Publications: Notes at the Margin

The Risk Premium vs. Hoarding (June 23, 2025)

 

We completed the body of this report on Saturday, June 21, probably just as US bombs hit the Iranian nuclear development sites. But for luck and President Trump, the subject would have been less relevant. Now, however, the focus on hoarding could not be timelier. Hoarding is a subject familiar to central bankers and monetary economists, but not to those who follow the oil industry. Yet the data show that it was hoarding that pushed prices up in 1990 when Iraq invaded Kuwait and again in 2022 when Russia attacked Ukraine. On both occasions, firms that held oil in their tanks reduced sales, while those needing oil intensified their efforts to obtain it. The resulting market imbalance led to substantial price increases despite the release of strategic stocks. Crude prices might have jumped to $200 per barrel in 2022 had the latter not occurred. Indeed, Rystad Energy consultants offered such a forecast in March 2022.

 

The next few months may see crude oil hoarding on a scale never before experienced. Iran has been dramatically weakened, but it can still wreak havoc in the Persian Gulf. Whether the country acts is almost immaterial. Those who have oil will hoard. Those needing it will do what it takes to acquire supplies. The price increases will not stop until buyers reach the point where they cannot afford to pay more.

 

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