Yeah, yeah, yeah. Okay, inventories and the buffer system is also a relevant variable in order David: [29:13] for us to understand current events. Can you explain this? Rory: [29:16] Yes. So I think it's important to start with the term stocks and not the kind of like equity stocks, but just like stocks in a view of the oil market is basically a stock and flow model. So the flow is production and consumption and a stock is any barrel between being produced and being consumed. So that includes, for instance, oil on water, which is basically all the oil in tankers floating around the world's oceans. In total, we have roughly 8 billion barrels of stocks. Rory: [29:51] Which is a big number, Rory: [29:52] Right? That's like, and these numbers are gonna become more important later on. It's a big number, but not all 8 billion of that is properly considered inventory that's usable and accessible by the market. So oil and water is an example. In terms of normal operating procedure, you can't have an oil market without oil and water. And your first question was how much oil gets to, you know, the market by tanker versus pipeline or whatever. Of that, you know, roughly just over a billion barrels of oil is floating in the world's oceans at any given time. And if you drew down those oil and water stocks, in this sense, to zero, the oil market's dead. So you can't do that, right? You have to be shipping this oil around. So that you can't really draw down in a structural way to kind of cover this buffer, right? Rory: [30:38] Same as all the oil and pipelines, technically considered a stock. You know, if let's say you have a barrel of oil traveling from, you know, Hardesty, Alberta, down to Houston, Texas, that takes a month or so. And the entire time that barrel is in that pipeline system, it's considered a stock because it's been produced, but it hasn't been consumed. Then you have strategic stocks like the SPR and everything else. And then finally, the most important thing we talk about is commercial inventories. And that is the element that I think is the important piece. But relative to, let's say, 8 billion barrels, OECD commercial inventory, so these are the visible stocks and advanced nations that we tend to watch and tend to be best related with the price of oil in an inverse relationship. Rory: [31:24] That's more like two and a half to three billion barrels. Rory: [31:28] So when we're going to talk about, and as I will say later, we've already guaranteed the loss of roughly a billion barrels of oil in this Hormuz crisis. If that fell entirely on OECD commercial stocks, which it might not, but if it did, that would take between, you know, between, you know, a third and upwards of 40% of total commercial stocks in this crisis, which would be extremely bullish for prices. David: [31:55] One last question, but I think we can actually bridge into current events here. David: [31:59] So feel free to use current events to kind of illustrate why this is important. The question is, why are oil futures important, integral to the actual oil market? What does the futures element do for everyone? Rory: [32:12] Great question. And remember at the beginning when we were talking about how all oil is priced for a particular grade in a particular location, and importantly in this context, at a particular point in time. So when we look at our screen right now, we look at the price of Brent crude. That is not the price of Brent crude, or typically the price that you see if you just Google it. What you will get is the prompt futures price, the front month of the futures curve, and, And currently for Brent, that's trading for June delivery. So that's two months out from where we are today. Rory: [32:44] That is essentially, it's a financial derivatives contract. Historically, like they grew out of a need for hedging. And importantly, the shape of that futures curve. So if it is downward sloping, we talk about it in backwardation, where there's a premium on near-term deliverable barrels relative to later dated deliveries. That is, I think a lot of people are looking at it like, wow, that must be bearish, right? For bearish for oil, because the market says the price goes down over time. But it's actually, importantly, the inverse. And the reason for this is it's less that the market is saying that future barrels will cost less. And it's more saying that today, we are charging a steep premium for spot deliverable barrels, what Bloomberg has called ASAP barrels. So the inverse of this, contango, where you have discounts on current prices relative to future day cargo, so the curve is upward sloping, is typically when we have a surplus, way too much oil in the market. And the logic here is essentially that when we have too much oil, we need to do something with it. We have to put it somewhere. It has to go into storage. It costs money to store oil. So what the contango curve does is essentially creates an arbitrage opportunity to say, if you have tank storage available or you have a lease on a tank or something, you can buy a barrel of oil in the spot market. Rory: [34:10] Hold it for, say, Rory: [34:11] Four months. And as long as the difference between the price of spot crude and the price of futures for four months from now is wide enough to account for the cost of storage, the cost of insurance, cost of financing, you essentially have a risk-free arbitrage opportunity here. And that's how the market keels itself and fills in, either fills in, or in this case, absorbs oversupply or fills in undersupply. So the logic is a little fuzzier when we're in undersupplied markets like today, but that premium on spot deliverable barrels both gets rid of any financial incentive to store the barrel and actually creates essentially an economic opportunity cost to hold inventory and storage. Because if let's say you had a barrel and you didn't need to refine it this month, you could sell that barrel to the market, buy the same barrel back next month, and essentially rent your barrel to the market, and you can pocket that arbitrage, and then you basically get free money, a rental fee, and you get your barrel back physically. So this is how the market changes this or incentivizes this behavior. So in backward-dated markets, you're incentivizing drawdowns. And in surplus, contangoed markets, you're incentivizing builds and inventories. It's essentially how you get to the stage of back to those commercial inventories. All the rest of the – most of the other stocks in the system. Rory: [35:36] Are being driven Rory: [35:37] For, strategic, policy, or operational reasons. Commercial inventories are the ones that are essentially being driven by that economic incentive that manifests along the futures curve. David: [35:49] So we are currently in backwardation right now. Should any of you listen are paying attention to this amazing college course that we just got in 37 minutes. Thank you for bearing with us. But that was extremely, extremely helpful. So we are currently in backwardation. As no surprise, We had this supply shock of oil, closure of the strain of Hormuz, a very large artery of oil going to the rest of the world. So when that artery dries up, all of a sudden the net amount of oil left is demanded by more people. So we have, you know, higher prices in the near term because people would need their oil now. Rory, I'm kind of getting, since you are Lynn Alden's oil quant, you're the world's oil. Rory: [36:26] Very, very generous of Lynn. Eternally grateful to Lynn for that endorsement. David: [36:31] I want you to check my assumption here. Sometimes when I'm trying to have my finger on the pulse of the market, I wake up, I open up trading view, I look at the S&P 500, I look at the indices, I look at the 10-year yield, I look at WTI, I look at Bitcoin, and I'm just trying to get a lay of the land. Since you're the oil quant, is the oil term structure, the curve, whether we're in contango or backwardation and how severe is it, Is that kind of your how much time do you spend looking at that curve and how much information does that tell you more? Rory: [37:05] I spend more time looking at term structure or the shape of the curve as we discuss it than looking at the flat price of oil, which is basically the price on the screen. Right. So if you were to transport me, you know, 100 years in the future and I knew nothing about the environment, but we're still using oil. And if I looked