I’ve described the dynamic of structural imbalances of supply and demand leading to lower prices for crude oil as the Oil Head-Fake:  high global production (supply) continues while demand declines due to global recession, and the resulting imbalance of supply and demand triggers a major decline in price. But this drop is not positive; it’s a temporary response that triggers a variety of disruptive consequences. There’s nothing fancy about a basic supply-demand pricing model; if the world is awash in crude oil and demand slides, price will eventually follow. The interesting parts of the Oil Head-Fake Dynamic arise from the supply side, not the demand side.  Demand for oil is famously inelastic, meaning that easy substitutes are not readily available, and the primacy of oil in the global economy insures a steady demand. Yes, natural gas can be substituted for vehicles that have been converted to burn natural gas, […]