No Prices May Cure Low Prices

8 Apr

The old adage of “low prices cure low prices” may be tested over the coming months as prices in some  oil producing regions of North America are dipping into negative territory.  The bottlenecks all across the supply chain in energy, mostly as a result of the complete decimation in energy demand, have led to prices no one ever rationally envisioned happening. While storage restraints and other practical capacity limits will ultimately ring fence price (at some level), we question what the trajectory of recovery will look like in a post pandemic world. The alphabet soup of  oil demand recovery (W,V,U,L)  nomenclature will  probably not be robust enough to encapsulate what will undoubtedly be indescribably unique due to 1) Massive shifts in unemployment, most of which may be permanent 2) shifts towards more work at home employment 3) Lasting effect on travel both work and leisure 4) Shift towards more balkanized supply chains. All of the aforementioned will lead to a murky energy demand picture for years, not quarters, to come. Thus the new adage may be” Only no prices cure low prices”.

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