at the flat price of oil. Rory: [37:23] I don't know what inflation has been doing. Rory: [37:25] I don't know anything about what anything this is going on. So I don't know what, like, let's say $100 or $1,000 a barrel or whatever that is. I have no idea what that means in my context. But I would look at the shape of the futures curve. And if we were in backwardation, I'd be like, whoa, the market's tight. And if we were in contango, I could say, hmm, the market's loose. So when you look at, for instance, you can look at, you know, what we call the prompt time spread, which is essentially the spread between the first and the second contract on the futures curve. On your Bloomberg terminal, whatever, if you look for Brent, you know, COCO commodity, CLCL commodity for WTI. That is, I actually think, you know, the thing I watch even more closely than the overall price of oil, because it tells you much more about what's going on. And for the record, those prompt times, our prompt backwardation through this crisis has hit all time highs, like never before seen in the history of the market. At one point, it was early April, WTI prompt spreads at one point hit their all-time high of $15 a barrel, which means that when oil was, you know, trading at that stage around. Rory: [38:33] Like $100, you were effectively getting a 15% monthly yield if you wanted to rent that barrel to the market for a month. That's an extraordinary financial incentive to release your barrels to the market. And that's essentially exactly what we're supposed to do. Now, we've come off a little bit from those levels. Those were extremely spiky. And surely, there's a lot of spikiness and dislocations in these markets that are going on with a crisis like this. But that is, you know, even right now, Brent prompt spreads are sitting at between $6 and $7 a barrel, which means that June is trading $6, $7 a barrel higher than delivery in July, which is just saying, give us your inventories because we do not have enough oil in these spot markets. Ryan: [39:17] So to be clear, Rory, when you look at the curve right now, what's it telling you? Rory: [39:21] The curve right now, all it's telling me, we're really, really freaking tight. And I should also say that I mentioned like the prompt Brent future, futures contract is for June delivery. That futures curve actually extends even further into present real time, right? That one thing that other people may have heard about is this, people have been discussing this widening split between physical and financial oil prices. I generally think that is to a degree a thing that's happening, but it's generally a misnomer, I think, as most people understand it. What we're really seeing is further, you know, exploding of that backwardation. That if the prompt futures contract, which is the front of the curve, is two months from now, what about a barrel today? What about a barrel 10 days from now, right? Those will commend, you know, the futures curve, that backwardation, keeps going from the financial futures into the physical market. So the closer you are to a spot deliverable barrel, the more expensive you are. So Dated Brent, which is the kind of the main physical benchmark for the global oil market, it is essentially for barrels that are for delivery 10 to 30 days forward. Rory: [40:31] The day of, it was at April 7th, the day that we had the ceasefire signed, that barrel for dated Brent hit an all-time high, nominal, all-time high of more than $144 a barrel. And on top of that, you had physical delivered premia of something like $20 a barrel. So in that beginning of April, we were seeing Brent barrels trading for the equivalent of nearly $170 a barrel, even though the highest we got on futures were like $119. So I think that this, again, people are like, oh, this is evidence of manipulation or whatever. And there could be manipulation in the market. I'm not saying there isn't. I have not seen strong evidence for it. But what we're seeing there is not some kind of evidence of manipulation or some kind of, you know, sanguineity of paper markets or physical. Again, it's just saying that, like, look, we've got this massive deficit in the market. Give us the barrel. I don't want your barrel in two months. I don't want your barrel in June. I want your barrel today. And that's what the market's basically screaming at everyone as much as they can. Ryan: [41:34] So if the markets are screaming, if the markets in your words are really freaking Ryan: [41:38] tight, can you dot, dot, dot and help us understand what that means for everything else in our lives? So what does this mean for the future price of oil? What will that mean for inflation? What does this mean for the economy? What does this mean for the stock market? I realize as I'm getting into all these questions, I'm just asking you to do a theory of everything for us. Rory: [42:05] First of all, what's going to happen? Yeah, exactly. What are the downstream implications. Ryan: [42:11] I suppose? That's the overarching question. For other markets and for our lives as investors, as participants in the global financial system, as just regular people, what does all this mean for us? Rory: [42:24] Yeah, so I'm going to answer this briefly now and revisit it at the tail end when we get into like the meat and potatoes of Hormuz crisis in particular. Essentially, higher oil prices today, I mean, the most notable impact is going to be an erosion of consumer spending power, you know, disposable income. When you have less disposable income to spend on things, there's less money flying around the economy. And that is generally when we typically talk about high oil prices and recessionary risk, that's normally what we're talking about is that it's not, people generally believe it to be not that price elastic. So it's not like you're going to consume a lot less if it's 20%. If you go to the gas station, it costs 20% more. Do you consume 20% less or you just kind of pay the 20% extra, right? I think that's how most people in advanced wealthy economies interact with energy prices. So then it just goes to, it's effectively a tax hike on consumers that we have to deal with it anyways and we just have less money to spend on eating out or babysitters or whatever, if you can tell what I haven't done in a very long time. Ryan: [43:28] Eating out or getting a babysitter. Rory: [43:29] But I think that that's how we normally talk about it. Now I think we should talk about how it's currently manifesting in Hormuz because I think, again, I have never quite seen a crisis like this in timing, in scale, political, jawboning, everything in between. It's kind of a new thing and we're still trying to figure out how it's trading. Ryan: [43:53] Yeah, let's talk about Hormuz then. Where do you want to take us in this? I think bankless listeners and those paying attention to current events are kind of aware of what's going on in Iran. They're aware that the Strait of Hormuz is in contention, that it's, I believe, closed at the moment. But what does this mean? I guess bring us through the last, I don't know, 45 days or so and where we are right now and what all of this means. Rory: [44:17] Okay, so we are now in week nine of the Iran war and the closure of the Strait of Hormuz. Prior to the war, the Strait of Hormuz was the single most, and arguably still now, the single most important maritime choke point in the entire global oil market. It essentially is the gateway to virtually all Middle Eastern oil production. As we were discussing earlier, That's a lot of production. Prior to the war, every day, roughly 20 million barrels of oil transited the Strait of Hormuz. So roughly going back to that 100 million barrel a day market, roughly 20% of supply came through Hormuz. Of that was roughly 15 million barrels a day of crude oil and 5 million barrels a day of products. So this is some mix of gas condensates, some of the NGLs we talked about. They were going into Asian petrochemical facilities. As well as a middle distillate, so diesel, jet fuel, et cetera, that largely went to East Africa and up into the European market. When that stopped... Suddenly that normal spigot of 20 million barrels a day was cut off. David: [45:25] It was cut off 100%, went to zero, or like, is it leaky? What do we know about that? About 90%. Rory: [45:30] About 90%. And I think one of the weird things about this crisis was that Iran continued to