Rory Johnston

It makes it difficult to handicap when they're going to enter back into the market because obviously a 5 million barrel a day swing is massive in this context.

And right now, I think part of the reason that crude prices and time spreads are back into contango today is that we have this rising surge of exiting transits out of Hormuz that are running up against a still relatively weak import market driven first and foremost by China.

Absolutely.

You know, when we started this crisis, we had been in a surplus in the oil market for upwards of a year.

We had built substantial stockpiles, both commercial and strategic, obviously in the case of China strategic.

We were as buffered as humanly possible to weather this shock.

I still didn't think it was enough at the time, and that proved out to be thankfully incorrect.

But now we have drawn down massive volumes of oil.

To put in perspective, that 13 million barrels a day of Middle Eastern production has been shut down.

The cumulative volume of that to date is roughly 1.3 billion barrels.

Like we're talking massive, massive gobs of oil.

The collective IEA SPR release at its upper end is pegged at about 400 million barrels.

The cumulative reduction in Chinese imports over this period, again, relative to three months prior to the war, is between 400 and 500 million.

So at least on that basis alone, China swung as much and likely more than the collective IEA member states.

And what I will say about SPRs, in my modeling, in my mental model, I think about SPRs not as inventory per se, but as discretionary supply and demand.

That when you think about the effect of inventories on prices, and I think they are the primary thing that drives prices and perceptions of scarcity, it's mainly the commercial kind of merchant inventories that catch the residual, the remaining surplus or deficit after all is said and done that drives that kind of marginal pricing influence.

But an SPR release, as an example, manifests in the market as new supply, not new production, but new supply that wasn't available before.

And we're actually seeing another stock or strategic stock release of that kind in a way right now in Hormuz itself.

We've had for this whole period, we've had well over 100 million barrels of oil trapped in Hormuz.

These are the ships that have been trapped and unable to escape.