Stijn Schmitz welcomes Rory Johnston to the show. Rory Johnston is Commodity Market Research who specializes in oil and gas. This episode delves into the complex dynamics of the current oil market crisis stemming from the closure of the Strait of Hormuz, exploring the profound implications for global energy supply and geopolitical tensions. Johnston provides a detailed analysis of the current oil market situation, highlighting that approximately 20 million barrels of oil per day typically transit through the Strait of Hormuz, with about 13 million barrels currently disrupted. Despite this massive supply shock, oil prices remain surprisingly low, which Johnston attributes to several factors, including market resilience, slow-moving commodity markets, and complex geopolitical negotiations.

The discussion reveals the potential devastating consequences of prolonged strait closure, particularly for developing countries. While advanced economies might absorb price increases, many regions in the global south could experience complete fuel shortages, causing significant economic and humanitarian challenges. Johnston predicts that if the situation continues, demand destruction will become inevitable, potentially forcing prices to astronomical levels.

Interestingly, the conversation also explores the nuanced motivations of key players like the United States, Iran, and Israel. Johnston suggests that Iran potentially benefits from prolonging the conflict, while the United States appears increasingly desperate to reach a resolution. He believes the crisis will likely conclude with Iran gaining some recognized control over the Strait of Hormuz. Johnston’s base case scenario anticipates the strait potentially reopening by mid-May, but warns that the market will require months to rebalance. The cumulative oil supply loss could reach over 1.2 billion barrels, fundamentally altering the global oil market’s dynamics. He emphasizes that what was previously an oversupplied market will likely transform into a tighter, potentially higher-priced environment.

Timestamps:
00:00:00 – Introduction
00:00:48 – Strait of Hormuz Basics
00:01:55 – Supply Rerouting Efforts
00:02:57 – Total Supply Losses
00:06:09 – Replacing Lost Production
00:08:46 – Demand Destruction Scenario
00:11:15 – Price Reaction Analysis
00:19:23 – Trump’s Market Interventions
00:23:43 – US Treasury Intervention?
00:25:24 – Regional Shortage Timelines
00:30:41 – Global South Impacts
00:32:20 – War Incentives Discussion
00:41:40 – Iran, Trump, & Israel
00:46:11 – Base Case Outlook
00:51:56 – Refinery Fire Concerns
00:55:54 – Wrap Up

Guest Links:
Substack: https://www.commoditycontext.com/
X: https://x.com/Rory_Johnston

Rory Johnston is a Toronto-based oil market researcher, the founder of Commodity Context, a lecturer at the University of Toronto’s Munk School of Global Affairs and Public Policy, host of the Oil Ground Up podcast, as well as a Fellow with both the Canadian Global Affairs Institute and the Payne Institute for Public Policy at the Colorado School of Mines.

He is a leading voice on oil market analysis, advising institutional investors, global policy makers, and corporate decision makers. His views are regularly quoted in major international media including the Financial Times, New York Times, Wall Street Journal, Bloomberg News, Reuters, BNN Bloomberg, CBC, and Financial Post, and he frequently appears on numerous market and industry podcasts (e.g., Bloomberg’s Odd Lots, Hidden Forces, etc.).

Prior to founding Commodity Context, Rory led commodity economics research at Scotiabank where he set the bank’s energy and metals price forecasts, advised the bank’s executives and clients, and sat on the bank’s senior credit committee for commodity-exposed sectors.

Stijn Schmitz welcomes back legendary investor and speculator Rick Rule to the show. Rick discusses the current commodity landscape, with a particular focus on energy, geopolitical tensions, and investment opportunities. He provides insights into the oil market, highlighting significant supply challenges and potential disruptions. He notes that global underinvestment in sustaining capital, particularly in the energy sector, could lead to substantial price increases in the coming years. The ongoing conflict in the Middle East has further complicated the energy market, with potential long-term implications for global supply chains.

Regarding commodities, Rule discusses opportunities in helium, fertilizers, and precious metals. He emphasizes the importance of long-term thinking in commodity investments, particularly in the agricultural sector, where demographic shifts will continue to drive demand. On gold, Rule presents a compelling case for holding the metal as a savings instrument, arguing that not holding gold is “irresponsible.” He views gold as a critical asset that maintains purchasing power and provides liquidity during economic uncertainties.

Rule provides nuanced perspectives on investment strategies, particularly in natural resource sectors. He highlights the potential in junior mining exploration, noting that while the sector as a whole destroys capital, the top 10% of companies can generate significant value. His approach emphasizes thorough research, patience, and a willingness to hold investments through volatile periods.

The discussion also touches on geopolitical risks and investment opportunities in less-explored markets. Rule suggests that Western investors often overestimate political risks in unfamiliar regions and underestimate risks in seemingly stable markets like the US and Canada. Throughout the conversation, Rule demonstrates his characteristic blend of macroeconomic insight, speculative wisdom, and pragmatic investment philosophy.

Timestamps:
00:00:00 – Introduction
00:01:00 – Oil Supply Disruptions
00:02:54 – War Impact on Prices
00:04:22 – If War Ends Scenario
00:05:18 – Long-term Underinvestment
00:06:20 – Historical Oil Parallels
00:08:20 – Oil Equities Valuation
00:09:54 – Producer Opportunities Overview
00:17:03 – Other Commodities Disrupted
00:22:58 – Fertilizers and Potash
00:28:50 – Gold’s Portfolio Role
00:33:00 – Gold & Emerg. Selling
00:35:20 – Silver and Miners
00:38:20 – Hated Places
00:40:49 – Precious Metals Miners
00:44:00 – Junior Explorers Value
00:47:10 – Developers
00:49:10 – Wrap Up & Conference

Guest Links:
X: https://x.com/@realrickrule
Website: https://ruleinvestmentmedia.com
YouTube: https://www.youtube.com/@RuleInvestmentMedia
Classroom: https://ruleclassroom.com
Battle Bank: https://battlebank.com

Rick Rule has dedicated his entire adult life to many aspects of natural resources securities investing. Besides the knowledge and experience gained in a long and focused career, he has a global network of contacts in the natural resources and finance sectors.

Mr. Rule is a frequent speaker at industry conferences and is regularly interviewed for radio, television, print, and online media outlets concerning natural resources investment and industry topics. Prominent natural resources-oriented newsletters and advisories frequently quote him. Mr. Rule and his team have expertise in many resource sectors, including agriculture, alternative energy, forestry, oil and gas, mining, and water.