export the vast majority of its oil that it was exporting prior to the war. And again, if you had asked me three months ago, is Iran going to successfully close to the state of our moves, is that absolutely not. And then second question, if they did, and the U.S. Navy was like floating in the ocean right on the other side, would the U.S. Navy allow them to continue exporting oil? I'm like, of course not. And both of those things have obviously been very, very wrong because both they successfully closed the strait and the Trump administration trying not to exacerbate the crisis didn't want to clamp down further in those oil supplies, you know, the trickle that was still getting through. In addition to that roughly million and a half or two million barrels a day of oil that Iran was still shipping through the strait, You had other offsets, and I think there has been successful rerouting of some portion of this lost supply. The most notable piece of this is the Saudi East-West Pipeline, which transits around 4.5 to 5 million additional barrels from the Gulf side of Saudi Arabia to the Red Sea. And the pipeline has a total capacity of around 7 million barrels, but you already had 2 to 2.5 going west prior to the war. Your additional switching from that $20 million of normal Hormuz flow was more like $4.5 to $5. In addition to that, you also have a pipeline that goes out through the UAE and pops out at the major kind of regional port of Fujairah on the Omani coast. Rory: [46:59] That, I think, is on the Gulf of Oman. Rory: [47:02] Between all of these offsets, you roughly go down from that 20 million barrel-a-day number to roughly 13 million barrels a day. Rory: [47:10] And that is currently the volume of oil that is shut in forcibly in the Middle East. And when we talk about shut-ins, basically, it's because you can't get new tankers to fill up. So basically, when they stopped being able to fill new tankers, they started filling domestic inventory. And as soon as domestic inventory filled up, again, you can't just spill it onto the sand. So you basically have to shut in these wells. And that is essentially that basically was peaked out by mid-March. So every day since, we've been losing 13 million barrels of oil from the global market that we thought were going to be produced this year that now haven't been. Rory: [47:47] In total to date, that volume of unproduced Gulf oil stands at around 600 million barrels. Rory: [47:54] If, and because these things take a while to restart, it's not just flipping a switch and you go back to 100%, kind of ramping back into it, that's probably gonna take weeks to months. In total, if Hormuz restarted and we started the, you know, opened wide completely on May 1st and we started those production restarts on May 1st, the total volume of oil lost from the market will be about estimated roughly a billion barrels. Going back to my comment earlier about that's kind of the baked in guaranteed loss supply already. As this goes on, that continues to accumulate. If we take, let's say it doesn't open May 1st, but it opens June 1st, add another 400 million barrels to that total. And that's every single month. So when we are thinking about total global stock, commercial stockpiles from the OECD, two and a half to three billion. Rory: [48:44] We cut into that pretty quickly. The market is not built to draw stocks at this pace for this long, which is why the longer we go on, the higher and higher prices are going to be forcibly driven because as we mentioned earlier, supply can't fill in fast enough. And if you don't have supply fill in fast enough, if you keep demand the same, you draw stocks down to unsustainable levels. Eventually prices need to rise to destroy demand. And that's functionally what this becomes a crisis of is, okay, we need to kill basically 10 plus million barrels a day of global oil demand, how do you do it? We did that during COVID, which is the last time we, the only other time in history we've seen any kind of demand loss like that. And that took a global kind. David: [49:26] Of one second. There was also a third variable, you know, an extraneous variable coming in. And it was forcible, Rory: [49:31] Right? And people are like, oh, well, we did that before. Well, first of all, oil prices were really low during COVID, as we've now discussed, because the forcing factor was government policy that reduced demand. We didn't reduce supply. So in the economic consequences calculus, COVID was hard, but one, it was a demand crisis, so you had more ample opportunity for government stimulus, but also you had cheap oil. Like, you know, the whole thing at the time was everyone was buying furniture and all these durables, right? If we remember back to the Ever Given stuck in the Suez, right? And all this kind of massive boost and, you know, services spending collapsed, but durable spending exploded. That durable spending was all facilitated by cheap diesel, cheap jet fuel, all of those stuff. Now, if we do this again, we would be experiencing a similar type of supply chain bottleneck, but without the benefit of cheap energy. And in fact, we have much, much more expensive energy down the road. Right. Rory: [50:27] So with the lessons that we all just got, David: [50:30] We have this like stock that has been drawn down on like by a significant amount. I would take it would take it would take it would take like a long time of production to return an extra billion dollar billion barrels of oil to the market. I know that some amount of production has rerouted, as you said, in the Middle East, but also to the Gulf of America, Gulf of Mexico. And so there's been some amount of buffering as a result of that. But kind of reading, hearing your tone and reading between the lines, Rory, it kind of sounds like we kind of have a date with Destiny, unless the Hormuz straight opens up again and we can quickly get things back online again. Kind of hearing that like there's going to be a moment in which something happens and all of a sudden there's just like a price re-rating in oil because all the stock dries up, all the reserves dry up, and like something needs to break with the Rory: [51:20] Price of oil. David: [51:21] Is my interpretation correct here? What do you think about the incoming price action in oil? Rory: [51:26] I think that's what myself and most other oil analysts I speak with are expecting. I think that said, if you had asked, again, if you had asked most, you know, your average kind of at least good oil analyst a couple months ago, before this war, would hormones be closed? Rory: [51:42] No. Rory: [51:43] If it was, let's say for two months, where would oil prices be? Their answer would not be $100 a barrel. Their answer would be much, much higher. And I think the other weird thing about this crisis is how low oil is in the scheme of the very, very real loss in supply we've already kind of guaranteed. The piece I wrote last week at commoditycontacts.com, I encourage everyone to subscribe. David: [52:09] Link in the show notes. Rory: [52:11] It was in the, I called it the sanguine straight stoppage. Like trying to meet the market on its own terms. Why is the market, in my mind, underreacting to the oil price? And I think there's a combination of three factors. We'll go, you know, so the first one, I think a real tangible improvement in the outlook was the ceasefire that was signed on April 7th. I think while we're talking about how unsustainable the current situation is, it's important to stress that that was not the worst-case scenario. That was the steady state, but the worst-case scenario, because we were talking about restarts being weeks to months, right? If Iran started taking pot shots at major oil projects, you know, actually hitting them directly, that's not a weeks-to-months type of repair. That's a months-to-years type of repair. And that is when we got, that's when the situation would go truly apocalyptic. If that 13 million barrels a day was offline guaranteed for like a year, yeah, that's a wholly different situation than a market view that markets can say, OK, we can see this reopening at some point or we're hopeful. So maybe it's not going to pass. Like if these things were actually blown up, Rory: [53:17] then it's a different story. Yeah. Ryan: [53:18] What's a pot shot look like? Is it like bombing an oil field? Rory: [53:21] Yeah. So as an example here. So we actually have one example of