Overview of Bloomberg's Odd Lots episode
In this Bloomberg Odd Lots conversation, Joe Weisenthal and Tracy Alloway revisit Rory Johnston’s earlier warning that oil could surge to $200 a barrel after the closure of the Strait of Hormuz. Johnston explains why that prediction didn’t play out, even though the disruption was historically large. The episode focuses on how the oil market absorbed the shock through Chinese import cuts, strategic stockpile releases, and trader behavior that muted the expected price spike.
Why the $200 oil call missed
Johnston says the core premise was valid: the Strait of Hormuz is a critical chokepoint, and the disruption was enormous. Before the war, roughly 20 million barrels per day flowed through Hormuz, and even after rerouting options, the market still lost about 13 million barrels per day of Gulf oil production.
That kind of shock should, in theory, have forced prices into demand-destruction territory fast enough to push Brent toward $150–$200. Instead:
- Brent peaked around $120, not $200.
- The system proved more flexible than expected.
- The market had enough buffers and substitution mechanisms to avoid a full-blown price spiral.
China was the biggest surprise
Johnston argues that China was the most important reason prices didn’t explode.
Massive import drop
- Chinese crude imports fell by roughly 5–6 million barrels per day from pre-war levels.
- That was about half of the total spot-market supply hit to Asia.
- With China absorbing so much of the shock, other Asian buyers like Japan, South Korea, Taiwan, and Australia were able to recover more quickly than expected.
What caused it?
Johnston says the exact mix is still unclear, but possibilities include:
- Silent stockpile drawdowns
- Refined product inventory releases
- Reduced refining runs
- Some substitution in petrochemical feedstocks
- Possibly some EV-related demand reduction, though he stresses that EV penetration was not nearly large enough to explain the full swing
He emphasizes that China does not publish reliable official demand or inventory data, so analysts are inferring from trade flows and satellite observations.
Inventories mattered more than production
A major theme of the episode is that oil prices are heavily influenced by inventory flows, not just production levels.
Strategic vs. commercial stockpiles
Johnston distinguishes between:
- Strategic petroleum reserves (SPRs): discretionary supply that can be released into the market
- Commercial inventories: the buffer that absorbs routine surpluses and deficits
He argues that SPR releases behave almost like new supply, even though they are not new production.
Why prices stayed contained
- The market entered the crisis with a surplus
- Both commercial and strategic stocks were already relatively high
- China’s import reduction acted like a huge, hidden supply adjustment
- Hormuz traffic itself became a kind of temporary floating stockpile release as ships were able to exit again
Trader psychology and “jawboning” also played a role
Johnston says he underestimated how much policy rhetoric and trader risk management would matter.
- Traders were bullish on paper, but many were too constrained to add risk after being repeatedly burned in March and April.
- He describes a market where “everyone was bullish, but no one was buying.”
- He also says Trump administration comments and broader geopolitical signaling likely added downside volatility that helped cap the rally.
What happens next
Johnston does not think the story is over.
Potential medium-term effects
- Countries may want to rebuild depleted strategic reserves
- Some states that lacked SPRs may now create them
- That could support oil demand over the next 1–3 years
But there’s a catch
He says stockpile rebuilding will only matter once the market is looser. If supply is already tight, replenishing reserves just tightens the market again.
Main takeaways
- The Hormuz closure was a massive supply shock, but not enough to trigger the catastrophic price spike many expected.
- China’s import collapse was the biggest unexpected factor.
- Inventory dynamics and trader psychology mattered as much as geopolitics.
- The episode leaves one big unresolved question: why did China cut imports so dramatically, and when will it re-enter the market more aggressively?
Notable insight
“Inventory, unlike production, has a floor.”
That line captures the episode well: the oil market responded not just to barrels produced, but to barrels already sitting in storage, waiting to be deployed or rebuilt.