MacroVoices #465 Rory Johnston: Oil Markets Under Trump 2.0
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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna.

Macro Voices Episode 465 was produced on January 30th, 2025. I'm Eric Townsend. Commodity Context founder and energy markets guru Rory Johnston returns as this week's feature interview guest.

Rory and I will discuss all things crude oil from the current fundamental backdrop to Trump tariff policies and their knock-on effects to why crude quality still matters and potential sources for the heavy blend stock that's needed in order to continue refining U.S. shale oil.

And I'm Patrick Ceresna with the macro scoreboard week over week as of the close of Wednesday, January 29th, 2025. The S&P 500 index down 77 basis points trading at 6039. The market experiencing some turbulence on that AI and NVIDIA news. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment.

The US dollar index down 33 basis points, trading at 107.91.

Puzzle to solve is, after an extended consolidation, will the U.S. dollar re-resume its prior bull trend? The March WTI crude oil contract down 374 basis points, trading at 72.62. Oil pulling back, but will it be bought on dip? The March RBOB gasoline down 96 basis points, trading at 206.00.

The February gold contract flat on the week trading at 2770, a stone throw away from those all-time highs. Copper down 47 basis points trading at 428. Uranium down 381 basis points trading at 7060. Uranium experiencing some settling on the deep seek news.

But the bigger question is that will there be more selling to come? The U.S. 10-year Treasury yield down seven basis points, trading at 453. And the key news to watch this Friday is the core PCE price index. And next week we have the ISM manufacturing and services numbers, the Bank of England monetary policy statement, and the U.S. jobs numbers.

This week's feature interview guest is commodity context founder and energy markets guru Rory Johnson. Eric and Rory discuss the oil markets, tariffs on Canadian and Mexican oil, OPEC and more. Eric's interview with Rory is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.

Joining me now is Commodity Context founder Rory Johnston. Rory, it's great to get you back on the show. Let's start with the big picture for oil markets, inventory fundamentals. Where do we stand? Thanks for having me, Eric. I'm so happy to be back. So yeah, entering into 2025, we're in a really interesting point in this market because 2024 itself was kind of a funny year. After

Really, everything between 2020, even 2019 through to 2022, 23, we had just absolutely outrageous levels of volatility. We had every possible kind of tail risk you could imagine hitting the oil market kind of back and forth, back and forth from literally...

COVID turning the industry upside down, Russia invading Ukraine, Houthis blockading the Red Sea. You had Israel and Iran, all of this stuff happening. But at the same time, then 2024...

really just slowed down. You had the prices traded in their tightest range since before COVID. We had the overall supply and demand growth even slowed. Each of those years, you were accelerating coming out of that COVID slump.

And then in 2024, it really just kind of ground to a halt. We saw really, really slow both supply and demand growth. Now, I think that, you know, entering this year with this really, really low inventory position, particularly on crude oil, we're beginning to see demand reaccelerate a bit faster than we're seeing supply accelerate. So I see this as a bullish factor heading into the year, and it's supported by the fact that the futures curve remains relatively backwardated even after this latest pullback.

But I think the market remains kind of fundamentally undersupplied. I saw last year having a modest undersupply annual average. I see this coming year likely, assuming we don't get, and we're going to talk a lot about various policy risks coming down the line, but assuming those don't completely derail us, I see less likely having another modest supply deficit this year. So if we have

a low inventory position and another modest supply deficit, that means we're going to enter an even lower, we're going to trend towards an even lower inventory position. And I think that means gradually higher prices from here, probably in the kind of like

low 80s Brent basis. And that's, it's not that much higher than we are right now. I think, you know, we're recording this on January 28th and when I'm looking at my screen right now, prudes that are out 77.60 for Brent. So I would say probably about three, four, five bucks higher is probably where I see fair value right now. That's kind of where I see us trending.

Okay, I agree with your general analysis of fundamentals, kind of pointing higher, pointing in a bullish direction. But hang on a second. President Trump is very vocally saying, you know, I'm going to ask MBS to bring down oil prices. And a lot of people are saying, boy, you know, in the first Trump administration, he said that and he really pulled it off pretty darn well.

Is it right to assume if he did it once, he can do it again? Or are we dealing with different fundamentals in the market that would make it much more difficult for him to do it again? Well, it's definitely a different market now relative to Trump's first term. I think COVID really fundamentally changed a lot of how the oil market works and trades in terms of kind of the big moving pieces. But in some ways, I think what's interesting is that so

When we talk about the ways that Trump is going to affect the oil market, I think what comes up most frequently is, you know, energy dominance drill, baby drill on the downside. So more U.S. production means lower prices. And on the other side, it's, you know, heavy sanctions on tighter, tighter enforcement on Iran and Venezuela, which means lower production or lower exports, at least. And then, you know, higher prices.

So how do we balance those out? I think looking at them, you know, just at the same level, I think that the sanctions seem more likely to be the thing that Trump himself can pull a trigger on. And by what I mean by that is that, well, I think there is still plenty in the tank for U.S. production growth should prices go higher from here. I don't think that the...

few dollars a barrel of ups, you know, of kind of regulatory burden savings that you're going to get from, you know, Trump's initial executive orders and efforts to kind of reduce this regulatory burden on U.S. drilling. I don't think a couple bucks effective price difference is going to swing materially the current trajectory of U.S. production growth.

for those that aren't aware, U.S. production growth was exuberantly crazy prior to COVID. COVID sunk it. Everyone was like,

Everyone's wondering, okay, is this the time where they finally found, you know, cash flow discipline? And then 2023, growth reaccelerated and spiked again. And then 2024, it began to slow down. And then 2025, the expectation is going to slow down even further from about 1.5 million barrels a day of growth in 2023 to nearer kind of 300,000 barrels of day of growth this year. Now that's going to be complicated.

to be kind of awkward for President Trump's administration if they come in on this energy dominance agenda and 2025 production growth shows, you know, some of the lowest growth levels in more than a decade, kind of excluding COVID. That's going to be an awkward narrative mismatch, and it's going to be interesting to see how they try and manage that. Compare that, compare and contrast that, though, to the sanctions element, where the

by, you know, swish of a wrist, Trump can decide to materially increase

sanctions intensity on Iran and Venezuela and potentially take more than a million barrels a day of crude off the market very, very quickly. We've already seen and we'll talk a little bit, I'm sure, about the Biden administration's final tightening of Russian oil tariffs on the way out. But these do have effects on the market, particularly on the margin where a lot of the pricing action really, really happens.

