>What concrete predictions does your model make?
Well, the model is less of a prediction and more of a stress testing tool. But under the hypothetical closure scenarios it shows the timing the oil reserves of distant countries exhaust, as well as the systemic effects on pricing (the France paradox).
>What developments in pricing/other would indicate that your model is wrong or incomplete? The model has a stylized way of incorporating pricing as a function of the total supply. In practice, when countries ration their oil that's beyond the scope of the model. That being said, the implied pricing trajectory is estimated and could be tested (the staircase graph showing prices constant while countries absorb the shock with their reserves and rebalanced whenever there is a reserve depletion).
>Nice website regardless, but I'm a bit skeptical that the dynamics of the global oil/energy market can be accurately predicted. Thank you! Indeed, but I think having at least a stylized testing tool might be useful for policymakers :$ (assuming decisions are ever data-driven lol)
>In practice, when countries ration their oil that's beyond the scope of the model.
Does your model assume that demand is constant regardless of price? We're already seeing a reduction in demand over the last several months.
https://finance.yahoo.com/energy/articles/global-oil-demand-...
There are two versions of the model: -The one rendered by default (called Endogenous), with endogenous price that affects the demands according to the price elasticity slider. Reflecting how reactive are the nodes demand wrt price -With fix price (called Fixed): that in the oil market doesn't apply, but it's an interesting baseline to consider oil purely as flow. And as a modeling tool, this allows the model to capture small supply chains that don't have price setting power.
> China's decrease of 1.5 million barrels per day, representing a 9% decline, was by far the largest globally, the report said.
Some global demand destruction is occurring, but that of China is them switching to large internal strategic reserves.
https://youtu.be/BkA0bkb6ZO0 (whole video is worth the watch)
And this is what the model price formation assumes, and in fact, the silent mechanism that makes the crisis worse. Reserves silently deplete for each country, and each epoch where they exhaust is when the price rebalancing occurs IN A SUDDEN SPIKE, affecting other nodes that are not even connected to Hormuz, which is one of the conclusions of the paper. Either directly or indirectly all countries feel the pain: the question is who can stand the game of chicken the longer before intervening
If the sudden spike is so bad, why would a country fail to taper their reserves?
this is an interesting market design question: the point is that tapering would require everyone knowing everyone else's depletion clocks. As they are unknown (sanctioned trade, non-public state figures), the opacity is the game itself (that I called game of chicken in other comments). Surely the main players are trying hard to guess each other's numbers by every mean possible
The suspense is terrible, I hope it lasts. Great work on the project!
Thank you! Much appreciated. On the suspense, we are all riding the same train :$
Can you explain the France paradox?
France imports 0 oil directly through Hormuz, but when the Strait closes, all other countries start raising their safety stock which increases oil prices. This makes France's stockouts very expensive mostly due to price (not flows). Which is contagion without direct connection.
Think of the 2008 crisis where companies that had nothing to do with Credit Default Swaps were exposed to the crash due to network effects, potentially crashing the whole economy.
Then, the government intervened by bailing the banks out. Here, it's not really clear if there is even an effective intervention.