Just came across something worth thinking about. Societe Generale dropped some research on global energy markets that basically says don't expect oil prices to fall just because demand drops. The mechanism they're analyzing is price elasticity of demand, and the findings are pretty sobering for anyone hoping for relief at the pump.

Here's the core issue: oil demand elasticity is incredibly low. We're talking a 10% price spike typically only reduces consumption by about 1%. Why? Because people can't just stop driving or switch their heating systems overnight. Commercial trucking, aviation, industrial manufacturing - these sectors have almost no alternatives in the short term. It's not like choosing between coffee brands.

What's interesting is how this plays out differently across regions. North America shows short-term elasticity around -0.08, Europe slightly better at -0.12, but China and India even more rigid at -0.05 and -0.04 respectively. The research team examined decades of data including the 2008 shock, the 2014-2016 downturn, and recent volatility. Medium-term elasticity improves a bit - reaching around -0.3 globally - but that's still pretty weak.

The practical implication? When supply gets tight, prices spike hard and stay elevated. That's because the demand side can't quickly adjust. Supply disruptions hit consumers and businesses directly through their wallets without the natural price-demand correction that works in other markets. This is why we see such volatile energy costs despite market fluctuations.

There's also a timing problem with the energy transition. Electric vehicle adoption among wealthy consumers doesn't move the needle much on overall price elasticity of demand. Only when mass-market EV adoption happens does elasticity actually improve. But that takes years. Industrial decarbonization is even worse - most manufacturing processes don't have viable alternatives yet. Green hydrogen and electrification solutions are still mostly theoretical for heavy industry.

Government policies theoretically help by making alternatives cheaper or more accessible through carbon pricing and infrastructure investment. But political cycles keep disrupting continuity. The research suggests near-term oil demand will stay relatively inelastic despite all the transition talk. That creates these rough interim periods where costs stay high without immediate alternatives available.

Historically, the 1970s oil shocks actually did destroy demand through conservation. But elasticity weakened through the 1990s and 2000s as economies became more service-oriented. By 2008, despite record prices, demand response was surprisingly weak. COVID showed us something different - that demand collapse can happen from external factors, not just price. But the recovery afterward showed how quickly pent-up demand overwhelms price signals.

The geopolitical angle matters too. OPEC+ production decisions hit so hard precisely because demand responds weakly to price signals. When you've got low price elasticity of demand, supply-side players have outsized market power. US shale producers used to be more responsive to prices, but capital discipline has reduced that flexibility too.

Bottom line from the analysis: expecting prices to self-correct through normal supply-demand mechanics is probably wishful thinking. Energy costs may stay elevated and volatile for longer than traditional models suggest. Consumers and businesses need strategies beyond hoping prices fall. The transition to alternatives becomes more urgent, but implementation takes time. For investors, this means traditional energy models need serious rethinking. Scenario-based approaches that account for persistent demand rigidity make more sense than assuming quick adjustments.