this happening in the war that I think is illustrative. So in mid late March, the Israeli Air Force hit. The Iranian natural gas project at South Pars. So it's major natural gas project. Iran immediately retaliated by basically striking repeatedly the Qatari-Roslofen LNG facility, which we've been talking about, again, weeks to months of recovery for most of these oil production assets from shut-ins. The Qatar Energy CEO told Reuters that this attack was expected to reduce Qatari LNG export capacity by 17% for up to five years. Wow. And that is the type of thing, Like that's when things got really hopping. Like that's when risk started rising dramatically was, oh my God, what if they do that to an oil project? What if they do that to Abcake, which is like a nine plus million barrel a day oil processing facility that Iran proved it could hit in 2019 because it actually did hit it in 2019, but it very specifically tried to hit things that were easy to repair. So it was like, we can do this. We're not doing it for real, but just a heads up, we can do it. Rory: [54:31] So this has Rory: [54:31] Always been this kind of lingering risk in the background that like, Yeah, that was a big part of like the tail risk here. Even a 10% chance of that was worth a lot on the upside. I think that's the one thing that did change that was truly a fundamental improvement in the outlook. The other piece of this, okay, two of three, is these verbal interventions in the market by the White House, by President Trump himself repeatedly. On the ninth day of the war, he said, the war is basically over pretty much, like and prices dropped $30 a barrel that day. So when you're a futures trader, and again, I don't trade futures, but if I was a futures trader, Would I be comfortable holding a Brent prompt crude contract at $110 a barrel? Maybe not. Because even though the fundamental upside is pretty clear, as we've been discussing, empirically, in terms of realized lived experience of these traders, there have been six to eight moments over the past six weeks where you've had Trump wake up, post something on ProSocial, and all of a sudden crude's down $15. Ryan: [55:35] Is this like the taco factor? Rory: [55:37] Essentially, right? This is this belief in the market that on Trump say so, it will end. And I think part of that is real, but so far he has obviously not. It's been seven weeks since he first said the war is pretty much over. And it's not over, and Hormuz has remained closed. But I think if you look at the trader psychology aspect of this, if you see a lot of risk holding a prompt futures contract at 110, well, it's even riskier at 120, right? You have that much further to fall. So there is a behavioral aspect of this that I do think that the White House's interventions have both spiked volatility, which is make generally more expensive to hold these positions for most of these market participants, and injected a lot of near-term downside risk to holding these positions, even if your fundamental view is like, sure, fundamentals are going to keep grinding away, but like, can you afford, you know, like three or four kind of jawbone absolute obliteration, you know, rounds to the downside during this period? it's not as certain, right? And then the last thing I'll say is the final thing I'll put in here is that. Rory: [56:41] As we were talking about the futures curve earlier, one thing I stress is that the oil market is actually really bad at being forward-looking. It only really deals with things in the here and now, which is the same. Again, the futures curve is not about saying something is going to be cheaper in the future. It's about saying something is worth more today. And that's the difference, right? And so to a degree, I think my disbelief, my shock that the market was not pricing this disruption more sharply, more quickly could have actually been like a violation of my own cardinal rule. I was expecting the market to anticipate this supply loss. Rory: [57:18] And I think I, Rory: [57:19] As I frequently argue prior to this, and I'm now kind of coming back, you know, relearning my own religion on this, is the market's not going to fundamentally react until it sees the inventories drawdown. And again, this is, I think, already a true factor. and then any additional appetite there would have been to try and anticipate the future has been thoroughly snuffed out by all of those verbal interventions. So my fair value model that I published in that piece on the Sanguine Straight Stoppage basically showed that you can make a case, a pretty strong case, that because we went into this, we had an oversupplied market, we had high stocks. There's an argument that by mid-April, $100 a barrel on prompt rent was probably about reasonable. But using that same model and projecting forward into June, another kind of, let's say, even just half of the net draw in inventories goes to OECD commercial stocks. So let's say 5 million barrels a day of net draws. That puts us near $200 a barrel by the end of June, should this persist. Not saying that's exactly where it's going to go, but I'm saying that's a fair value model based off historical relationships between the price of Brent crude, the structure, the level of backwardation, and the level of commercial inventories we see in those OECD storage tanks. And so basically, if this keeps going, we're only going to keep grinding higher from here. Ryan: [58:37] Rory, the way you lay it out makes perfect sense, and I understand why you're analyzing it this way. And yet, and yet, whenever someone points to the market and says, no, it's the market that's wrong. It's not me. they haven't yet priced this in. I mean, are we underestimating markets? I mean, shouldn't markets be incented to price in everything that you just said? And it's not that they're, you know, looking at the short run, looking for the fundamentals to click. I mean, market participants are smart. Is there another explanation? Like, I almost want to run the scenario of like, what other explanatory force do you think that's maybe outside of your hypothesis, But the strongest counter argument can you make that this is actually what the price of oil should be? Like the market is actually accurate here. And maybe I'm overweighting the concern here or the supply constraints here or the demand or something in your models are actually wrong. What's the strongest pushback argument that you've seen? Rory: [59:38] So I think there's two ways to do this. The first thing I'll say is that I actually think, again, that argument put out in that piece, my whole point was to kind of steel man the market reaction. So that was, in most of that, that was kind of taking the market at space. Because I agree. Normally, I'm in this place of like, again, I'm normally a kind of a bearish person in the oil market. You're like, oh, the market's not believing this. The market's wrong. I'm like, no, no, no. You are very clearly wrong because the market price is thus. Ryan: [1:00:03] And by the way, whenever you say bearish, you're saying you think the oil price should be lower. Rory: [1:00:07] Yes. Oil is lower per barrel. Given that you guys are probably more macro market, typically more associated with equities. Right, yeah. But I think, so normally I'm kind of entirely in that camp. And again, I think that the argument I was making earlier is I actually think through that pure structural lens of the market isn't forward looking at just real, it just deals with what's here and now. The $100 is plausible in this market, but that should this persist for another two months, that's when we get to those really kind of frightening levels. Because again, we went into this with surplus supply, high stocks, there was a lot of things, there were buffers there, and that we could swallow a bit of this before things got kind of dire. But I think if we wanted to like steel man like the best case against my position writ large, essentially what you'd have to do is you'd have to take aim at that 13 million barrel a day shut-in number. Is if that's not what shut-in, let's say it's half of that, then yes, it would be far less bullish for oil prices. So far less oil price positive. Rory: [1:01:11] How could that happen? Well, you could have a bunch of invisible barrels, and invisible in the statistical sense, making their way to market through some kind of smuggling routes that we're not seeing. There have