I'll come back to tariffs and Iran and a number of other things in just a minute. But let's go a little deeper on this, because I'm sure a lot of people listening to you are saying, wait a minute, Rory, the president of the United States has just completely, totally reversed the last president's policy. He's saying, drill, baby, drill as much as you want. We're going to open up everything you want. You got Chris Wright coming in as energy secretary.

why wouldn't that lead to an expectation that we're going to increase U.S. production by a couple million barrels by the end of 2025? Why would it be so low? What is the constraining factor? Is it geological? What's the problem?

I think it's a bunch of things. I think partly is geology in that a lot of the best plays have already been drilled. You know, the Permian and other, you know, U.S. tight oil plays are entering a more mature phase of their operation. But I think more generally, I think that U.S. production growth could absolutely reaccelerate to more than a million barrels a day easily if prices were over $100 a barrel. I think the issue I take here is more that...

The White House and the federal government can materially reduce the regulatory burden and make it easier and cheaper for U.S. producers to drill, but they can't force them to drill. They can't force them to produce more.

I should say, there are ways that they can do that. They are not currently planning on doing that. There's not like a defense production act that they're going to force drilling in Anwar or force drilling in the Permian or something. But, you know, who knows? We might get to that level. I think that's the issue here is that it is the private company's decision to reduce...

their pace of growth for their own interests. They don't want to oversupply the market. They want the market to tighten. You know, it's very, very common that people assume that the president has a lot of control over how much oil is being produced in the country. But I think I often say that the president has more control over how much oil is being produced in Iran than being produced in Texas.

And I think that's proven time and time again by you've seen some of the strongest years of U.S. production growth under both Democratic and Republican administrations, one of which thinks that oil is great and the other thinks it's like a threat to the future of humanity. So I don't think...

Texan drillers stop drilling just because, you know, the White House doesn't want them to. Sure, the Biden administration and the Obama administration and all various administrations have made it difficult and, you know, more expensive in different ways through various additional regulations, whether that be on things like wastewater disposal or methane flaring and kind of fugitive emissions, other things like that. But again,

Again, you can reduce those costs, but that just really, in my mind, let's say you have a producer that it costs them, and these are very, very fake numbers. Let's say it costs them $20 a barrel to drill, and the price is $50 a barrel. They've got a $30 margin there.

But and then you, let's say, have a reduction in the kind of cost of production by five dollars. Well, that kind of increases the effective price they get in the market by like five bucks. So if the price was 50, then maybe it's 55 now equivalent, you know, all else equal. And that's.

That's a meaningful difference in terms of like an accounting at the end of the day. But I don't think it changes the trajectory from dramatically slowing pace of growth to something that they turn around and obviously rev their engines to jump back up. And in fact, we've seen time and time again comments from industry saying we don't plan to kind of rapidly reaccelerate. And this has kind of been a common thing whenever you see this kind of drill, baby drill sentiment come up again.

Let's move on to President Trump's favorite word in the English language, which, of course, is tariffs. Now, first of all, the propaganda that the United States is energy independent is just simply false. It could be argued that North America overall is energy independent, but it still means the U.S. depends on both Canada and Mexico for a lot of petroleum imports.

If that stuff is all suddenly tariffed at at least 25 percent is what the president's talking about. What would that mean? Does that apply to all of the oil imports? And what would the implications be of a 25 percent tariff on Canadian and Mexican imports?

This is a question that has dominated most of my life over the past two months. And yeah, it's a massive deal. So I think it's important to just quickly understand because you're absolutely right that the United States does import a lot of crude from both Canada and Mexico and a couple other countries that kind of fills in the gaps in its kind of refinery input slate.

But let's talk about why Canada in particular is kind of a structurally difficult to replace barrel. And I think even more difficult to replace than Mexico.

And it really comes down to two things. The first is the kind of crude quality aspect, which I know you're familiar with and we'll just very, very briefly touch on. And the other is the physical infrastructure in place, which is the pipelines. So on the crude quality, the U.S. refining sector was largely built up and developed before anyone thought we were going to have a shale revolution. So...

The expectation was that you're always going to be importing barrels from abroad, increasingly heavy, sour or, you know, heavier, sour or barrels, and that those would need to be processed in the United States. So those refineries invest in equipment to make them better able to do that more profitably.

Over time, as the U.S. shale revolution ramped up, you tried to kind of push more and more of that lighter crude into those refineries. But you ran into problems when, you know, basically, if you're not running heavier crudes, you're not making economic use out of a lot of that very, very expensive equipment. So that's kind of it. You don't want to turn that into an economic write off. You still want to make that you still want to use that economically. Right.

At the same time, you have limits on how much lighter crude you can push through your refineries because of the additional kind of overheads, these lighter hydrocarbons like NAFTAs and LPG, etc., that these systems aren't designed to accommodate that share of higher-end cut out of the distillation tower coming out. So if you just run light crude through these, you basically can run nowhere near maximum capacity.

So by blending that ultra light, you know, North Dakota, Bakken is an example, uh, crude in the, in the Midwest and pad two with really, really heavy Canadian, you know, a heavy sour WCS that gets you into that medium grade that exactly what these refiners want to do. So for context, API gravity is kind of how, uh,

These barrels are assessed on a gravity or density basis. And the U.S. shales are often 40 degrees API or higher, whereas WCS is 22. So and they're averaging you're trying to get to kind of like that low 30s API in order to. That's what a lot of these Midwest refiners in particular would love to refine at. And that's what they're optimized to refine at.

