But the latest downturn is part of a cycle in manufacturing activity and energy prices that has repeated with an average duration of three to four years since the early 1990s.
After adjusting for core consumer prices, the price of Brent crude has fallen by 34% from the peak in May 2022 and U.S. Henry Hub natural gas is down by 73% from the peak in August 2022.
In real terms, oil prices are in the 67th percentile for all months since 1990, down from the 86th percentile in May, while U.S. gas prices have slumped to only the 3rd percentile, down from the 86th percentile in August.
Prices have fallen in response to a combination of factors, including the impact of sanctions on Russian exports, a milder-than-normal winter, the explosion at Freeport LNG, and a slowdown in manufacturing and freight transport.
CYCLICAL RESEARCH
In the late nineteenth and early twentieth centuries, researchers identified several cycles in business activity, prices and interest rates:
Kitchin cycles lasting 3 to 4 four years, attributed to the accumulation and liquidation of excess inventories (“Cycles and trends in economic factors”, Kitchin, 1923).
Juglar cycles lasting 7 to 11 years, attributed to investment in longer-lived fixed assets such as machinery (“Commercial crises and their return in France, United Kingdom and United States”, Juglar, 1862).
Kuznets cycles with a duration of 15-25 years, attributed to construction, demographics and migration (“Secular movements in production and prices”, Kuznets, 1930).
Kondratieff waves lasting 45-60 years, attributed to the diffusion of major new technologies such as the internal combustion engine and electricity (“Long waves in economic life”, Kondratieff, 1926).
Researchers hypothesised cycles of differing durations could be nested, for example each 7-11 Juglar cycle could be decomposed into two or three separate 3-4 year Kitchin cycles.
In practice, both the magnitude and duration of short and long-term cycles proved…
