Pity Tommy Norris. And his real-world equivalents
Jun 26th 2025
According to Tommy Norris—a tough oilman with a complicated love life, played by Billy Bob Thornton in “Landman”—the ideal price for a barrel of oil is $78. At that level, he explains, producers make a healthy profit and have spare money for exploration, while consumers are broadly comfortable. Today the price of Brent crude, the global benchmark, is $65. Not only is that too low for Mr Norris, it is also too volatile: in recent weeks prices have swung in response to missiles in the Middle East.
Most industries have to contend with long-running price trends. Consumer electronics, for example, have been getting cheaper in real terms for decades, as manufacturing productivity has improved. The real price of labour-intensive services, such as education and health, has generally risen, owing to Baumol’s cost disease (the tendency of wage pressures to rise in line with earnings across the whole economy). By contrast, physical commodities, such as agricultural products, energy and metals, lack a clear long-run trend. They have an annoying tendency to overshoot ideal output during spectacular booms, and then to sink below it during equally striking busts. As Mr Norris is keen to point out, this matters since the raw materials are found in everything: “tennis rackets and lipstick and refrigerators and antihistamines”.
Recent disturbances to the oil price—this time prompted by war—will be familiar to weary oilmen. For although oil has long been a tricky product, recent research from the World Bank suggests that, in recent years, things have become much worse. Today’s boom-and-bust cycles are shorter and more extreme.What has changed? The main driver of the commodity cycle used to be found on the supply side. Something has to be extracted from the earth or grown from scratch. That results in long lead times and requires lots of capital. An offshore oil rig can take years to get up; even the shale-extraction process lasts months, not weeks. The metaphor of “striking gold’ is a little misleading: in reality, it is ten to 20 years from discovery to extraction. Thus supply struggles to respond to price signals, leading to over-investment during booms and persistent excess during slumps.
Inventory dynamics also contribute to the cyclical nature of commodities. In many cases, goods are either expensive to store or, in the case of agricultural commodities, perishable. Slim stockpiles mean that even short-term imbalances in supply and demand can cause large price variations. Financial speculation contributes, too, often intensifying a given market mood. More generally, demand for commodities is closely bound to the global business cycle. And there is always the possibility of a new war.
The World Bank’s researchers used an algorithm to identify turning-points in the prices of 27 commodities from 1970 to 2024. On average each experienced 14 about-turns over the five-decade period. Slumps lasted for a little under four-and-a-half years on average; booms for just over three. Although slumps tended to endure for longer, the size of the price move in both parts of the cycle tended to be similar. Individual commodities were in the same cyclical phase about two-thirds of the time, reflecting the impact of the global business cycle. Industrial metals and energy showed lots of correlation. Agricultural commodities, by contrast, tended to move independently, being subject to idiosyncratic, localised shocks such as weather disruption and disease outbreaks.
From 1970 to 1985 cycles were mostly driven by supply shocks, especially in energy. Then, between 1986 and 2001, markets became more stable, with longer cycles driven by technological advances in resource extraction, as well as a more liberalised global trading system. Volatility began to creep back into the picture in the 2000s. Since 2020, it has intensified. Booms now last an average of 24 months and slumps just 23 months. The peak-to-peak cycle has halved from 90 months to 45 months. As such, the World Bank identifies a new commodity regime.
Some of this shift has been driven by events, namely a combination of the covid-19 pandemic, the shock of Russia’s invasion of Ukraine and large swings in monetary policy over the past five years. But longer-term structural changes also appear to be playing a role. The global energy transition, as governments across the rich world pour billions into green energy sources, is leading to much higher demand for critical minerals such as nickel and lithium. At the same time, more frequent extreme weather has raised supply risks, especially in agriculture. The increasingly fragmented nature of the global economy, with rising trade barriers, has also disrupted the commodities trade. Concentrated production, limited supply-chain diversification and low demand elasticity mean its markets are especially vulnerable to protectionism.
When hammer hits hand
This has implications for governments around the world. According to the World Bank, two-thirds of emerging-market and developing economies rely on commodities for a significant share of their exports, fiscal revenues and economic activity. A more volatile cycle is a headache for these countries’ policymakers, lowering the chance that they will be able to achieve solid growth.It is also a challenge for rich-world central bankers. Historically, they have “looked through” commodity-driven price movements, instead preferring to concentrate on core measures of inflation, which mostly exclude energy and food. Given that commodity booms and busts between 1970 and 2020 usually saw price movements of a similar size, that made sense. However, if the upswings are now larger than the downswings, as appears to be the case, things become much more complicated.
Mr Norris, and his real-world counterparts, will also be wincing. The change in the dynamics of the commodity market means that the oil price will spend even less time in its sweet spot. ■
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