Kemp: Persistence Of Instability In The Oil Market
Rebalancing the "oil market" actually means rebalancing each of these markets, which is a complicated and lengthy process.
Economists and policymakers are enthralled by the concept of equilibrium but experience as well as the theory of complex systems suggests the oil industry has never actually been in equilibrium.
Oil markets are in a perpetual state of disequilibrium; at any given point they may be moving further away from equilibrium rather than towards it.
The industry has often been hit by a new shock while it is still adjusting and rebalancing from the last one.
The fact real oil prices have tended to fluctuate in a (very wide) band suggests equilibrating negative feedback mechanisms do dominate in the long run.
But in the short run, destabilising positive feedback mechanisms can and do prolong the adjustment ("Why is oil market rebalancing taking so long?" Reuters, 2016).
(Editing by Dale Hudson)
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