Loading ...Permanent Demand Destruction
In a number of posts, and comments on others posts, I have said for almost 6 months that oil had topped for this cycle. The phrase I have used often is “the world is awash in oil”. I explained a while back that the sanctions on Russian oil were useless as oil is fungible and it’s oil like Iran’s and Argentina’s and everyone elses, works it’s way into the market one way or another. Those countries buying the oil of sanctioned countries need to buy less from the rest of the producers who aren’t under sanctions so demand for their oil is lessened. I wasn’t sure how long this particular cycle would last because we don’t yet know how long and how deep this global recession is going to be. What we do know(I suggest reading the attached essay) is that the world continues to change, as it always does, and many of these changes are not going to bring back increased demand for oil. The increasing levels of solar power, the move to electric vehicles replacing gasoline engines and work from home at least part of the week is reducing the amount of commuting. These and others are going to continue the level of demand destruction for gasoline and oil even after this recession runs it’s course. So even if geopolitical events lead to a spike in oil from time to time all those pundits and analysts who hype oil and talk about $150 to $200 are talking their book and full of hot air. Demand destruction for oil and related products is here to stay and increase over time.
Interesting!
Great post, Sir CM!
It makes total sense to me. Let me present my supporting points from the trenches in the Bay Area.
(i) Covid “driven” (reverse pun intended) demand destruction causing a semi-permanent change in IT workers commute habits
(ii) Electric vehicles in abundance causing less gas usage in California, home to the maximum population for any state. When the gas prices rose to nearly $7 a gallon almost for all of California, it has caused a further rush (and more options for the consumer) to electric cars.
(iii) Amazon deliveries for each and everything for which we used to drive to the grocery store, hardware store.
In the light of all this the ESG /global warming, climate-change, et al narratives HAD to push the gas prices as high as possible.
In the macro picture:
I learned a few years ago, that demand driven inflation is good for business, but cost push inflation is not.
The not-so-common man, as in the educated (undergrad or even graduate degree) minds, cannot distinguish easily between the two. They think that just like home prices are rising, is good for their net-worth, a “little inflation” cannot hurt. Hence the 2% narrative which has now been blown to the smithereens … and they cannot understand that “the stocks, wages etc. growth cycle” will only persist with “a little inflation”. A rude awakening for these educated-technocrats-and-MBA-crats, but they are still not willing to accept it..
We are in the beginning stages of a cost push hyperinflation.
Thanks,
GL