Super-Cycle Silliness: Why Oil Prices Will Not Increase Much Further

Monthly oil prices have nearly quadrupled since April 2020 and that has some analysts talking about an oil super-cycle. That seems somewhere between premature and stupid at least for oil.

We’re near the end of a price increase that began at less than zero back to the where prices were before the pandemic. That’s a recovery not a rally.

Commodity super-cycles are caused by transformational periods of economic development and massive capital investment. They are characterized by demand growth and high commodity prices that may last for years.

Figure 1 shows world crude oil and condensate supply and price from 2000 to the present.

An oil super-cycle began in about 2003 and ended in 2014. It was caused by a plateau in oil supply in the face of rapid economic growth in developing countries like China, Russia, Brazil and India.

High oil prices resulted in development of tight oil, and renewed exploitation of oil sands and deep-water objectives. An additional 10 mmb/d of supply were added after 2010. Prices collapsed from over-supply in 2014 ending the super-cycle.

The present oil supply situation could not be more different than in the early 2000s. World output today is low because there is too much supply for existing demand. It is low because OPEC+ is withholding 8 to 10 mmb/d. It is artificial. Global debt and unemployment have never been higher. This is not the stuff of super-cycles.