The oil industry's boom-bust cycle is self-perpetuating. Low prices cause companies to slash investment and lead to a talent drain as workers leave the volatile sector. This underinvestment, combined with natural production declines, inevitably leads to tighter markets and price spikes years later.

Despite new US sanctions on Russian oil producers, Goldman Sachs remains bearish, forecasting a decline. They argue that spare capacity from OPEC, exemptions for buyers, and the reorganization of trade networks will mitigate any supply disruption, preventing a sustained price spike and leading to lower prices by 2026.

The oil market's lack of reaction to the events in Venezuela demonstrates a key principle: short-to-medium term prices are driven by current production and delivery capacity, not the theoretical size of underground reserves that may take years and billions to develop.

Despite rising oil prices, there's no evidence of a supply shortage. Physical market indicators have even softened. The rally is fueled by investors buying "insurance" against potential geopolitical disruptions, creating a risk premium that doesn't reflect the market's weak underlying fundamentals.

The crude oil market is trapped in a recurring monthly pattern. For the first half of each month, the forward curve weakens on fears of a supply glut, nearly flipping into contango. Then, a sudden geopolitical shock mid-month causes the curve to snap back into pronounced backwardation, delaying the surplus.

The 30-50 million barrels of Venezuelan oil the White House claims to be releasing is not new supply. It's largely oil that was already produced but couldn't be exported due to the U.S. blockade. Releasing it is more of a reversal of a self-inflicted disruption than an injection of fresh barrels into the market.

Despite his stated goal of lowering oil prices, President Trump's aggressive sanctions on Venezuela, Iran, and Russia have removed significant supply from the market. This creates logistical bottlenecks and "oil on water" buildups, effectively tightening the market and keeping prices higher than they would be otherwise.

China's strategy of building oil inventories provides a key balancing force in the market. During periods of temporary supply disruption and high prices, China can simply slow its stock building. This reduction in purchasing effectively cuts demand and helps offset the disruption, stabilizing prices more quickly.

It's the volatility and unpredictability within the supply chain environment—rather than the magnitude of a single shock—that can dramatically amplify the inflationary effects of other events, like energy price spikes. This suggests central banks need situation-specific responses.