By: Jon Costello
Please read Part 1, “(Public) The Oil Shortage: The Market Is Still Underpricing, Part I.”
In Part I, I argued that the global oil market is considerably tighter than current crude prices suggest, with the shortage so far concealed by inventory withdrawals, strategic reserve releases, reduced Chinese imports and other temporary buffers. If that shortage persists, its consequences extend well beyond the price of oil.
In this second and final part, I examine four of the most important consequences I believe could follow from a prolonged disruption: a shift in power within the global oil market, a lengthy and potentially expensive process of rebuilding depleted inventories, the possibility of an oil-shortage recession, and the implications of such a downturn for the stock market. I then consider what these risks mean for investors and how I believe they should be approached.