So right now demand is exceeding supply and causing prices to spike. Is there a risk in a year or two there will be so much investment in new supply that it outstrips demand and the market is glutted?
I get the impression when the pandemic first started there was too much oil and too many used cars, which caused prices to drop. Now we have too few and prices are high, but will overproduction cause us to go back to a point of oversupply down the line? Not necessarily of oil and cars, but are there products where this could happen?
Possible, but there’s a difference between a supply shock and a demand shock. There was an oversupply of oil and cars at the beginning of the pandemic not because all of a sudden we were making more oil and cars but because all of a sudden the demand for oil and cars dropped dramatically.
It’s certainly possible for, say, a bunch of new factories to be built in anticipation of increased future demand that never materializes, but since increasing production in most things takes a long time and is very capital intensive, there are lots of checks built into most things to make sure that overproduction doesn’t go crazy.
In contrast, demand is a lot more flexible in both directions. So a sudden mismatch between supply and demand in the oversupply direction is much more likely to be caused by a rapid drop in demand than a rapid increase in supply.