Rory Johnston on Why His $200 Oil Prediction Didn't Turn Out Right

Rory Johnston, an energy economist, explained on March 20, 2024, that his prediction of Brent crude oil reaching $200 per barrel was based on a specific scenario of a full-scale Iran-Israel war.

Johnston stated that the market's reaction to the initial Iranian drone and missile strikes on Israel on April 13, 2024, was relatively muted because the conflict did not escalate into a direct, large-scale confrontation between the two nations. He noted that the oil market's sensitivity to geopolitical events is high, but the absence of significant supply disruptions prevented the price surge he had anticipated. The market priced in a "tail risk" of a broader conflict, but as the situation de-escalated, that risk premium diminished.

He further elaborated that while Iran's oil production is not as significant as Saudi Arabia's or Russia's, its strategic position in the Strait of Hormuz makes any direct conflict with Israel a major concern for global oil transit. The potential closure or disruption of this vital waterway would have had a far more substantial impact on global supply than Iran's direct output alone. The limited scope of the exchange of fire, however, kept the Strait of Hormuz open and the immediate supply chain intact.

Johnston's analysis highlighted that the oil market often overreacts to perceived threats, but the actual impact depends on the tangible disruption to supply. In this instance, the limited nature of the military actions meant that the anticipated supply shock did not materialize, leading to oil prices settling below his $200 forecast. He suggested that future price movements would depend on the ongoing geopolitical tensions and the potential for actual supply disruptions rather than just the threat of conflict.