And the other element here is the pipelines. So obviously, Canada is one of the only it's basically the only country on Earth that exports the majority of its oil by pipeline.

Virtually every other kind of major crude exporter ships it through their own territory right to ports and puts them on to kind of the global oil trade, seaborne oil trade. And then they can be very, very flexible with wherever they're going to go. Whereas in Canada, our main oil production asset in the oil sands is located in deeply remote northern Alberta.

And it was politically unpopular to build various pipelines to the coast. But it was also really, really far to the east coast and the west coast. You need to go across the Rocky Mountains. So in many cases, it made more sense and was easier to just put all of these pipelines south, down into the United States, into the Midwest in particular. So there's a bunch of these different pipelines, but the largest is Enbridge's mainline pipeline that goes down towards Chicago and kind of splits out through the Midwest.

Those barrels would be very, very hard to replace because there isn't that same volume of pipeline capacity heading north from the U.S. Gulf Coast into the Midwest. So even if you could find...

other heavy sour barrels in order to blend, in order to get that kind of right mix for your refiners. There's no real way of getting those barrels from where you'd be importing them in the Gulf Coast up into up into pad two in the Midwest. So I think those are the reasons why it's really, really important or why Canada is such an important source of crude for the United States and why it's very, very difficult to replace and why these tariffs are going to be very,

disruptive to this trade because it's not like anyone's going to be really able to effectively diversify away. The Midwest is kind of locked into that source of supply and Canada on the other side is also locked into that source of demand.

So effectively, those tariffs are likely going to be shared depending on exactly the mix of competition and where all the rules sort out. There are things like, will Canadian potential re-exports be subject to tariff out of the U.S. Gulf Coast? It's a big question. Trade lawyers tell me likely not, but there's always a question, you know, in the current administration. So I think that there's likely going to be somewhere, something like a

one-third, one-third, one-third split of tariff incidents between the Canadian exporter, the U.S. refiner, and the U.S. consumer. So right now, WCS is trading around, give or take, $65 a barrel, although I'm actually just looking at my screen and after another tariff threat, we're actually, we're widened out. So this math is very, very slightly stale now, but let's say around $65 a barrel for a barrel of WCS, a 25% tariff on that's, give or take, 15, 16 bucks.

let's say 15 for easy math. That means you get about a third, you know, sorry, $5 a barrel that goes towards a wider WSIS differential or a cheaper Canadian crude, $5 weaker Midwest refining margins, and probably a $5 a barrel or roughly 13 cents a gallon increase in Midwest pump prices in particular. But I think that's likely this equilibrium that's going to emerge as long as these tariffs are in place.

And as long as Canadian crude is not forced to compete with what I'm calling unfair, un-tariffed competition. So the idea would be that if it was forced to compete with non-tariffed grades of crude, say other competing grades coming from the Gulf Coast, then that would...

unfortunately push Canadian crude well lower because it would be forced to clear at that kind of undercutting competitive price. But I think finally, even getting any alternative

alternative crudes is also going to be challenging because when we look at other alternative sources of heavy crude, we're looking at Canada, we're looking at Mexico, which, as you noted, is also under threat of the same tariff. We have Venezuela, which is also being threatened with sanctions. And then we have Colombia, which was just this past weekend threatened with very, very sizable tariffs.

So any barrels that would replace that would likely have to be kind of more traditional OPEC barrels from places like, you know, grades like a Rocky Basra or certain grades of Saudi crude that could work in a pinch. But still, they're not ideal. And it's kind of politically, it's a politically strange dynamic to be threatening Canadian crude when the alternative is additional OPEC imports.

It seems to me that this does create an impetus for potentially big structural changes. There was a proposal discussed several years ago talking about building a pipeline from the oil producing regions of Canada in the middle of the country out to the West Coast for the I think it was the government of British Columbia that killed it at the time.

But the goal was to basically not be dependent on the U.S. as the only place that they could pipeline oil away to. They would have a pipeline going to an export terminal somewhere on the west coast of Canada. It seems to me like the economic impetus for reintroducing that plan, although it was very controversial in B.C. at the time, that probably is back on the table or isn't it?

I would say it absolutely is. And I would actually say for the first time in my career to date, there has been a very noticeable shift across political parties towards openness to the idea of

the necessity of both more pipelines and specifically more pipelines within Canada, Canada's coast. So, you know, the Trudeau government bought and completed the Trans Mountain expansion pipeline. So that just got completed this past summer.

And that tripled Canada's pipeline capacity to the West Coast. So that is now our main avenue to get around the United States. And that whole pipeline's capacity is about 900,000 barrels a day out of a total crude export base for Canada of just more than 4 million. So it's just about 20%.

It's a good chunk. It's not nearly enough. Then there was also the Energy East pipeline that was also recently, it was proposed and then quashed mostly by Quebec that was going to go all the way out towards St. John and to the east coast of Canada. And then there was also the Northern Gateway pipeline, which is another pipeline that was going to go west to the west coast. All of these pipelines are now being talked about again in ways that, again,

I didn't expect them to be. And I think it's even more interesting in the context that rewinding even a couple months ago and the main talking points around Canada and oil were Trump re-approving the Keystone XL pipeline, which now just seems like

If he wanted that pipeline, the tariffs were the absolute worst possible thing you could threaten because it really undercuts the main argument for pipelines to the United States. I think it's important for people to remember. I think it's, you know, people are always like, oh, well, why didn't Canada build more pipelines to the coast? Why did you become over-dependent on the United States? Well,

Canada and the United States are the two closest democratic allies in modern history. We have shared, we've shared everything. We have the longest undefended border in the world. Like all of this stuff is, you know, we're as close as two allies can be. There was never an expectation that you could ever see this kind of punitive tariff placed on Canada. And if there was, you absolutely would not have gotten this level of trade defendability.

dependence built up. It was built up because it's typically cheaper and easier to build these pipelines to the United States than to our coasts. And...

when it comes down to economic optimization versus kind of buying insurance, markets typically go the optimization route. They don't naturally hedge themselves. So it would have taken additional action and a kind of a conscious effort to diversify and to insure against that over-dependence in the United States to build those pipelines or to prioritize those pipelines over ones to the United States. And that just didn't seem...

