Friday, June 5, 2020

Global supply chain incoherence


Note the risk factor driving down oil price. It is like insurance. Why?

Because traded goods and oil have wildly different value chains.  Thus, a producer will buy oil on tomorrow's prices of goods.  The trucker, on the other hand, ends up paying today's price for oil for yesterdays price of goods.

The price of oil reaches price equilibrium faster than the price of goods. That is what happened in 2008. The problem is largely caused by OPEC.

Chart from Fabrizio Venditti and Giovanni Veronese..

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