[Review] Crude Volatility: The History and the Future of Boom-Bust Oil Prices (Robert McNally)

Описание: Crude Volatility: The History and the Future of Boom-Bust Oil Prices (Robert McNally)

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These are takeaways from this book.

Firstly, Why Oil Prices Cycle: A Market Built for Booms and Busts, A central topic is the structural nature of oil price cycles. Oil demand is relatively inelastic in the short run, while supply is constrained by long project lead times, making the market prone to overshooting. When prices rise, consumers cannot quickly reduce usage and producers cannot instantly add capacity, so prices climb sharply. High prices then trigger investment, efficiency gains, substitution, and policy responses, but those effects arrive with delays. By the time new supply comes online or demand growth cools, the market can flip into surplus, sending prices down fast. The book emphasizes how spare capacity and inventories act as shock absorbers, and how their absence amplifies price swings. It also highlights feedback loops: price collapses reduce investment, setting up the next shortage. Understanding these mechanisms helps explain why forecasting is difficult even for experts, and why confident narratives often fail. Rather than treating volatility as an anomaly, the framework portrays it as an outcome of the market’s physical realities, capital intensity, and timing mismatches between decisions and results.

Secondly, The Evolution of OPEC and the Role of Swing Producers, Another major theme is the changing influence of OPEC and the concept of a swing producer, the supplier willing and able to adjust output to balance the market. The book traces how OPEC’s cohesion, internal politics, and strategic goals have shifted across decades, affecting its ability to manage prices. It explains why Saudi Arabia has often been central due to its large reserves and capacity, yet also why its willingness to stabilize prices is conditional. Domestic fiscal needs, geopolitical strategy, and concerns about long term market share can all change the calculus. The analysis also explores periods when OPEC attempted to defend high prices, only to lose share or face cheating, and periods when it tolerated lower prices to discipline competitors or preserve influence. This topic frames OPEC not as a monolith but as a coalition with diverging incentives. It also clarifies why markets sometimes misread producer signals and why headline announcements do not always translate into effective barrels in the market.

Thirdly, Geopolitics, Disruptions, and the Risk Premium in Prices, Oil is uniquely exposed to geopolitics because large volumes come from politically fragile regions and because oil revenues are tied to state power. The book details how wars, sanctions, embargoes, revolutions, and infrastructure attacks can remove supply abruptly, creating fear of scarcity and elevating a risk premium. Even when disruptions are temporary, uncertainty pushes buyers to compete for barrels and encourages precautionary inventory builds. The topic also considers how governments respond through strategic petroleum reserves, diplomatic interventions, and domestic policy changes, which can either stabilize markets or unintentionally worsen volatility. A key idea is that expectations matter as much as realized outages: traders and refiners price the probability of disruption and the potential magnitude of losses. The book’s historical approach helps readers see patterns in how crises propagate through shipping, insurance, and trade routes. It also underlines that geopolitical shocks often intersect with tight fundamentals, so the same event can produce very different price outcomes depending on spare capacity and demand conditions at the time.

Fourthly, Investment, Technology, and the Shale Era as a New Shock Absorber, The book explores how upstream investment cycles and technological change influence volatility, with particular attention to the rise of US shale. Conventional projects typically require years of capital spending before delivering barrels, reinforcing the delayed supply response that fuels boom bust dynamics. Shale introduced shorter cycle drilling and faster decline rates, enabling quicker responses to price signals. This can dampen some price spikes by adding supply faster