Oil Shocks Around the World: Are They Really That Bad?
Posted by Rembrandt on February 22, 2012 - 1:55pm
This is a guest post by Tobias Rasmussen, Senior Economist, Middle East and Central Asia Department, IMF, and Agustin Roitman, Economist, IMF. This post originally appeared on the VoxEU.org website here.
Recent developments in oil markets and the global economy have, once again, triggered concerns about the impact of oil price shocks around the world. This column wonders whether the fuss is really necessary. It presents evidence of relatively small negative effects of oil price increases.
Increases in international oil prices over the past couple years, explained partly by strong growth in large emerging and developing economies, have raised concerns that high oil prices could endanger the shaky recovery in advanced economies and small oil-importing countries.
The notion that oil prices can have a macroeconomic impact is well accepted; the debate has centred mainly on magnitude and transmission channels. Most studies have focused on the US and other OECD economies. And much of the discussion has related to the role of monetary policy, labour markets, and the intensity of oil in production (Hamilton 1983, 1996, 2005, 2009, Barsky and Kilian 2004, Bernanke et al 1997, Blanchard and Gali 2007).
The manner in which oil prices affect emerging and developing economies has received surprisingly little attention compared with the large body of evidence for advanced economies. In an attempt to provide a broader and more encompassing view on the impact of oil price shocks, we document in recent research (Rasmussen and Roitman 2011) key stylised facts that characterise the relationship between oil prices and macroeconomic aggregates across the world.
The big picture
It is no surprise that import bills go up when oil prices increase. It is more surprising that GDP often goes up too. Figure 1 depicts the correlation between oil prices and GDP for 144 countries from 1970 to 2010. More precisely, it shows the cyclical components of oil prices and GDP, with long-term trends excluded. The set includes 19 oil-exporting countries, represented by red bars, and 125 oil-importing countries, represented by blue bars. A positive correlation indicates that when oil prices go up, GDP goes up, and when oil prices go down, GDP goes down.
The message is clear. In more than 80% of the countries, the correlation between oil prices and GDP is positive, and in only two advanced economies – the US and Japan – it is negative. One of the contributing factors to this pattern is that in 90% of the countries, exports tend to move in the same direction as oil prices.
Anatomy of oil shock episodes
Given that periods of high oil prices have generally coincided with good times for the world economy, especially in recent years, it is important to disentangle the impact of oil price increases on economic activity during episodes of markedly high oil prices. Following Hamilton (2003), we identify 12 episodes since 1970 in which oil prices have reached three-year highs. The median increase in oil prices in these years was 27%.
We study the behaviour of macroeconomic aggregates during these episodes by comparing the median annual change in a particular variable during oil shock years to the median annual change over the entire sample period. This tells us of any unusual observed changes (Figure 2).
We find no evidence of a widespread contemporaneous negative effect on economic output across oil-importing countries, but rather value and volume increases in both imports and exports. It is only in the year after the shock that we find a negative impact on output for a small majority of countries.
Small effects for oil importers
To analyse multiple countries and control for global conditions, we adapt the basic autoregressive model of Hamilton (2003, 2005).
Our main interest is in the effect of an oil price shock on the economy of a typical oil-importing country. Taking into account the fact that higher oil prices are generally positively associated with good global conditions, we find that the effect becomes larger and more significant as the ratio of oil imports to GDP increases (Figure 3).
To trace out the full impact of an oil shock, we calculate impulse responses for a 25% increase in oil prices (Figure 4). The results indicate that the typical oil importer can expect a cumulative GDP loss of about 0.3% over the first two years, with little subsequent impact. For countries with oil imports of more than 4% of GDP (ie at or above the average for middle- and low-income oil importers), however, the loss increases to about 0.8% – and this loss increases further for those with oil imports above 5% of GDP. In contrast to the oil importers, oil exporters show little impact on GDP in the first two years but then a substantial increase consistent with the positive income effect, with real GDP 0.6% higher three years after the initial shock.
To put these numbers in perspective, it is useful to think of an economy where oil accounts for 4% of total expenditure and where aggregate spending is determined entirely by demand. If the quantity of oil consumption remains unchanged, then a 25% increase in the price of oil will cause spending on other items to decrease and, hence, real GDP to contract by 1% of the total. From this reference point, one would expect the possibility of substituting away from oil to reduce the overall impact on GDP. At the same time, there could also be factors working in the opposite direction, via, for example, confidence effects, market frictions, or changes in monetary policy. With our estimates of the GDP loss at only about half the level implied by the direct price effect on the import bill, the results presented here suggest the size of any such magnifying effects, if present, is not substantial across countries.
Are oil price increases really that bad?