That didn't seem like a like a risk. Even during Trump's first term, there was never there was never seemingly a risk about tariffs on Canadian crude. They again, they had reapproved Keystone XL then they didn't get done, which is why I didn't I don't expect it would get done this time either. But, you know, it's just it's just such a strange and striking change of tone and pace.

I just want to go back to the crude quality matters argument, because for anyone who's not deeply familiar with this, as you are, it might not be obvious. What you're saying essentially is, yeah, with a 25 percent tariff at first glance, it looks like for U.S. oil producers, that's a gift because now they're going to increase U.S. production and they've got that twenty five dollar, you know,

advantage over imported crude. The problem is they don't need more of the same kind of crude that you can get out of the shale plays. They need heavy blend stock and that heavy blend stock would need to come from someplace in the U.S. Now, 25 bucks is a pretty big incentive for

Are there plays in the U.S. that were not economic before that could be a source of heavy blend stock? Or is there just not that kind of oil anywhere in the United States that could be produced? It's not that there isn't any heavy crude in the United States. There definitely isn't any heavy crude to that scale. And so I think when we talk about it, I mean...

I am obviously not a fan of these tariffs, but that doesn't mean there aren't winners in this tariff, of course. There are some small U.S. heavy crude producers that would absolutely love nothing more than to have the ability that, you know, they've been, in their minds, harmed by Canadian competition. And they would love protection from the government in the form of tariffs to regain some of that market share and to expand their business. But it's not like...

the United States can tomorrow discover its own oil sands. There's just nothing, you know, comparable on Earth that can really be tapped that quickly. And it's absolutely not in the United States. Because I think it's also easy to forget, just like, again, how long it's taken to build up this volume of flow in the first time. It's not something that you can just turn around and, you know, kind of replace on a dime.

Let's move on to some of the jurisdictions around the world where you could find that heavy blend stock that's needed in order to mix with the oil that's produced in the U.S. to have something that's refinable.

One of the big sources is Iran. Now, it seems like we may be headed toward war with Iran. Hopefully, we can avert that. Where do you see that headed, first of all, geopolitically? But then what would it mean in terms of, you know, is Iran the right source for that blend stock? And what would it mean if a war took all of Iranian supply completely offline? Yeah, I would say the...

The running joke right now is that Trump has like a grudge against someone who owns a coking refinery because it seems like he keeps wanting to either remove or tariff every source of heavy crude that moves, whether it's Canada, Mexico, Colombia, Venezuela, Iran, though. That's really that's that's a lot of it. So.

Yeah, I mean, if we lost Iranian crude from the market, it's not as heavy as Canadian crude, but it's definitely much closer than anything that the United States produces. So yeah, I think a lot of OPEC crude in that region kind of falls into that medium sour to heavy sour range. And removing it will further tighten that market, which is already becoming much tighter. We haven't actually heard...

that much at least loud from the Trump administration on Iran immediately at the gate at least nothing that's that's kind of jumping over the magnitude of sound coming around the rest of kind of North American tariffs right now so I think it'll be interesting to see exactly when that becomes re-centered as a priority it is admittedly hard to keep track of all the move the bouncing balls of priorities right now

But I do think that that was something that was a major kind of focus point of the administration in Trump's first term, something he was very critical of Biden's tenure on Iran and the kind of rebound in exports that was seen. So the presumption, I believe, continues to be that he will continue to drive that down.

But I do think that in terms of what the kind of overall market impact will be, I think we have also seen pretty clearly out the gate here to your question that kind of started this conversation. It does seem like Trump himself is a crude bear. Like he wants lower prices. He's promised lower.

lower energy prices for American consumers. It obviously chafes and kind of runs against his pledge to kind of rocket higher U.S. energy production. But we'll forget that for a second. So the Iran stuff, I think the only way he's going to do it

is to preemptively extract like a commitment that the rest of OPEC will fill in for any lost barrels on like a barrel to barrel basis. If you recall, and, and, and you are equal will likely very clearly recall that we had a preview of, of this back in 2018 during Trump's first term, when, when,

He basically tried this before he tried. He basically told OPEC, okay, you guys add, you guys start adding crude to the market. I'm going to take a bunch of Iranian oil off. And then late that year, he basically did a complete rug pull and reversed entirely on, on his commitment to reduce those Iranian barrels at that time. And then we lost something like 30 plus dollars a barrel between late October and Christmas Eve. It was a crazy wild route. And I think,

Now, the Saudis and the rest of OPEC have become much wiser to dealing with Trump. So I think when they hear Trump speak from Davos about, you know, urging them to increase production and reduce prices, I think they're really kind of doing the wait and see what's actually, what's he going to do here? I don't think, I think what we've seen already with OPEC trying to

ease these production cuts it's been holding, they've very much been taking the tack of like, we're not going to act preemptively. We're going to wait to see realized tightness in the market. And I think in the case of Iran, they're likely going to wait to see realized Iranian export losses before jumping over themselves to kind of try and fill in for any losses.

Now, if you were to ask the average layperson which country on earth has more oil reserves than anyone else, most people would say Saudi Arabia, but that's not actually correct. Venezuela has the biggest oil reserves, although they're not particularly efficient at producing them because of turmoil and various issues in that country.

