MacroVoices #539 Rory Johnston: Hormuz Crisis, is it Really Over?

Episode Summary

Executive Summary: Macro Voices focused on the Hormuz crisis, where Rory Johnston argued flows are recovering faster than expected but loadings lag, China’s import pullback has been a major bearish swing factor, and crude is in contango despite geopolitical tension because products remain tight and refining is the bottleneck. The new Trading Desk segment highlighted a refiners-led trade setup, cautious equity/dollar positioning, and crowded shorts in crude.

Main Topics: Hormuz crisis and oil flow recovery (Priority: 5/5): Rory detailed how flows out of Hormuz have surged above pre-war levels, but fresh loadings still lag and floating storage drawdowns are masking the true recovery pace. He argued the binding constraint may shift from tanker availability to upstream production and sustained loadings. China’s demand pullback as the key bearish swing factor (Priority: 5/5): A major part of the crude weakness came from China cutting imports far more than expected, likely via policy-driven inventory/SRP-type actions and petrochemical adjustments rather than visible domestic demand destruction. Crude contango versus tight refined products (Priority: 5/5): Crude oil weakened into contango while diesel and gasoline crack spreads remained extremely strong, signaling a split petroleum market: excess crude relative to spot demand, but persistent tightness in refined products and refining capacity. Geopolitical standoff and the limits of control over Hormuz (Priority: 4/5): Both the U.S. and Iran want the conflict to de-escalate on their own terms, but Iran appears unable to fully enforce control over Strait traffic. Intermittent attacks and retaliatory strikes show a Cold War-like standoff rather than full war. Policy levers, SPRs, and the near-term oil price floor (Priority: 4/5): The discussion covered how SPR releases and possible policy tools can cushion crude, but there are fewer levers for gasoline/diesel. The market may already be near a short-term flat-price bottom due to heavy speculative shorts. Macro Voices Trading Desk: positioning and trade ideas (Priority: 3/5): The new segment emphasized defined-risk trades and COT positioning, featuring a bullish refiners trade in Valero, crowded SPX/Dow positioning, a strong dollar breakout, washed-out pound positioning, and a constructive soybean trend.

Key Arguments: The Strait of Hormuz has not been fully closed; flows are running near or above pre-war levels because reroutes and drawdowns in floating crude are temporarily inflating supply. Fresh loadings out of Hormuz are lagging exits, implying the market still needs upstream production and tanker inflows to sustain recovery. China appears to have reduced imports by roughly 5 million barrels/day versus pre-war averages, far more than most expected, and this has been decisive in balancing the market. The crude market can be weak even while the product market stays tight because refineries, not end-users, are the natural consumers of crude and refining capacity is constrained. Prompt contango in Brent/Dubai indicates a spot surplus or timing mismatch, not necessarily a durable collapse in the longer-term supply/demand balance. Rory sees current flat-price downside as limited because speculative shorts are already near extremes, reducing room for further forced selling. If Iran cannot enforce control early, it becomes exponentially harder to reassert claims over Hormuz later. In the Trading Desk segment, refiners are preferred over crude because crack spreads remain elevated and the theme is not yet crowded. Equity positioning suggests the S&P 500/Dow have less short-covering support than before, so a semis-led pullback could hit an already crowded long setup. The pound is the cleanest short-squeeze candidate among currencies because commercials are heavily long and specs heavily short, but confirmation is still needed.

Data Points: WTI week-over-week move: down 690 basis points to 67.26 - Patrick’s weekly market wrap described continued crude weakness and unwinding geopolitical premium. S&P 500 week-over-week move: up 164 basis points - Risk assets remained firm despite macro volatility. Hormuz outbound flows: over 20 million barrels/day on multiple days - Rory said flows out of Hormuz have at times exceeded pre-war levels. Total outflow versus pre-war: ~130% of pre-war supply on some days - Including reroutes and drawdowns from floating barrels. Floating crude drawdown pace: over 4 million barrels/day - Drawdown of long-stranded barrels in the Gulf has temporarily boosted apparent supply. Sustainable drawdown horizon: 1-2 weeks - Rory suggested the floating-storage draw cannot continue much longer. Hormuz outflow on 10-day average: ~12 million barrels/day - Rory’s trailing-average estimate of barrels getting out of Hormuz. Fresh loadings: ~5-6 million barrels/day - Fresh loadings lag exits by a wide margin. Inbound VLCC crossings: more than 8 confirmed in a day - Inbound empty tanker traffic was running stronger than expected. Inbound tanker pace: ~10 million barrels/day on 10-day average - Inbound tanker capacity was not the binding constraint yet. U.S. SPR level: just above 330 million barrels - Rory cited the U.S. Strategic Petroleum Reserve stock level. Recent SPR draw pace: 5.5 million barrels over the week - Drawdowns slowed to below 1 million barrels/day. China import delta: 5 million barrels/day - Difference between Dec-Feb pre-war average and June average imports. SPR releases peak: ~3.5-4 million barrels/day - Rory estimated Western SPR releases peaked in this range. Diesel crack spread: ~$60/barrel - Near record/high crack spreads reflecting tight product markets. Gasoline crack spread: ~$50/barrel - Also near all-time/seasonal highs. Brent/Dubai prompt spread: contango - Market is signaling spot crude surplus versus immediate demand. Brent DFL physical spread: lower than futures, in contango - Physical prices weakened below futures, confirming excess near-term supply. Saudi loading recovery: Ras Tanura resumed loadings - Saudi recovery was slower than expected despite being assumed fast to rebound. Valero (VLO) price: $268 - Trading Desk featured Valero as the trade-of-the-week setup. Valero recent high: fresh 52-week high - Used to justify a momentum-based refiners trade. VLO options trade: Aug 21 2026 270/300 bull call spread for $9.25 debit - Defined-risk bullish trade on refiners. VLO spread payoff: $20.75 max profit - If VLO is at or above $300 at expiration. SPX short covering: ~150,000 contracts covered in one week - Large specs moved to least-short levels of the year. Pound positioning: commercials +43,000 contracts net long; large specs +34,000 contracts net short - A highly asymmetric currency positioning setup. Soybeans positioning: large specs heavily long in high 80s; small specs mid-50s - A still-constructive long continuation setup. Gold round-number level: near 4,000 - Psychological and Fibonacci retracement area discussed in Trading Desk.

Pivotal Quotes: "The market is telling us right now that we currently have a spot surplus of crude oil in the market." — Rory Johnston: Explaining why Brent/Dubai prompt spreads have moved into contango despite the Hormuz crisis. "Iran has proven that it can close hormones. That much has been made clear. What we have not yet seen is if it can keep it closed." — Rory Johnston: Distinguishing between the ability to disrupt the Strait and the ability to sustain control over it. "Rather than trying to own the stock outright after such an extended move, I'd rather use a shorter-duration bull call spread to continue to play the momentum while keeping the risk defined." — Patrick Serezna: Introducing the Valero refiners trade in the new Trading Desk segment.

Implications: Near term, oil may stay pressured if China remains sidelined and crude outflows keep flooding the market, but products/refiners remain the cleaner trade. The key risk is a Hormuz re-escalation or a short squeeze in crude if flows normalize faster than expected.