Conventional wisdom has it that oil shocks are bad for oil-importing countries. This is grounded in the experience of slumps in many advanced economies during the 1970s. It is also consistent with the large body of research on the impact of higher oil prices on the US economy, although the magnitude and channels of the effect are still being debated.
Our recent research indicates that oil prices tend to be surprisingly closely associated with good times for the global economy. Indeed, we find that the US has been somewhat of an outlier in the way that it has been negatively affected by oil price increases. Across the world, oil price shock episodes have generally not been associated with a contemporaneous decline in output but, rather, with increases in both imports and exports. There is evidence of lagged negative effects on output, particularly for OECD economies, but the magnitude has typically been small.
Controlling for global economic conditions, and thus abstracting from our finding that oil price increases generally appear to be demand-driven, makes the impact of higher oil prices stand out more clearly. For a given level of world GDP, we do find that oil prices have a negative effect on oil-importing countries and also that cross-country differences in the magnitude of the impact depend to a large extent on the relative magnitude of oil imports. The effect is still not particularly large, however, with our estimates suggesting that a 25% increase in oil prices will typically cause a loss of real GDP in oil-importing countries of less than half of 1%, spread over 2 to 3 years.
These findings suggest that the higher import demand in oil-exporting countries resulting from oil price increases has an important contemporaneous offsetting effect on economic activity in the rest of the world, and that the adverse consequences are mostly relatively mild and occur with a lag.
The fact that the negative impact of higher oil prices has generally been quite small does not mean that the effect can be ignored. Some countries have clearly been negatively affected by high oil prices. Moreover, our results do not rule out more adverse effects from a future shock that is driven more by lower oil supply than the more demand-driven increases in oil prices that have been the norm over the past two decades. In terms of policy lessons, our findings suggest that efforts to reduce dependence on oil could help reduce the exposure to oil price shocks and hence costs associated with macroeconomic volatility. At the same time, given a certain level of oil imports, strengthening economic linkages to oil exporters could also work as a natural shock absorber.
The views expressed in this article are the sole responsibility of the authors and should not be attributed to the International Monetary Fund, its Executive Board, or its management.
References
Barsky, Robert B and Lutz Kilian (2004), "Oil and the Macroeconomy since the 1970s", Journal of Economic Perspectives, 18(4):115-134.
Bernanke, Ben S, Mark Gertler, and Mark Watson (1997), "Systematic Monetary Policy and the Effects of Oil Price Shocks", Brookings Papers on Economic Activity, 28(1):91-157.
Blanchard, Olivier J and Jordi Galí (2007), "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?", NBER Working Paper No. 13368.
Hamilton, James D (1983), "Oil and the Macroeconomy since World War II", Journal of Political Economy, 91(2):228-248.
Hamilton, James D (1996), "This is What Happened to the Oil Price-Macroeconomy Relationship", Journal of Monetary Economics, 38(2):215-220.
Hamilton, James D (2003), "What is an Oil Shock?" Journal of Econometrics, 113(2): 363-398.
Hamilton, James D (2005), "Oil and the Macroeconomy" in S Durlaf and L Blume(eds.), The New Palgrave Dictionary of Economics, MacMillan, 2nd ed.
Hamilton, James D (2009), "The Causes and Consequences of the Oil Shock of 2007-08", NBER Working Paper No. 15002.
Rasmussen, Tobias N and Agustin Roitman (2011), “Oil Shocks in a Global Perspective: Are they Really that Bad?”, IMF Working Paper WP/11/194.
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Considering the work that oil does, and the amount wasted before on frivolous tasks, I don't actually find it that surprising that higher prices have been absorbed fairly well so far. We have been underpaying for oil for a long time.
The question is whether we are now at the end of that, with countries now starting to show the expected stress.
When talking about impact on the world economy, assigning each country in the world the same space on the graph, and the same weight in your comparison, is absurd and misleading, and makes me wonder if this article is even in good faith. The second chart shows four of the five biggest economies in the world (in the study period) over there on the left in negative territory. These four countries together made up close to half, or more, of world GDP over the period the study is considering. It is not surprising, then, that there have been world recessions after nearly every oil shock. The study should have considered the impact of oil shocks on a per-GDP basis, not a per-country basis.
Actually a couple additional charts would make this exercise more instructive. Just a bit of color coding would help us see the entire picture a lot better.
1. add a chart using 4-7 colors for volume of GDP
2. add a chart using 4-7 colors for population size
3. add a chart using 4-7 colors for per capita GDP
More than 4-7 categories would only muddle things for the eye.
Possibly some chart wizard at TOD could post the alternate color coded charts (and whatever other alternates they chose) in the comments to this article
I understand the above suggestion would still yield the same charts but having the GDP volumes represented by actual volumes inside the bars (larger GDP=wider bar, and a whole lot wider if the bar happened to be short) would be very difficult to do without a living room sized chart...