What where do they stand? Where does Venezuela and I should also mention that Venezuelan crude is that heavy blend stock that's needed in order to supplement the kind of crude that's produced in the United States. So it seems like a really good source of that blend stock that we need, the kind of oil we need to import. But boy, the the tension with Venezuela couldn't be much worse than it is.

Where do we stand with respect to tariffs on Venezuela? What could happen or what do you see on the horizon that might increase or decrease Venezuelan imports? And how does that play into this story?

Yeah, so I think Venezuela is a really interesting one because Venezuela also has seen production begin to rise again, not as notably as we saw with and not as not nearly as sharply as we saw with Iran. But ever so slowly, production is beginning to ramp up. Exports are bringing ramp up. And we saw that.

kind of a mismatch of attempts by the Biden administration to provide kind of a series of carrots for the Maduro government around kind of fair...

a fair holding of a fair election for the presidential election. Now, that did not happen. And then the Biden administration began kind of clamping down on a bunch of the things that it had given the Maduro government. But still, I think we have seen production and exports begin to rise. And it is a very, it's very easy spot for Trump to kind of clamp down. I think much easier and less

It's a much easier way to declare victory with much less immediate kind of potentially negative market reaction than, say, Iran, which, you know, we could be talking about more than a million barrels a day of Iranian exports off the market relative to previous. Whereas Venezuela, you know, probably talking two, three, four hundred thousand, a much less kind of chunky loss to the market that you would require OPEC jump in to kind of fill.

But I do think it's on the list of countries that Trump is trying to remind the American public that he was tough on. And I do expect that he will recenter there. But again, so far, it hasn't been the thing that they've been talking about most frequently yet.

Rory, I've seen some speculation online, and it's definitely speculation and maybe wild-eyed speculation at that, but a couple of people have said, look at what Trump's doing with Greenland and the Panama Canal. What if that's just the warm-up? What if he's starting with places like Greenland where the people who live there might actually welcome becoming part of the United States? And what if his ultimate plan, I'm not going to say, is to annex Venezuela because only bad guys annex places, right?

What if Trump's intention were to liberate Venezuela? That's liberate in air quotes, making them a territory of the United States, similar to Puerto Rico, and turning Venezuela's massive, massive oil reserves, biggest in the world, into an American resource that presumably American oil companies would be able to develop. Obviously, that is speculation. I haven't heard any serious policy talk about that. But, boy, it does...

kind of fit the story, doesn't it? We are definitely in a stage...

where the taboo of territorial expansion is beginning to weaken. And that is concerning for a whole host of reasons. But I do think if we're looking at it in this context, yeah, I think, you know, the very, like, and by, like, very definitional geopolitics here, we're looking at Greenland, which has Arctic access. We're looking at the Panama Canal, which provides bioconferencing

far greater fleet mobility for the United States and shipping mobility, shipping competitiveness against upstart rivals like China.

So, yeah, I think and whether or not I mean, goodness, I I've been I'm so bad right now at or I should say I'm so tired of handicapping, you know, what what were crazy tail risks that I guess I guess we have to add. Now that you've asked it, I know I have to add Trump annexes or liberates and air quotes, as you as you note.

Venezuela on the list. And I would say, I think that's only like a 1% probability kind of thing. But, you know, now that you've been asked it, I probably need to like raise it to 5%. So, yeah, I mean, what would that mean? It would be very bearish for oil prices. I would say that, yeah,

I've often considered Venezuela to be like one of the ultimate bear cases or bear risks for the oil market, given that, as you note, it's a absolutely staggering volume of crude, larger than Saudi Arabia, larger than Canada, which holds a very similar type of bituminous oil sands deposit and has been really, really, really bad at producing and kind of operationalizing that asset.

If it became an American territory, then yeah, you would see a huge influx of capital there, huge influx of expertise, and it would double on the idea that it's that heavier type of crude that the United States refineries are built to handle. Yeah, I don't love considering this scenario because it's very, very bad for Canada, but there are pieces of it that make sense in the context of what we're currently seeing.

It definitely seems to me that it would achieve a lot of President Trump's economic goals. It would bring the price of oil way down. It would expand American presence. It would certainly be controversial because it would be considered a territorial expansion and an aggressive one at that because the Venezuelan government obviously doesn't welcome it. But at the same time, the Venezuelan government appears to be kind of illegitimate to start with. They're not really having democratic elections yet.

And I'm not sure that the Venezuelan people would really object that much to the U.S. coming in and offering a whole bunch of Venezuelans jobs developing those massive oil reserves. So it does seem like a realistic possibility to me. Yeah.

One other thing I'm going to add there, though, is because the only part of this that does kind of chafe with what we're hearing is that Trump himself, I do think, sees himself as the guy that ends wars rather than starts them. And I do think while...

If, you know, I had to bet between the United States and Venezuela on who's going to win a fight, I'm obviously going to pick the United States. But, you know, the United States does have a long and kind of torrid history of thinking it can go into and, quote, liberate a country that turns into a very, very expensive boondoggle kind of like quagmire situation. And I don't know if Trump is eager to

to bring that kind of risk up for himself, given that I do think that for at least he sees himself as someone that ends wars rather than kind of like starts new ones.

Let's move on to this week's news. And just for our listeners' benefit, we're recording this on Tuesday afternoon. So we only have two days of data where our listeners will have four on what happened after the weekend's deep-seek shock news out of China, which is a new competitor to American AI that –

seems to have been developed at a much lower cost and perhaps more efficiently. I don't think it has anything directly to do with the oil market. If you disagree, let me know. But the reason I'm bringing it up, Rory, is, okay, some people are saying this could be the catalyst event

that causes everybody to say, wait a minute, this whole business of NVIDIA being worth $2 trillion of market cap has always been crazy. It's time to rethink this Mag7 crazy rally, and maybe it's a catalyst that brings about a broad risk market sell-off where stock markets are weighed down as a result. I don't see that happening, frankly, as of Tuesday afternoon. It looks to me like, if anything, we're retracing now and buying the dip here.