been discussions, for instance, of some Iraqi crude that is being literally trucked to the Mediterranean border, up towards Israel, or other routes like that. There are Iranian oil that people have been discussed, they're going to rail it to China or whatever. These barrels are harder to track, But they're also, like in the Rocky case, we were talking maybe 80 to 120,000 barrels a day versus four plus million barrels a day of a Rocky crude shut-in. So there are ways that you can have leakage around the thing, which is why typically I'm not specific around we have exactly 13 million barrels, roughly. Ballpark, we have 13 million barrels a day shut-in. Obviously, everyone has an economic incentive to get those barrels out of there and find a way to market. Rory: [1:02:06] We have not seen, but to validate that, we also don't see some kind of mysterious barrels being imported because we're watching imports of tankers, we're watching oil and water, we're watching all these things. So even if these barrels were sneaking out of the country somehow, we would expect them to be showing up somewhere in the balance. As a mystery, sure, but we should have that being seen somewhere and we're just not seeing it. Like as of early April, global visible inventories were drawing by roughly 10 million barrels a day in terms of total, sorry, not in various, total stocks. So that includes oil and water and everything else as well, which is what we'd expect in this, if this crisis was that the level that I expected it to be. Another way that you could argue that there is not, that, you know, kind of take another kind of, from my perspective, a bearish kind of swipe at the kind of oil bill. Rory: [1:02:59] A price negative SWOT would be to say, look, we've had far more demand destruction than you're banking for. Rory: [1:03:07] That, sure, we've lost 13 million barrels a day of supply. I'll entirely agree to that premise. But we've actually, maybe we've already lost seven, eight million barrels a day of demand in Asia. So therefore, you're not drawing stocks in aggressively. Therefore, you're not going to get those really, really low inventories that are going to drive those prices higher. I think this one is more plausible than the supply side argument, because on demand, we don't have really, really high frequency data. With the supply side, we can watch the ports, we can watch the tankers. But like on demand, we're talking about hundreds of millions of individual consumers that are all making their own choices. And that's harder generally to observe. The other thing I will say is that when we talk about demand destruction, we often, people muddy together what that means. So I think the two main ways to understand demand destruction are price elastic demand destruction. So that's like, you know, the price of gasoline in the US is four or five dollars a gallon. Maybe I'll take a bike or I'll take the bus or whatever, right? That is one level. Rory: [1:04:13] It happens to a degree, but it is typically pretty limited. Normally, when we see demand destruction, particularly in advanced economies, it's more income-elastic demand destruction. So that's less the price of oil is expensive, or the price of gas is expensive to take a bike. It's the price of oil has stressed financial markets and macro conditions and lifted interest rates. So the company I was employed with went bankrupt, so I don't have a job anymore, so I don't need to drive to work, right? That's more that side. That's typically more common when we're talking about like if high oil prices prompt for recession, recession takes away demand, oil market balances. That's how we'd normally expect to happen. In the current crisis, we have this third weird intermediate step where it's not so much that you've had price elastic demand destruction. You have had some of that probably, but it's that the sudden dead stop of supply flowing largely to Asia, it hits so momentously at that exact moment locally. Rory: [1:05:11] That even if you would pay anything for that barrel of jet fuel, let's say, there's just not a barrel of jet fuel there. And that over time, if this crisis persists, you will see the global trading system arbitrage the barrels from the areas willing to pay the least for it to the areas willing to pay the most for it. But that process takes months, right? These tankers, you know, the big point we've been making with oil markets and the kind of lagged impact from Hormuz, is it only last week, the last tankers that left Hormuz before the war finally reached their destinations. So some of those were on the water for nearly two months, getting to where they were going. So that took time. And it also takes time to say, like, right now, we were talking about, like, the huge flotilla of tankers that were heading towards the U.S. Gulf Coast. Rory: [1:06:01] That is, there's no additional supply being created. Rory: [1:06:04] There's no new production being produced in the United States. What those tankers are doing is they're going to the United States to take those barrels from North Americans who are currently less willing to pay a higher price for them to Asia where people are desperate and willing to pay a way higher price for them. So this is how the market will gradually smooth out those kind of supply deficit imbalances between regions with price being the main kind of moderator. If you leave this system to run without Hormuz for, let's say, a year, I would not expect to see that much demand destruction in advanced economies. North America, Europe, Japan, Korea, even China. And that's because these economies have a high propensity to spend and a relatively low price sensitivity. Again, no matter how much gas costs, I'm probably driving my kids to school. Like, you know, that's in the ski of my life, you know, okay. David: [1:06:57] The kids are getting out of the house. Rory: [1:06:59] Right. So I think that is like, but if I wouldn't say that if I was living in a much poorer country and I had far less disposable income. So over a long enough period, if we needed to destroy, say, 10 million barrels a day of demand. The bulk of that demand shedding, that forced loss, would be borne by poorer countries in the global south, which essentially their marginal consumer will not be able to pay the prices required to attract that kind of tanker that's floating around on the ocean that would balance their supply and demand to their border. And instead, that tanker will go to North America or Europe or Japan or wherever. So that, I think, is another element that there's obviously, you know, in all crises, the poor hit hardest and energy crisis. We always talk about the most regressive tax increase. Rory: [1:07:49] This is that just on a global macro scale. Ryan: [1:07:52] Okay, but isn't the big thing here, so if the case that you just made, which was the counter case to your case, which is that oil prices have topped and they're going down from here or they're not going up higher, if that's partially dependent on, you said, leakage and what people think about leakage, what people think about demand destruction, isn't the bigger variable Rory: [1:08:12] Here and maybe the biggest Ryan: [1:08:13] Variable that the markets are telling us right now is that the market believes that the strait will be opened? that this war will just like not last very much longer. It's essentially back to kind of the taco type of language. And when you look at the oil price right now, that's what the oil price seems to be indicating. Also seems to be what the stock market is indicating, the S&P and the NASDAQ, they've resumed all-time highs. Isn't the market just telling us that it doesn't think this war and the strait will remain closed for very much longer? Isn't that the big takeaway? way. And then you have to kind of ask, this puts on your geopolitical hat. It's like, if you think that is the case, and that's the big factor in terms of where the curve is going, where oil price is going, where everything is going, then doesn't it become a question of, okay, when is the straight going to open or not? Isn't that the big variable here that we really need to factor in? And I don't know if we have a hope of understanding the answer to this question, Rory, but it seems like the market is pretty convinced it's going to be short. Rory: [1:09:18] So I would say it's true. And it's been true since the second week of the, since the first