A novel business cycle
Historically, many recessions have been caused by the build-up of too much inventory in various areas of the economy, forcing manufacturing businesses to lay off workers when demand stagnated or declined. Oddly enough, a case can be made that this emergent global recession has as one of its causes too little inventory. (We’ll leave aside the important elements of monetary policy and the promiscuous expansion of credit, okay?)
In our current unpleasantness, oil producing countries, oil companies, transport and storage intermediaries, and consuming countries all had the option of buying and storing oil over the last few years, when costs per barrel were in the 40s, 50s, 60s, 70s, etc. Indeed, it was only last September that oil prices reached $80 a barrel.
One of the benefits of Just-in-Time inventory planning was supposed to be that it could help diminish or smooth out the business cycle, and indeed that has been an effect. But Just-in-Time in the oil business means that inventories are kept low by design, ensuring that speculators and scaremongers could often credibly raise the fear or disruptions and shortages, allowing prices to rise to the heavens. So now we arguably have a global recession that is being caused by inventory shortage, not inventory excess. And it is not a decided matter that the shortage is even real.
Postscript: the volatile Jim Cramer, who predicted seemingly endless rises in the price of oil (and was right for quite a while) has now turned the corner to predicting price declines. We’ll just have to see what happens.