But if there were more news, if it were to go in that direction and we saw a big sell off, even if it was having nothing to do with deep sea in China, there was some other catalyst that brought about a really big sell off in U.S. equity markets independent of oil. Would that bring oil down with it or is oil really independent because, you know, the supply and demand is really more constrained by supply than whether there's sufficient demand?

Yeah, I think that overall oil, I'm a firm believer. And this is, I mean, there are plenty of debates about this, but I'm a firm believer that oil prices, at least on the kind of a medium term basis, at least are very, very firmly anchored to their fundamentals. That said, I do think that, and I think,

Here's the thing. I think oil prices as I see them are basically a function of current realized fundamentals with forward anticipated fundamentals and then kind of a speculative framing on top of that.

So the current fundamentals wouldn't have changed. I think there's an argument that if you do see a deep equity or financial market implosion, well, there's a concern that you would have contagion, recessions kind of, and that would legitimately pull down the price a bit. But I do think that to your point, oil on top of being this fundamentally governed commodity is also the most financialized of all the commodities.

and also is such a core risk asset in many portfolios, many of which have nothing to do with the oil market itself. It could be an inflation risk, it could be a whole bunch of things in different portfolio contexts. I

I do see that kind of a broader, you know, market route would absolutely pull oil down, you know, quite possibly quite severely. But I don't think it would be a lasting route unless you got that kind of prolonged economic downturn on the other side. But I do think some of this deep-seek stuff is really interesting in the way it's affected other energy commodities, ones that are, because, I mean, the big takeaway here is that you might not need oil

you know, a $500 billion Stargate project. For those that are aware, this is like the big chip build-out project. And you might not need all the power that kind of supports it. So maybe you don't need quite as much nuclear energy that was beginning of a renaissance. And maybe you don't need quite as much natural gas, which was starting to get a lot of pressure from this as well. So I think it'll be interesting to see how that plays out because all of that stuff does in its own way lead back to oil as well.

Rory, final question. We haven't talked OPEC yet. Now, I question how much spare capacity they really have, but supposedly they're withholding a whole bunch of oil from the market. What if Trump called in a favor with MBS? He seems to have a pretty good rapport and said, hey, we really want to get the oil price down. We're going to make it up to you some other way. Let's just

turn the screws to the max and have OPEC produce as much as they possibly can. What if somehow Trump were able to persuade OPEC to just turn the valves all the way up? What would that mean for the market? Turning the valves all the way up would be quite the market shock. I think that, so just to kind of quickly go over numbers, OPEC itself claims around

6 million barrels a day of width of current cuts. This isn't even counting total spare capacity. This is just the kind of current cuts that be, you know, the cutting cycle that began at the end of 2022 and is extended through to today. Of that, I would say roughly maybe 4 million barrels a day of those are real cuts rather than paper cuts and all these other kind of shenanigans that OPEC pulls with its own numbers.

And maybe exports are maybe 3 million barrels a day or 4 million barrels a day lower. So I think that's, let's say 4 million barrels a day is the number we're really working with. That is less than six, but still more than enough if dumped back into the market, you know, in one giant whoosh, we could easily sink crude to, you know, $40, $30 a barrel or less. They would...

The irony here would be that the fastest way the market would solve that oversupply would be to drag prices down to the point and for long enough that U.S. producers would get crushed. So there again, it brings us back to this core conundrum, this core paradox of Trump's energy policy, which is that he wants higher U.S. production and lower overall prices.

But I think in terms of the way OPEC itself is acting around Trump's requests, the official answer has been kind of no answer, right? They didn't formally respond, but the trade industry reporting is kind of indicating that they are meeting quite a lot in the background to figure out how exactly they're going to message this going forward, because they don't want to anger Trump, but they're

But they also don't want to end up in a situation where they're kind of forced to act against their own economic self-interest, especially after, in their minds, they have worked really, really hard for the past two, three years to try and get to a stage where they can stabilize the market and then begin easing these barrels back without tanking the market. So I think it would be

it would be very hard for them to accept that after all this time, now is the moment that they're going to dump the crude back onto the market and undercut their own earning. But again, I think it's,

This is going to be the tricky thing. I would say what you're really what would have to happen in that case is Trump would have to offer something sufficiently enticing that would allow them to reduce what they consider to be their acceptable break even price. Now, much has been made. I think we've talked on previous podcasts about how

you know, OPEC's own revealed preference for prices, which by which I mean the price at which they cut to support. If you drop near a price and you start cutting, cutting, cutting, it's pretty clear that you don't want prices to drop below that level. Prior to COVID, that would have been like 50 bucks a barrel, maybe 60 bucks a barrel. After COVID, you know, this latest cutting cycle started with Brent above 90. So,

You would need to be something sufficiently attractive to entice OPEC to reduce that desired crude price from 80, 90 bucks down towards, what, like 60, 70 bucks maybe? If that happened, I'm sure there are things that Trump could do to convince them. But again, we end up back at square one. We're running in circles in a way, which is...

if OPEC increases production, the way the market will balance is by pushing U.S. crude out of the market, both because they are typically the higher cost marginal producer and because they are the fastest response, fastest cycle producer. So they respond most quickly and their investment decisions hit the market fastest. So that is the way, it's the same way that in 2020, and this is, I'm belaboring this a little bit, but like the,

The interesting thing here is that overall, Trump is generally has a bearish tilt on oil. But it's also important to remember that in 2020, Trump himself was reportedly integral in pushing OPEC

to kind of get its act together and cut production in the initial COVID demand slump in order to save the oil market and particularly save US oil producers. If OPEC hadn't cut like it did in 2020, the market still would have eventually solved itself, would have sorted itself out, but it would have meant single digit prices or low teens for months and months and months and months enough to completely cut

crush and kind of push out all the rest of the U.S. production. In this kind of a scenario where Trump has OPEC ramping up production again, the same general kind of framework still applies. Rory, I can't thank you enough for a terrific interview, as always. But before I let you go, please tell us a little bit more about what you do at Commodity Context, how people can follow your work, Twitter handle, all that stuff.

