It was just over a year and a half ago when oil futures turned negative. It was amid the worst of the pandemic lockdowns. There was no travel, no demand and given the storage costs of crude oil, the near oil futures price went below zero. That is to say that people would pay you to take their oil.
In China some factories are being asked to operate for only two days a week amid energy shortages and power generation shutdowns. In India, states with a surplus power are being instructed to notify the national government as the authorities grapple with coordinating power redistribution and allay sales over power exchanges and potential price gouging.
Demand is also inelastic to a point. People need heating and transport, but discretionary spend falls off a cliff, leading to overall demand destruction, in theory. Except that given two years of a pandemic, inventories have been run down and production needs to happen to keep shelves from going empty.
Resources like aluminium have already seen prices rally strongly. While these dislocations lead to windfalls for commodity producing countries, the whole world would do better to look through the cyclicality and plan more forcefully for a more resilient future. What do I mean? In an interlinked global architecture, vulnerabilities in specific sectors and geographies can quickly spill over into contagion effects. Rather than just building redundancies to survive, while trying to smooth out the cycles, we should embrace the cycles.
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