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Inflation driving spike in natural resource prices

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Posted at 5:34 PM, Feb 03, 2022

Paying more at the pump, and at the hardware store, may lead back to the beginning of the pandemic.

MSU professors Richard Ready and Brock Smith, who teach and research both environment and natural resource economics, explain that in the early months of the pandemic lumber mills projected a lack of need—and shut down.

“People couldn’t go on vacations, so they decided to remodel their houses,” Ready said. “You saw big spike in demand for lumber and the choke point there, was the mills—there just weren’t enough mills.”

Mike Halverson, the owner of Montana Recycled Lumber Co., has not experienced the lumber shortage but knows all too well the price of fuel.

When trucking over lumber from the Midwest, East and West coast, Halverson explains that the price for freight has nearly doubled.

“We ship recycled wood all over North America,” he said. “Roughly out of Tacoma, was probably in the $1800 range pre-pandemic, but now it’s at least $3500.”

A similar situation faces drilling and oil production sites, Smith explains. When the pandemic began, drilling decreased, but investment levels also may play a factor.

“This may have been on its way; this spike in price is due to these long-term decreases in investment,” Smith said.

Now that activity and demand for oil is on the rise, more wells will need to be drilled to met that need. Smith elaborates that once production slows down or stops, it cannot simply be turned back on.