Again, thanks for having me, Eric. I always love coming on the show. So you can follow me at Rory underscore Johnston on Twitter or X, and you can follow all of my written and published work at commoditycontext.com, where I publish a whole host of oil market research from thematics, which are right now, unsurprisingly, very focused on Canada-U.S. oil trade. I publish in a weekly report called Oil Context Weekly every Friday at 4 p.m. Eastern.

And I also publish three different monthly reports on global oil balances, North American oil flows, and on OPEC policy tracking. Patrick Ceresna and I will be back as Macro Voices continues right here at MacroVoices.com. Now, back to your hosts, Eric Townsend and Patrick Ceresna.

Eric, it was great to have Rory back on the show. Now let's get to that chart deck. Listeners, you're going to find the download link for the postgame chart deck in your Research Roundup email. If you don't have a Research Roundup email, that means you have not yet registered at MacroVoices.com. Just go to our homepage, MacroVoices.com, and click on the red button over Rory's picture saying, looking for the downloads.

Now, Eric, let's start with the equities. What are you thinking here? The big story this week was obviously DeepSeek. Now, for anyone who hasn't followed the news, here's a quick summary. Until this past weekend, three beliefs were assumed to be immutable fact by almost everyone in the world of AI. Number one, the AI race is all about spending money on model training, and whoever spends the most wins. It was assumed that little could be done to reduce the cost of model training, and for this reason,

only the biggest of the big tech boys could play in the AI model training sandbox because nobody else could afford to play the game. Number two, the only way that anyone could possibly even hope to compete was to have the very latest NVIDIA GPUs and a whole lot of them. Now, since these are export controlled, it was assumed that China didn't even have access to the tools needed in order to be in the fight, never mind to win the battle.

3. Only the very cream of the Silicon Valley crop was smart enough to play this game, so anyone else overseas, like those dummies in China, surely they could never hope to compete with American technology exceptionalism.

Then China shattered all three of those presumed immutable facts with the weekend release of DeepSeek, an AI that basically does the same thing as ChatGPT, but which supposedly only cost $5 million to develop. The $5 million figure was subsequently debunked. It really cost more than that. But it's still clear that China did this at a much lower cost than anybody previously thought possible. The past

The panic selling on Monday happened because everyone knew that NVIDIA led the Mag7 rally on the way up, and they feared that a major blow to NVIDIA's earnings outlook could be the straw that breaks this bull market's back. But

But by the end of the day on Monday, the panic had subsided and the retrace was already underway. As of Thursday morning, it looks like this is going to blow over, at least for now. But to my thinking, it still revealed the fragility of this market. And as I've said many times before, I think the real test of this market is more likely to be whether Trump's enemies score any big goals in undermining his policy agenda.

Now, so far, all indications are that Trump and company are kicking ass and taking names in Washington. If that continues, I expect the rally to continue, at least for now. Eric, looking at that S&P chart, we're stuck in a multi-day trade range after that reaction to the deep seek news.

But we are at an interesting point on both the Russell and the Equal Weight Index, which is both of them went through a very deep sell-off in December that was not evident in the main S&P index because the MAG7s were holding up that index so strongly. But after such an oversold condition where the market breadth was so oversold, we've had over the last few weeks

a big market rebound. And so we've had this retracement. But both the S&P Equal Weight and the Russell have done these 50% retracements of the prior decline, a level which if this was simply a reactionary or reflexive oversold bounce,

This is a level where these markets could easily roll over. Are they going to is the puzzle to solve here. The S&P 500 at the same time, obviously double topped,

retested this previous high. And then this news basically took the wind out of its sails. So we have a situation where we want to determine whether or not this becomes major overhead resistance. And we once again, head back down to the lows established earlier this month. That's right now. We had obviously this pig in the Python moment of news where we had mag seven earnings at the same time as the FOMC and the ECB, uh,

as we're recording this. And so we have a market that has all sorts of triggers to potentially start movement. And so far, those triggers have not created more market volatility. And the question then becomes, what are the key technical levels to watch? For me,

The 50-day moving average and key FIB zones are in the 5950 to 6000 level on the S&P. This is a line in the sand that the bulls must hold in order to keep the trend in their favor and leave the upside window open for them for continuation patterns.

At the same time, the bulls, in order to really gain some traction on the upside, need the mag seven to all fire up with a breakout to an all-time new high in order to drive that continuation pattern that could see 63, 64, 100 or higher on the S&P 500.

We're at an incredible neutral zone area where the market is consolidating in this very tight range. The thing to watch is which way and who will it break out and who will prevail in that dominant trend. The bulls have command of the trend. Will they drop the ball and be a turnover with a breakdown below 6,000 is the key thing to watch going into next week.

So let's move on to the dollar. What are your thoughts here? After taking a dive to test 107 on Monday, the Dixie is back to flirting with 108 again on Thursday morning. We've clearly moved into a consolidation pattern, but so far there's no compelling technical evidence of a new downtrend.

The way I look at the dollar is very simple. There's a very clear and pronounced bull trend and a bull breakout that happened here. And when you look at this US dollar rally that we've had relative to US dollar rallies we've had in the past,

This is nothing in comparison to size and magnitude, which is that if this is a real U.S. dollar rally, there's no reason why we shouldn't be going back to retest levels where we saw in 2022.

At the same time, there's no evidence that the bears have regained control of this trend and somehow some big U.S. dollar bear market is about to resume. Now, at some point, we will have a U.S. dollar bear market. At some point, the bears will prevail. But is there any evidence or reason to believe that's now?

