The oil price crash in one word: ‘Inelasticity’

BLOOMBERG 🔒| The historic crash in oil prices on Monday—to below zero, believe it or not—can be explained with one wonky word: “inelasticity.” The demand for oil is inelastic. It doesn’t respond dramatically to changes in price in the short term. When we’re cooped up at home because of Covid-19, we’re not going to do a lot of driving no matter how cheap gasoline gets. The supply of oil is also inelastic in the short term. It’s expensive to shut down a producing well, so some producers are willing to keep pumping crude temporarily even at a loss.

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