week of the crisis, since like day three of this. And again, I was in that camp. And I still believe that when this ends, it will end by a taco, some permutation, some taco type. David: [1:09:35] It always ends with a taco. Rory: [1:09:36] Right? And I think what we mean by that, I think it's important to kind of parameterize what we mean by taco in this, because I think it's come to mean so many things, kind of in different circumstances. What I really mean is that Trump will be forced to make some concession by external market pressure. That if we look at three major participants in the war, Israel, Iran, and the United States, two of those, Israel and Iran, are not really influenceable by market pressure. They have far broader geostrategic, you know, things at play. But Trump, Iran is just one of the things he wants to do, right? He has other plans, and he's generally someone who's sensitive to market pressure, which is how this taco term even came about. Ryan: [1:10:17] And really quick, market pressure. Yeah. Is that market pressure of oil price? Is that bond interest rates, 10-year interest rates? Is that S&P? What particular market pressure is he most susceptible to? Is it CPI? Rory: [1:10:32] It's a great question. I was literally having this debate with someone earlier today because I don't know. I don't know which one he's most susceptible to. It's probably all of the. David: [1:10:38] Above in some way. Rory: [1:10:39] Well, and I think what's interesting is that if we rewind, like over, let's say, beyond the last two weeks. Oil and S&P 500 had basically traded in perfect lockstep, in inverse lockstep. So oil went up, equities went down, oil went down, equities went out. Now we're sitting at the highest oil price since the ceasefire at just shy of 110 Brent. And equities are also at their all-time highs. So what's going on there? I think this is where we go to. Right. I think this is where we go to. I think equities, for instance, are anticipatory assets. Equities are vibes. kind of through and through, right, in terms of the future anticipation, right? If we view it as a flattening of the entire discounted cash flow of that pool of equities, then yeah, your anticipation of the future plays hugely into what that value is. Whereas if we go back to the oil side, I, again, stress that I do not think that the backward curve is saying that the market thinks that the straight's going to reopen. It's that it's saying that there's a deficit in the front right now. That's all it's saying. If anything, what I would think is that, so for instance, I mentioned that dated Brent prices hit their high on April 7th, about 144 bucks. Rory: [1:11:56] That rolled over and is currently around 113, 115 today. Now maybe upwards a little bit higher with what we've seen futures doing, but it's down. I think that's your better measure of the markets, of the oil market reducing its risk and kind of more saying that, yeah, maybe it might open faster. I think if you think about it, it's like if you were someone that was worried about the availability of oil supply, would you want to trust that this system is going to work for you and say, I'm going to future contract for this barrel and surely someone's going to give it to me just because I have the piece of paper that says it? Or are you going to say, give me the barrel today because then I can store it. I know where it's going to be. That's. Rory: [1:12:40] You know, in the crypto space, Rory: [1:12:41] It's like, you know, your own custody, right? Like, you just want the barrel yourself. Yes. I may have butchered some crypto terms here. No, you really got it. Ryan: [1:12:49] That's exactly it. That's exactly it. Okay, so you said you think this will end with a taco of some form. Yep. So what form and how soon? Rory: [1:12:59] Yeah. A trillion dollar question, eh? So here's the way I think about it. The issues that are being debated between Washington and Tehran are effectively the same issues that they've been fighting about for the past year and before that, and basically where things stood in February before the war started. Domestic enrichment, missile programs, regional proxies, et cetera, et cetera. The only big difference is that now that Iran has controlled the strait for basically two months, it's now demanding go-forward recognition of its ability to control the strait, which, to be clear, it's never done before. So that's a new demand. So the war, all we've done so far is disrupted upwards of a billion barrels of oil supplies and put it in the head of the Iranians that now they get to control the strait going forward. That doesn't seem like a strategic slam dunk to me, I'll be honest. But where does this go? Like, I think what we're going to see is that Trump will back down from his demands on domestic enrichment and all those things above. But I do not think that he will do that until the market forces him to do it. And I think that, again, $110 Brent, that's high, but it's not crisis. It's not the biggest oil crisis in history high by any means. We've been higher. We've been higher very recently. Again, we were higher a month ago. So like very clearly, this market's not screaming like Trump resolved this. I think that when we get to the stage, I think essentially this needs. Rory: [1:14:25] To keep going Rory: [1:14:27] Until oil prices grind to a level or equity prices come down. Again, I'm not an equities guy, so I can't pretend to know why those are still at all-time highs. Rory: [1:14:34] Some market correction is going to force Trump to say, oh, crap, Rory: [1:14:39] okay, I really need to end this. Here's what I'll do to kind of make this end now. But the irony of those jawboning attempts is that every time Trump says it's over, prices dump 15 bucks, equities rally, or crude prices dump 15 bucks and equities rally. And then, well, all of a sudden, Trump's not under as much pressure anymore. So it's this deep, cyclical kind of hamster wheel paradox of, you know, the market sells off thinking Trump's going to end it because of market pressure. And then he's like, well, it doesn't seem that doesn't seem that pressing. And they will they will frequently reference markets saying, it's not that bad. And look at all these oil tankers coming to the United States because we're going to make a killing off this. So I think all that together, it's both sides think they're winning. And as long as both sides earnestly think they're winning, it's going to be hard for either side to feel like they need to make a concession to end it. Trump believes that Iran is under deep pressure from this blockade and everything else. But very frankly, that blockade's two weeks old now. The closure of the Strait of the Movement is eight weeks old now, again, going on nine. So the pressure's been building a global system far along where it's been building on Iran specifically, aside from obviously all of the war and the missiles and the destruction. Rory: [1:15:58] But in terms of the economic consequences, Iran's got a bit of a head start here, or at least I guess the world has a head start towards the pain. Rory: [1:16:05] So I think that's the other Rory: [1:16:06] Challenge here is like how long this goes on is also a function of how the two sides are viewing the state of where we are today. Right. David: [1:16:15] But isn't, from the United States perspective, isn't the United States buffered from a large amount of the economic pain downstream of the Strait of Hormuz? Because we have, as we discussed in our college crash course earlier, West Texas Intermediate Crude, which is the America's like more domestic source of oil, which is meaningfully buffered from the Brent coming out of the straight as like the Canadian shale. That's like, we are the best buyer of that Canadian shale because it's all landlocked. We are the land. We'll buy it there. And so like, and we are the land. Rory: [1:16:48] We are the land. David: [1:16:49] And then like, as you kind of said, like the global South really feels the pain of the consequence of high oil prices more than America. And I'm just going of go out on a limb here and say that Trump doesn't really care as much about the global South as he does the domestic pain for oil. And really, the people outside of the Iranians who are really experiencing the pain of the closure of the Strait of Hormuz is China, which, whatever, who cares? Like, they're also our economic enemy. And