And the answer for me is no. At this moment, there's been a pullback in the dollar. And the right thing to do in my mind is to assume that the bulls will prevail and still have another leg higher until this trend is broken.

And right now, I think that the bull breakout on the dollar can still continue. And we could easily still see levels that approach those 2022 highs in the kind of 115 area on the upside.

Now, Eric, let's talk about crude oil. What's your thoughts? Since we recorded Rory's interview on Tuesday afternoon, the sell-off in crude has continued to test the 34-day moving average at $72 on WTI, and it's bouncing off of that level early Thursday morning.

Well, Eric, for me, this was the big test, right? We had a short squeeze on that crude oil. Everyone was short down along the low. Everyone was bearish as hell. And now we had this breakout that squeezed out all the shorts and that very typical kind of 10 to 12 dollar short squeeze on the upside.

And one of the things that I have been very adamant about is that the breakout on a short squeeze like that isn't the tell. It's about whether bulls buy dips. And so here we now have fully retraced a good chunk of this short squeeze rally. And if the bulls are going to keep oil bullish, they're going to hold the line here, start some accumulation and drive the trend back up.

If and literally this level around the $72 area is a must hold line. If oil doesn't hold these lines, then it was just a short squeeze. And then oil will fall right back into the trade range that it was in the fourth quarter of last year. And and then it's the bulls would have to start all over again. And then it would be just trade ranged oil markets. Very important inflection point on oil. Let's see whether the bulls can keep this going.

All right, Eric, let's touch on gold. A breakout to new all-time highs on the front month futures contract, which is now the April contract, appears to have begun with the European Open on Thursday morning. But hang on, the contract roll from February to April accounted for a big piece of the upside.

So it's still early to say that this is going to be a decisive upside breakout. A daily close over 2825 on the April contract on Thursday would suggest that the rally will continue to test higher and higher new all-time highs.

Gold just remains so bullish. And what I mean by that is that every dip is bought. And this is the characteristic that you look for from a price action perspective. Every time gold has a down day, it gets immediately bid and it turns around and gets right back to the previous highs within days. There's very clear accumulation. It's approaching those previous highs, if not already exceeding them on different contracts.

And we're going to see whether the bulls can make this go. All the measured moves are up to 3,000 now. So if the bulls really can definitively break this out to a fresh high, this is the beginning of something very interesting. On a side note, silver just broke a very important descending trend line this morning. And it'll be very interesting to see whether silver and platinum and palladium and all these other precious metals start to confirm gold's prevailing uptrend.

Eric, lots to talk about on this uranium move. What are your thoughts?

The reason uranium got absolutely clobbered on Monday is pretty obvious, and that is that a lot of people have perceived the nuclear renaissance to be driven by AI and the need for more power for data centers. So the perception that the AI rally might be in trouble on Monday led to investor sentiment on all things nuclear souring sharply in Monday early trading.

But the retracement is already underway to the upside. And frankly, I'm convinced that that weakness was confined to sentiment, not any meaningful change in fundamentals, regardless of what happened with AI. Now, look, none of these reactors that are planned in reaction to the AI data center trend have even been built yet. So there is no demand for uranium from that trend yet.

commodity markets aren't forward-looking like the stock market, so there's no rational reason for spot uranium to have sold off anywhere close to as hard as it did. But the fact that it did came as no surprise. Sentiment is sentiment, and this is a volatile sector. I took advantage of the opportunity to add to my longs on the dip, and I'm glad that I did.

I won't go so far as to say that the bottom has to be in, but I don't see any negatives on the horizon for uranium itself in terms of any fundamentals in the sector really looking. Frankly, it looks incredibly, incredibly bullish.

If we get taken down from here, it will be as a result of a broad market risk event or something other than uranium fundamentals itself. And again, the catalyst for that broad market risk event would be a major setback in the Trump administration being able to pursue its policy goals.

To me, I want to split up uranium versus uranium equities because uranium equities in my mind had a lot of that money flowing from the tech spaces and a lot of tech funds buying into this uranium story being an important part of AI data centers and so on. So some distribution in uranium equities makes sense.

But I don't think there's any reason why actually uranium itself is going to be impacted in the bigger picture. And so with the selling in these actual uranium funds, like the Sprott Physical Uranium, I think is a buy on dip because I don't,

think that there's the fundamental backdrop for physical uranium prices to go much lower. And so I think it's important to differentiate the two. Maybe uranium equities have a little more short-term downside risk based on that sentiment, but I don't think that physical uranium is going to have anywhere near the same kind of volatility as the equities might.

Finally, I wanted to just touch on the 10-year treasury yield. And really, we continue to see yields coming off. And the hawkish Fed statements didn't really create any big reactions. We do have a very important moment on the 10-year yields coming back to test the November highs. If we see this 450 level start to give out and we see yields pressing down towards 4%,

then we can define the upper boundary of the trade range that yields have been in for the last almost two years, where this 480 to 5% level has really been the ceiling and cap of where the 10-year yields have really peaked out. Folks, if you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of Big Picture Trading. The details are on the last pages of the slide deck, or just go to bigpicturetrading.com.

Patrick, tell them what they can expect to find in this week's Research Roundup. Well, in this week's Research Roundup, you're going to find the transcript for today's interview as well as the chart book we discussed here in the postgame, including a number of links to articles that we found interesting. You're going to find this link and so much more in this week's Research Roundup. So that does it for this week's episode. We appreciate the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make the program even better.

Now, for those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an email at researchroundupatmacrovoices.com and we will consider it for our weekly distributions. If you have not already, follow our main account on X.

at Macro Voices for all the most recent updates and releases. You can also follow Eric on X at Eric S. Townsend. That's Eric spelled with a K. You can also follow me at Patrick Ceresna. On behalf of Eric Townsend and myself, thank you for listening and we'll see you all next week. ♪

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