Commodity prices are not like retail prices in that they are purely set by supply and demand balances. If prices remain artificially high it will lead to overproduction, and in turn the filling of inventory and eventually price collapse as we run out of room to put the oil and the only way to keep it in the ground is to make it uneconomic to drill
This is why the strait of hormuz thing will blow up oil prices, because you’re suddenly holding up 10-20% of the world’s supply. That means the draining of storage elsewhere has to be incentived immediately. In relatively short order inventories will start running low and then the thing goes stratospheric.
For context the oil price collapse back in 2014-2016 was driven by like a 1% oversupply from shale drillers
Sorry, I should’ve been clear that I was talking about the retail prices for oil there, the price per barrel will stabilise but I doubt that will be passed onto consumers. You’re absolutely right though.
Commodity prices are not like retail prices in that they are purely set by supply and demand balances. If prices remain artificially high it will lead to overproduction, and in turn the filling of inventory and eventually price collapse as we run out of room to put the oil and the only way to keep it in the ground is to make it uneconomic to drill
This is why the strait of hormuz thing will blow up oil prices, because you’re suddenly holding up 10-20% of the world’s supply. That means the draining of storage elsewhere has to be incentived immediately. In relatively short order inventories will start running low and then the thing goes stratospheric.
For context the oil price collapse back in 2014-2016 was driven by like a 1% oversupply from shale drillers
Sorry, I should’ve been clear that I was talking about the retail prices for oil there, the price per barrel will stabilise but I doubt that will be passed onto consumers. You’re absolutely right though.