GM37: SPR - The Federal Reserve of Oil ft. Rory Johnston

Mar 15, 2023

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Today we are re-joined by Rory Johnston, founder of Commodity Context, a physical commodities research firm based in Toronto, Canada. We cover the SPR (Strategic Petroleum Reserve) that has been actively deployed by the Biden administration over the past year, its implementation and potential impact on related economies. To what extent can the SPR influence spot and futures prices, and what are the knock on effects on refined products? What is the interaction between the SPR, commercial inventories and prices? Rory also discusses the analogy between SPR sales and Fed policy, as it influences the yield curve. We also discuss the relationship between oil volatility and the crack spread, and how volatility is generally damaging but can boost profits in proprietary oil trading books. Finally, Rory challenges the assertion that speculators are the "smart money" in energy, and how positioning can act as a counter trend indicator.

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Episode TimeStamps:

03:19 - SPR - What and why?

06:27 - Why crude and not refined products?

09:34 - How is the SPR used?

13:54 - Trading oil

19:54 - The goal of the SPR market

23:04 - How inventory drives oil price

28:29 - The effect of inventory restocking

29:43 - Theory vs. practice

33:28 - The mega energy companies

36:00 - Distortion in oil markets

41:20 - Can volatility be profitable?

47:35 - No specs = steeper or flatter?

50:11 - Advice on using the data

52:37 - Understanding signals in the oil market

59:17 - Dollar Wrecking Barrell

01:01:44 - Oil vs. gold and gas

01:09:07 - What makes money in high vol regimes?

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