so I guess this goes back to what you were saying, is like the interpretation of who feels like they're winning. But I feel like the United States position is at least somewhat buffered is my analysis off in any way Rory: [1:17:33] It's not off, but I think it's missing one final piece. And I think that right now, North America is undeniably the most energy secure region of the planet. Largest domestic reserves, or sorry, largest domestic production, kind of uninterrupted in this setting. A lot of independence. U.S. imports, you know, two-thirds of U.S. crude imports come from Canada. And those can only go to the United States because of those locked-in pipelines. When we were talking earlier about how most go on ships and Canada's go on pipelines, The downside is that we can't switch, we being the Canadian exporters. So that's not wrong. The United States will be relatively insulated from the kind of full net-net macro pain. But there's a massive distributional factor here. Like, sure, oil companies in Texas and New Mexico and North Dakota are going to make hay out of this. But do you guys produce oil? Rory: [1:18:29] Like me? Rory: [1:18:30] Right. Most people don't. My point is that most people do not produce and sell oil. Most people are net consumers of oil products. So if you are a consumer of oil products and you live in, let's say, a coastal region with lots of, it's in New York or LA or wherever, if you are near a coast, as again, the bulk of Americans are by density, it means that you are accessible to global trade impacts. So even if you can produce enough gasoline for yourself, Again, barring impacts, barring limitations to trade, I think could become a factor here if this crisis goes on much longer. But in general, if trade's free, you on the coast will pay global equivalent prices even if it's being produced domestically. I see. Because if not, someone's going to incentivize that barrel away from you. So you have to pay the price to hold onto it. David: [1:19:20] Okay, so what you're saying is that the pain will make its way through prices to me domestically and that is what will put like, maybe it takes a little bit longer, but signal gets to Trump one way or another. Rory: [1:19:33] Yeah, I think it would soften the GDP impact, for instance, for the United States and could, for instance, in Canada be a net benefit given the size of our oil production. But the vast majority of American and Canadian consumers and importantly in this context, voters, are going to view this as a massively, massively negative factor. And most literature shows, I mean, for instance, like there's nothing more cliche than tying U.S. pump prices to U.S. Presidential approval ratings. They like move in lockstep historically. I've always said like this actually, I think, puts more, connects global prices in the presidency, I think, way more than it should be. Although in this moment, there's obviously a particular causal relationship between the president and why the price of oil is where it is. Rory: [1:20:19] But I think that pressure tends to intensify when U.S. average pump prices rise above $3.50 a gallon. And we're above $303.50 a gallon now. And diesel prices are even higher because diesel has been one of the tightest areas of the market, these so-called middle distillates, diesel and jet fuel. So, yes, I think there's going to be an offset on the kind of net-net economic macro sides of the United States. But consumers are not going to feel that. And they're probably like, I don't know if it's going to be that popular. They're like, oh, don't worry that you're paying $5 a gallon at the pump. Exxon's making bank. Like, I don't know if that's going to be the popular kind of populist cry. And like, this is how we're going to maintain this. One final thing I'll say on China. China, arguably, yes, China is the largest oil importer at this stage now after the United States kind of fell off that peak because of the shale boom. But they also have the world's largest strategic reserves. So U.S. Right now has less than 400 million with these releases going on. China has over a billion barrels of reserves. Seems big. So they are actually arguably the most insulated in Asia right now. David: [1:21:26] I see. Rory: [1:21:27] The people that are hit hardest, Japan, Korea, Thailand, Australia, all major U.S. allies. So if this, I often hear this kind of posited as. Rory: [1:21:39] It was actually always, Rory: [1:21:40] This was not a mistake. This was Trump's plan to close the Strait of Hormuz because it was an opportunity to flex U.S. energy dominance and it was an opportunity. Ryan: [1:21:48] To squeeze China. Rory: [1:21:49] I argue that kind of both of those are fundamentally flawed and it's kind of more an example in my mind of like sanity washing the Trump administration's policy than like actually grappling with the reality of it. David: [1:21:59] I see, I see. One thing I'm watching in the near term here is, according to an individual who works at the FDD, the Defense of Democracy Organization, Mayed Maleki, he's a former OFAC, pays attention to specifically the Iranian oil industry. He estimated something about 13 days of time left before the Iranians run out of storage capacity because they're producing oil. They need to produce oil. Like you said, it's a chemistry set that can't stop flowing. If it overflows or you have no capacity, you have to shutter your oil production facilities, permanently damaging them. David: [1:22:37] And he estimates about 13 days left before we hit that. If we do hit that threshold and Iranian oil facilities do have to be shuttered, which is damaged, how significant of an event is that? Is there kind of like a before or after here? Is it big in the grand scheme of things? Is it small in the grand scheme of things? How important should this be on somebody's radar if they're paying attention to this story? Rory: [1:23:01] It's no doubt not a good thing for Iran. I will quibble on a couple points. So one, we're not exactly sure how long it's going to take because there's debates right now about how much inventory is capacity is available. Let's say the 13 days is right, though. Let's just take that for granted in this conversation, in this hypothetical. The other thing that's noting is, though, I would debate the argument, and we hear this all the time, that if a well is shut in, you're going to have permanent damage. You could have permanent damage, but it's definitely not guaranteed. For instance, Iran was producing or exporting virtually no oil at the bottom of 2020, at the peak of sanctions pressure, bottom of COVID. Rory: [1:23:37] And they were able to shut those wells down and turn them back on to a degree, right? Like, I think there is some level of flexibility. And if we were treating shut-ins as all permanent damage, well, as we were discussing, there are 13 million barrels a day of production shut-in across the rest of the Gulf. So that would be a much bigger problem for the global economy than the Iranian side. That said, I think, like, yes, as I was saying at the beginning, there's, like, one of the weird things about this crisis is that Iran kept being able to export this oil. So, yeah, stopping their ability to do that puts additional pressure on Iran. Then you have, they're able to produce, but they want to produce into inventory. That's less pressure. They do this longer and longer and longer, the pressure grows. There's no doubt that that's true. I debate the argument or the implication that it's kind of a cliff drop. I don't really believe in kind of points of no return. I think people are like, oh, what's the point of no return? Or someone was like, no, no, there's always a return. It's just about how painful. And it's not a cliff. It's just it gets one bit more painful every day. It's all gradual. Rory: [1:24:39] We're all boiling frogs at this point. So I do think that this plays, but again, I think this goes back to this question. I think Trump himself has used this 13-day number a lot. And I think that is playing into the White House's belief in, you know, how long that Iran can keep up. But one thing I will put to you is that if the main point of leverage that Iran has is building up pressure on the system, because, again, it's not just closing Hormuz, it's Hormuz closed times a function of time. If you wanted to have a perfect recipe for Iran to build pressure in these negotiations, you'd