No Empty Gas Tanks: Experts Downplay US Energy Shortage Fears

Concerns about energy shortages have been driving scary headlines recently, including alarming stories in The Wall Street Journal. A trader cited by The Financial Times warned that 'we've burned through all of the buffers we had. Everything, all of that's now gone.' This strong language is reminiscent of the gasoline shortages from the 1970s.

The media anxiety is based on a simplistic view of the relationship between production (supply) and consumption (demand) and the stock levels or reserves that buffer the long sequence of transactions. Flows and stocks are fundamental concepts in accounting and economic theory, with flows creating and sustaining stocks, which support future flows.

The world has been experiencing a global flow-and-stock crisis since the Hormuz closure choked off 20% of the world's crude oil trade overnight. Economists initially feared acute shortages and sky-high prices but instead saw an oil glut develop as flows shifted to compensate for the blockage. Producers adapted by boosting alternative sources, while consumers adjusted by reducing demand.

The global flow-and-stock crisis has been mitigated so far, with prices still high due to a 'war risk premium' based on uncertainty about future market conditions rather than a current supply-and-demand imbalance. Forecasters have now turned their attention to the risks to oil stocks, warning of serious shortages and price increases if inventories are depleted.