This graph is from the most recent JPMorgan "Top of Mind" article, depicting the scale of the current supply disruption vs. prior geopolitical supply disruptions.
The one factor that may mitigate the effect of this disruption is the economy, especially is much less dependent on oil than it was in the 1970s.
https://i.redd.it/ugl6bmplq4rg1.png
Posted by Prudent-Corgi3793
3 Comments
Oil prices will go up significantly. Trump is trying to manipulate the paper oil prices (futures) down. The problem is that it only works in the short term but it’s very harmful long term. When oil is cheap, everyone rush to buy it on paper, but then there are no physical oil available for deliveries!
The lower the paper oil prices, the more trouble they will get into because countries will buy much more when the prices are artifically suppressed. Then they need to find more oil for the deliveries, which they can’t, then they have to bid up the prices. Short term, Trump manipulation works, but it’s long term harmful as the short squeeze will drive prices up way more than it would have.
In other words, by artificially lowering oil prices now through financial markets, Trump is causing a massive spike in future demand that will eventually outstrip supply and trigger an even more expensive price explosion when the physical oil runs out.
The chart is definitely terrifying but we also need to factor in the actual numbers coming out this week. Fatih Birol just confirmed we are losing eleven million barrels of oil a day right now plus a massive amount of liquefied natural gas. While our economy is more energy efficient today than in the seventies the sheer volume of this supply shock from the Strait of Hormuz being blocked is unprecedented. It is literally two historical oil crises and a gas crash happening at the exact same time.
The good news is a near limitless stable supply of oil exists in Canada. Hopefully investment in Canada increases and more pipelines will be built. Canadian oil production is now lower cost than US shale.