MacroVoices #465 Rory Johnston: Oil Markets Under Trump 2.0

Episode Summary

Executive Summary: Macro Voices featured Rory Johnston arguing that crude remains fundamentally undersupplied heading into 2025, with low inventories and backwardation supporting higher Brent prices, while Trump’s policies could move markets mainly through sanctions and tariffs rather than boosting U.S. drilling. The post-game shifted to markets, where DeepSeek triggered a brief AI-led equity selloff, though hosts saw key technical support holding in equities, crude, gold, uranium, and the dollar.

Main Topics: Bullish crude fundamentals into 2025 (Priority: 5/5): Rory Johnston said crude inventories are low, demand is re-accelerating faster than supply, and the futures curve remains backwardated, pointing to a modest supply deficit and gradual price appreciation. Trump policy impact on oil markets (Priority: 5/5): The discussion weighed how Trump could affect oil through sanctions on Iran/Venezuela and tariff policy, while arguing that regulatory easing alone is unlikely to materially accelerate U.S. production. Canadian crude, tariffs, and refinery constraints (Priority: 5/5): A major focus was why Canadian heavy crude is structurally important to U.S. refiners, and how a tariff would be shared across exporters, refiners, and consumers rather than simply boosting domestic supply. Heavy blend stock and global supply alternatives (Priority: 4/5): The hosts explored where U.S. refiners could source heavy crude if Canadian, Mexican, Venezuelan, and Iranian barrels were constrained, concluding that replacement supply is limited and politically fraught. OPEC spare capacity and market balancing (Priority: 4/5): Johnston suggested Trump could pressure OPEC to raise output, but a large increase would likely crush prices and force U.S. producers out first, exposing the contradiction in wanting both lower prices and higher U.S. output. DeepSeek shock and broader risk assets (Priority: 4/5): The post-game addressed the AI disruption from China’s DeepSeek release, which briefly hit NVIDIA and related equities but was viewed as more of a sentiment event than a durable fundamental change. Technical levels across major markets (Priority: 3/5): Patrick Ceresna reviewed key chart levels in the S&P 500, dollar, crude, gold, uranium, and Treasury yields, emphasizing that several markets were at near-term inflection points.

Key Arguments: Oil fundamentals remain bullish because inventories are low, demand is re-accelerating, and supply growth is not keeping pace. Trump’s strongest direct lever on oil is sanctions policy, especially toward Iran and Venezuela, not U.S. drilling incentives. Regulatory relief can reduce producers’ costs, but it cannot force private companies to drill faster if prices don’t justify it. A 25% tariff on Canadian crude would not simply help U.S. producers; it would be split between Canadian exporters, U.S. refiners, and U.S. consumers. Canadian heavy crude is hard to replace because U.S. refineries are optimized for heavier blends and Canada’s pipeline geography channels barrels into the Midwest. If OPEC dumped spare capacity into the market, prices could collapse into the $30-$40 range, but such a move would eventually crush U.S. shale first. DeepSeek’s impact on energy markets is indirect; the bigger effect is sentiment-driven pressure on AI/nuclear/tech-linked trades, not on physical uranium demand. The broad equity market’s next major driver may be whether Trump’s policy agenda continues to advance or gets meaningfully obstructed. Oil is ultimately anchored by physical fundamentals, but a severe risk-off move in equities could still drag prices lower temporarily. Gold’s trend remains strong because every dip has been bought, while uranium weakness looked more like sentiment than a fundamental change.

Data Points: S&P 500: 6039 - Macro scoreboard, down 77 bps week over week as of Jan. 29, 2025 close S&P 500 weekly change: Down 77 basis points - Week over week performance through Jan. 29, 2025 U.S. dollar index: 107.9 - Macro scoreboard, down 33 bps week over week U.S. dollar index weekly change: Down 33 basis points - Week over week performance through Jan. 29, 2025 March WTI crude: 72.62 - Macro scoreboard, down 374 basis points week over week March WTI weekly change: Down 374 basis points - Week over week performance through Jan. 29, 2025 March RBOB gasoline: 206 - Macro scoreboard, down 96 basis points week over week February gold: 2770 - Macro scoreboard, flat on the week and near all-time highs Copper: 428 - Macro scoreboard, down 47 basis points week over week Uranium: 70.60 - Macro scoreboard, down 381 basis points week over week after DeepSeek-related selling U.S. 10-year Treasury yield: 4.53% - Macro scoreboard, down 7 basis points week over week Brent crude fair value view: Low $80s per barrel - Rory Johnston’s estimate of fair value and likely trend if deficits persist Current Brent price cited: $77.60 - Rory’s reference point during the interview recording U.S. production growth: About 1.5 million bpd in 2023 to nearer 300,000 bpd in 2025 - Johnston’s expectation for slowing U.S. output growth Canadian West Coast pipeline capacity: 900,000 bpd - Trans Mountain expansion capacity discussed as Canada’s main outlet beyond the U.S. Canada crude export base: Just more than 4 million bpd - Used to contextualize Trans Mountain’s share of export capacity API gravity comparison: U.S. shale often 40+ API vs WCS around 22 API - Explains why U.S. refiners need heavy blend stock Refining target blend: Low 30s API - Typical desired blend range for Midwest refineries Hypothetical tariff impact on WCS: About $15 per barrel on a $65 barrel - Illustrative 25% tariff example on Canadian crude Estimated tariff burden split: Roughly one-third each - Johnston’s estimate of burden shared by Canadian exporter, U.S. refiner, and U.S. consumer Estimated Midwest pump-price impact: About 13 cents per gallon - Illustrative effect from the tariff scenario OPEC stated cuts: Around 6 million bpd - Johnston cited OPEC’s claimed current cuts More realistic OPEC cuts: About 4 million bpd - Johnston’s estimate of actual cuts rather than paper cuts Venezuela crude exports at risk: 200,000-400,000 bpd - Approximate volume Johnston said could be affected by sanctions/tariffs Iranian exports at risk: More than 1 million bpd - Potential market removal if sanctions are tightened aggressively OPEC price-defense reference: Prior to COVID around $50-$60; post-COVID cutting cycle began above $90 Brent - Used to explain the price level OPEC appears willing to defend DeepSeek claimed training cost: $5 million (later debunked as higher) - Cited in the AI-market selloff discussion

Pivotal Quotes: "I see us likely having another modest supply deficit this year." — Rory Johnston: His core crude market outlook for 2025 "I think the president has more control over how much oil is being produced in Iran than being produced in Texas." — Rory Johnston: On the limits of U.S. presidential influence over domestic drilling "The bulls must hold in order to keep the trend in their favor and leave the upside window open." — Patrick Ceresna: Technical read on the S&P 500 near key support

Implications: Energy markets look structurally tighter than many expect, with policy shocks more important than drill-baby-drill rhetoric. For investors, watch sanctions, tariffs, OPEC coordination, and whether key technical support holds in risk assets.