Goehring & Rozencwajg Q1 2026 Natural Resource Market Commentary

2026-05-22 08:00:00 ET

Could the Tanks Run DRY?

Commodity markets, and energy markets especially, have always possessed a peculiar instability. Periods of acute shortage and extraordinary profitability have a habit of convincing investors that prosperity will persist indefinitely, while periods of collapse usually persuade them of precisely the opposite. The resulting swings can last far longer than logic would seem to permit.

Most of the large moves are driven not by geology, but by psychology and the capital spending cycle. When a commodity market slips into deficit, prices rise sharply and producers begin earning exceptional returns. Capital eventually follows, although bringing on meaningful new supply is rarely a quick process. New mines, pipelines, export terminals and offshore projects often require years before the first incremental barrel or ton reaches the market. By the time that supply finally arrives, the shortage that justified the investment has usually become widely recognized, and too much capital has been committed. The deficit turns into surplus, prices fall heavily, and investor enthusiasm

evaporates almost as quickly as it appeared. Capital leaves the industry, depletion gradually tightens the market once again, and the cycle begins anew. In commodity markets, these cycles often take a decade or more to fully resolve. There are very few quick cures.

Short-term volatility, however, is usually caused by something altogether different. In those instances, the problem is not psychology or overinvestment, but rather a physical bottleneck somewhere within the system itself. These disruptions can be sudden, violent, and wholly disproportionate to the underlying imbalance that caused them.

Natural gas markets offer some of the clearest examples. During especially cold winters, inventories can draw down at an alarming rate. In Boston, where pipeline infrastructure is notoriously constrained, the city occasionally finds itself perilously short of dispatchable supply during severe cold snaps. Under those conditions, prices have been known to rise twenty-fold in only a matter of days, as utilities and industrial users compete desperately for the last available molecules of gas.

Over long periods of time, commodity prices tend to gravitate toward their fully burdened cost of production. In the short run, however, prices are often determined not by average economics, but by the marginal barrel or molecule needed to balance the market at that particular moment....

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