Enjoy low oil prices – for now?

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We have been here before – [1] economic growth drives up demand which [2] raises prices when supply gets tight which [3] makes oil companies/countries rich which [4] makes everyone look for more oil which [5] they eventually discover and start to pump, at just the time when [6] high prices kill the economy, so [7] we get over-supply so [8] oil prices collapse.

It won’t last, of course – eventually [9] production slows as reserves get depleted, and [10] low prices restart growth so we start back at [1] all over again. This is an extreme case of the widespread phenomenon of industry cyclicality – see demo model. What might just be different this time is that [a] the very high oil price lasted so long that [b] very many players looked for new supplies, causing [c] an exceptional increase in availability which, with [d] prolonged slow economic growth, means [e] it could be many years before the over-supply gets absorbed.

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