Post by jeffolie on May 7, 2008 17:40:11 GMT -6
A thoughtful oil discussion
Cheap Oil is seen by the decision making elite in the richer nations as the ‘passport to economic growth’. This is pure fantasy. Only ‘extreme’ oil prices (probably above $150/barrel) will cancel, abort or overturn the global economy expansionary impacts of higher oil prices. Cheap oil and energy remains the essential base of conventional economic development and conventional social progress anyplace in the world. This in turn is a powerful motor for continued and strong demand growth for fossil energy, worldwide. Upward potential for personal consumption of fossil fuels is essentially unlimited in this context.
Impact of Oil Shocks on demographic demand
The term ‘oil shock’ can have many meanings, but the essential element of the term is very large price changes in a short period of time. On this base, there have been at least 4 ‘oil shocks’ since 1973, that is 3 upward price shocks (1973-74, 1979-1981 and 1999-2009 (?)), and 1 downward price shock (1985-86). Everytime, changes were very big.
In nominam terms, not corrected for inflation and purchasing power of US dollar used to purchase oil, price rises were
1973-74 : about 295% 1979-81 : about 115% 1999-2008 (April) : about 915%
Perhaps most important to note is the third point: since 1999, and the ‘price shock’ of 1999-2007 (a price rise of about 915% in nominal terms), the demographic demand rate has continued to rise. In other words, any increase in revenues in commodity exporter countries, due to prices of their exports increasing in line with, or being ‘indexed’ to the oil price, is very rapidly spent on purchasing manufactured goods and services of all kinds, including capital good, industrial equipment, urban development, etc.
Any imagined ‘price elastic’ response as a potential cause of world oil demand growth shrinking back to BP’s claimed “10-year trend rate” can be forgotten when we note the real impact of higher oil prices on world oil demand. Real market supply and price sentiment will ever more depend on policies decided by, and events affecting Russia and Saudi Arabia, as well as Iraq, and to a lesser degree Nigeria and Venezuela. Outside the major producers, political events in small African oil exporter countries, due to the very tight supply situation, can also have major impact on prices.
The implications of continually underestimating demand growth, combined with overoptimistic, and in fact entirely unrealistic forecasts for net oil exports from Saudi Arabia, Iraq, and the other 3 major Gulf region producers, together with very optimistic notions of Russia’s capacity or willingness to continue increasing its export capacity, is a certain and sure recipe for Oil Shock. In this uneasy context, we cannot expect oil prices to fall very significantly or for long periods.
www.financialsense.com/editorials/mckillop/2008/0507.html
Cheap Oil is seen by the decision making elite in the richer nations as the ‘passport to economic growth’. This is pure fantasy. Only ‘extreme’ oil prices (probably above $150/barrel) will cancel, abort or overturn the global economy expansionary impacts of higher oil prices. Cheap oil and energy remains the essential base of conventional economic development and conventional social progress anyplace in the world. This in turn is a powerful motor for continued and strong demand growth for fossil energy, worldwide. Upward potential for personal consumption of fossil fuels is essentially unlimited in this context.
Impact of Oil Shocks on demographic demand
The term ‘oil shock’ can have many meanings, but the essential element of the term is very large price changes in a short period of time. On this base, there have been at least 4 ‘oil shocks’ since 1973, that is 3 upward price shocks (1973-74, 1979-1981 and 1999-2009 (?)), and 1 downward price shock (1985-86). Everytime, changes were very big.
In nominam terms, not corrected for inflation and purchasing power of US dollar used to purchase oil, price rises were
1973-74 : about 295% 1979-81 : about 115% 1999-2008 (April) : about 915%
Perhaps most important to note is the third point: since 1999, and the ‘price shock’ of 1999-2007 (a price rise of about 915% in nominal terms), the demographic demand rate has continued to rise. In other words, any increase in revenues in commodity exporter countries, due to prices of their exports increasing in line with, or being ‘indexed’ to the oil price, is very rapidly spent on purchasing manufactured goods and services of all kinds, including capital good, industrial equipment, urban development, etc.
Any imagined ‘price elastic’ response as a potential cause of world oil demand growth shrinking back to BP’s claimed “10-year trend rate” can be forgotten when we note the real impact of higher oil prices on world oil demand. Real market supply and price sentiment will ever more depend on policies decided by, and events affecting Russia and Saudi Arabia, as well as Iraq, and to a lesser degree Nigeria and Venezuela. Outside the major producers, political events in small African oil exporter countries, due to the very tight supply situation, can also have major impact on prices.
The implications of continually underestimating demand growth, combined with overoptimistic, and in fact entirely unrealistic forecasts for net oil exports from Saudi Arabia, Iraq, and the other 3 major Gulf region producers, together with very optimistic notions of Russia’s capacity or willingness to continue increasing its export capacity, is a certain and sure recipe for Oil Shock. In this uneasy context, we cannot expect oil prices to fall very significantly or for long periods.
www.financialsense.com/editorials/mckillop/2008/0507.html