GM37: SPR - The Federal Reserve of Oil ft. Rory Johnston
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 15 March 2023
⏱️ 75 minutes
🧾️ Download transcript
Summary
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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Transcript
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| 0:00.0 | No one knows where it's going to go. |
| 0:08.0 | We don't know how much supply we're going to lose of Russia. |
| 0:10.0 | We don't know what Chinese demand is going to do. |
| 0:12.0 | And then from like five, ten years from now, |
| 0:14.0 | we don't know how successful energy transition policies are going to be at reducing this overall level of demand. |
| 0:20.0 | So, and all is to say that I think in this moment of kind of heightened volatility, heightened |
| 0:25.1 | uncertainty in the market, I think it actually much of the puck lands at the feet of |
| 0:30.7 | government here at trying to iron out some of the inevitable volatility that will be caused, |
| 0:36.3 | because the volatility will be bad for everyone. |
| 0:38.5 | Oil companies, consumers, the broader economy. So I think the goal here is to try and smooth out |
| 0:44.0 | that period of energy transition. Imagine spending an hour with the world's greatest |
| 0:50.2 | traders. Imagine learning from their experiences, their successes, and their failures. |
| 0:55.7 | Imagine no more. Welcome to Top Traders Unplugged, the place where you can learn from the best |
| 1:02.0 | hedge fund managers in the world so you can take your manager due diligence or investment career |
| 1:06.9 | to the next level. Before we begin today's conversation, remember to keep two things in |
| 1:11.7 | mind. All the discussion we'll have about investment performance is about the past, and past |
| 1:16.6 | performance does not guarantee or even infer anything about future performance. Also understand |
| 1:21.8 | that there's a significant risk of financial loss with all investment strategies, and you need |
| 1:26.2 | to request and understand the specific |
| 1:28.4 | risks from the investment manager about their product before you make investment decisions. |
| 1:33.2 | Here's your host, veteran hedge fund manager, Nealz Kostrup Larson. |
| 1:43.0 | Welcome, welcome back to another conversation in our series of episodes that focuses on markets and investing from a global macro perspective. |
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