say, well, imagine if there was a way that we could keep Hormuz closed. But during this period, we stopped being bombed, a la a ceasefire. It's kind of actually the ideal strategic position for Iran to be in, because they're not being dealt additional damage, and they continue to build pressure. So yes, Trump administration has increasingly evened those odds with the blockade. But again, the blockade was only two weeks ago, and the rest of it happened six weeks before that. So I do think that there's a timing mismatch here as well. So any pressure that Iran is going to feel, the rest of the Gulf states have already been feeling for four times longer. David: [1:25:51] I see. I see. Rory, I know no one really knows the future here. David: [1:25:56] We're all kind of interpreting the tea leaves. What are you watching? What signals are you paying attention to as this kind of crisis just continues on? We don't really know the outcome here. So like what was the signal that you try and pay attention to? Rory: [1:26:08] The random words of the various diplomatic sides of the of the delegation between the United States and Iran, who's willing to concede what, you know, like, are we talking, you know, is someone saying like, OK, maybe I won't do permanent ban enrichment, but maybe I'll give up five years or 10 years or whatever. Rory: [1:26:27] I think those are an aspect of this. Rory: [1:26:29] I think watching where the people are, like it was the last week, last Friday, like everyone in the oil market was playing like the where in the world is Carmen Sandiego game, but it was with J.D. Vance instead of San Diego, right? Like it was like, where's J.D. Vance? And like everyone's trying to track, is he in Washington? Is he in the White House? Is he on a plane to Islamabad? And that matters because I think that's a leading indicator of how far progressed negotiations are. But at the end of the day, like to Ryan's point, like the only thing that really matters here is when Hormuz reopens. It does not seem that we are that much closer today to reopening it than we were a month ago. If anything, sure, we have a ceasefire, but negotiations have kind of collapsed. The Iranians say that they're not going to negotiate so long as the blockade remains in place. So I would actually say that probably my next major thing I'd be watching is how fast do oil prices tick up? And at what point does the Trump administration say, you know what, the blockade's not its job. Take the blockade away, and that might get the Iranians back to the table in Islamabad, and then we can finally progress to reopening the strait and having a durable deal. But as of yet, it still hasn't happened. Ryan: [1:27:37] Roy, this has been a fantastic conversation. You are a wealth of knowledge, my friend. Now you're our oil quant, David: [1:27:43] Too. Ryan: [1:27:43] Yes, you started as Lynn's oil quant. Now you're the bankless oil quant. We hope you come back. It's commoditycontacts.com. That's the sub stack. I encourage all bankless listeners, go click the link in the show notes if you want to keep up on the most important commodity that exists outside of crypto, let's say. Rory: [1:27:59] Outside of crypto, of course. Ryan: [1:28:00] We'll give an edge to oil. Maybe just end with this question, Rory, as you kind of forecast into the future, oil has been the most important commodity of the 20th century in our civilization. It remains, I think, the most important commodity. But could you forecast that decades into the future? Say the year 2050, in the second half of this century, Does oil continue to be the world's most important commodity? Or have we peaked in terms of it's important? Are we about to peak? And what does oil continue to be the world's most important commodity? Rory: [1:28:30] What surpasses it? Rory: [1:28:32] It's a great question. I'm going to frame it this way, at least at first. In terms of the consequence of Hormuz specifically, I think the only thing I'm confident about, in a decade forward from now of the consequences of what Hormuz will be is that while this is a, I think I've hopefully made the case that this is ragingly bullish for oil prices, positive for oil prices in the near term. In the long term, this is unambiguously a negative thing Because this price spike, this kind of reminder of fear and dependence on Middle Eastern oil, this will be the center point of energy transition debates in the future of like the don't, you know, the, you know, no more oil people or whatever. Like they're going to be talking on Hormuz because they had already started losing, you know, cachet on the moral framing of climate change. Pocketbook framing around affordability and optionality and risk management, much more effective. Getting off foreign oil, like this type of stuff is going to, this is the phrasing that we're going to hear again. Whereas like, that's the phrasing that I heard when I was in like an undergrad, like that was how it was described. It wasn't climate change. It was around getting off foreign oil. Ryan: [1:29:38] But we also have now, we also have the electric tech stack, right? With batteries and drones. And so we have a viable substitute now technology apart from the combustion engine. Rory: [1:29:48] Absolutely. And I think that's like in the same way that we had that diversification away from oil demand in the 70s and the 80s, coming off of the energy crises of that of those decades, we had a reduction in oil use and power generation, everything else. Now, there was there weren't electric cars available then. So now you have that capacity. And I would think that particularly in Asia, these countries that are most kind of reminded of their vulnerability through this crisis, they are going to push that much harder on electrification. And I think when you look at like, you know, much more specifically, one of the trends in recent years prior to this crisis was this kind of debate over global auto manufacturer market share and kind of trade barriers. And everyone basically saying like, you want to be in with us? You want to be in the West? Well, you can't open your markets entirely to BYD and kind of the gigantic tidal wave of Chinese EV exports. Now countries are like, well, screw you. Like, I think we'll kind of be the first. Like, it's like more like now, Obviously, I want as much cheap EV penetration as possible to reduce my dependence on oil because this was just such a pernicious and kind of disruptive shock. So I would say overall, I expect this to be negative for oil demand in the long term, even if it's bullish for prices in the near term. And then in terms of what the next most kind of valuable commodity is going to be, kind of dominant one, oil is still the most dominant hydrocarbon. Of the kind of major fossil fuels. Rory: [1:31:18] But as I could say, I can see that declining. I can see that peaking in the next, you know, prior to this, I would have said like a decade from now, I could see peak oil demand, not a cratering afterwards, but a plateauing in the mid to late 2030s. I think that's entirely reasonable. I don't think we're going to see a peak demand in natural gas over that time period. So I expect to see over the course of my life, I expect to see peak oil demand at some point as I follow this industry. I hope to be a chronicler of the end one day. And then I shift my entire business over to NatGas. Rory: [1:31:55] And then because then we're talking about all these things, all these digital evolutions, you know, the irony of talking about, I mean, the major factor, the reason equity markets are so high right now is all of this enthusiasm, all this optimism around AI penetration, everything else. Because we are debating, you know, we have the world, we have all time high equity markets driven by the most energy intensive technology we've ever developed in the middle of the largest energy shock in history. It's a very, very funny juxtaposition. And I do think that as we roll over this, you're going to see NatGas continue to fly. And I think that's something I'm pretty confident about. Ryan: [1:32:33] Here we go. Rory, thank you so much for joining us. Of course, guys, none of this has been financial advice, but this is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. --- *This article is brought to you by [MetaMask](https://www.bankless.com/sponsor/metamask-1776260643?ref=podcast/the-biggest-oil-shock-in-history-rory-johnston)*