...that is if you wanted the bar for an economy the size of Haiti's wide enough to be visible at all.
Yes. For importers, all the GDP, export, import etc. numbers initially swell when oil prices go up, at the expense of external debt piling up. Because much of the adjustment pain is postponed by the shock absorbers of borrowing, the negative effect even one year out is not as big as it might have been. But pain postponed is future pain accumulated, and the pain comes when the country can no longer expand debt. In other words, it all works, until it doesn't...
This sentence must sound like blasphemy to Gail's ears.
But partially explains why there is relatively little push to hedge against oil-import-dependence with efficiency measures and renewable energies.
I don't post here very much, but I do have something to contribute on this. At Econobrowser James Hamilton posted a table showing the clear relationship between oil price shocks and GDP contraction.
In the comments I asked him what the R squared was, and I was surprised when he told me it was .22. This is a pretty weak relationship (not discussed in the main article) and it makes me wonder having read this post just how central oil actually is.
In the comments I asked him what the R squared was, and I was surprised when he told me it was .22.
*ponders what a rim fired small game round as to do with anything
*
See my comment.
The analysis is based mostly on the time-period before world oil production maxed out (1970- 2004). In this time-period, a rise in oil prices did give rise to a rise in oil production (and also a rise in oil imports and oil exports, and because of the oil production increases, a rise in GDP). Since 2005, world oil production has pretty much been flat, regardless of price increases. Because of this change, there is no reason to believe that the relationships of the early period will hold. A rise in oil prices no longer gives rise to much more oil production, and thus does not produce much more real GDP.
The researchers did not realize that they needed to look at the two periods separately (1970-2004 and 2005-2010). In addition, their techniques would not have worked on such a short data set as the 2005 to 2010 period.
There is also the issue of the much larger long term increase in the recent period--really since 2003. The analysis shows, ". . . a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less." What does this say about a 300% or 400% increase in oil prices over a longer term? The model is looking at little increases, long ago, and expecting that it will tell us about large increases now, when world oil production is maxed out. I don't think it will.
I didn't review this article before it was published.
Because of this change, there is no reason to believe that the relationships of the early period will hold.
Hmmm. So you feel Hamilton's research can't be relied upon?
Hamilton looked at oil shocks in general, and said that they were generally followed by recessions in the US. I don't have a problem with that.
I haven't looked at the details behind Hamilton's other papers. He understands that oil supply is now very inelastic, so I would expect him to design analyses better than this one.
Perhaps the following causal links explain these results:
So, as long as price increases are associated with production increases (supply elasticity higher than 0 in econ-speak), high oil prices indeed mean growing world economy.
However, if supply elasticity is low, (which we are effectively saying here on The Oil Drum), the impact of a higher oil price is more severe. The article effectively says so at the end:
It would be interesting to see how the oil shocks described here correlate with oil production.
So true. What foolishness it is to compare a pre-2005 oil shock to one that happens since then. Since 2005 world crude oil production has been capped at under 75 million barrels a day. Counting non-crude liquids in with crude oil denies the difference their energy density makes. You could only compare crude oil production rates with other liquid fuels fairly if you compared an energy rate like BTUs over time. Anything less is just an attempt to conceal the basic truth of the matter.
Considering that I find GDP to be a rather poor barometer of the well being of the average citizen in most countries, I would be interested in a higher resolution analysis as to how high oil prices affect different segments of the populations of both emerging and advanced economies.
Case in point I just spent some time in Brazil and was struck by the fact that there seems to be an even greater disparity in the distribution of wealth than what I had witnessed on previous trips in certain areas of the country.
My impression was that wealth is becoming ever more concentrated by fewer and fewer members of the population at large. Not in my opinion something that bodes well for the future social stability in many of the emerging economies.
Perhaps the recent unrest a la Arab Spring and problems in Greece and other PIGS countries is a harbinger of the future?
I think GDP vs. oil prices is of interest, however, I agree that it is not the whole story -- just a little part. I would think that it would be important to moderate GDP growth by the recently increased government spending that is unsustainable. It really makes it hard to compare the last seven years to the historical record. I also think the continued supply plateau also complicates the analyses since I believe post-2005 marks a discontinuity in the data set.
Here are two important relationships to watch moving forward:
Median income vs. oil prices
Food prices vs. oil prices
gog - I was thinking along the same lines as you and Ghung. The system seems far too complicated and interconnected for something like a GDP (even if it were an accurate measure) to correlate well with anything. Forgot about the different countries and look at the US alone: housing boom followed by a mortgage crash, bank busts, auto makers bust and their bail out, the feds creating money like there's no downside, etc, etc. And then there's the time lag aspect also. Comparing the oil price to the cash flow of coin-operated laundromats might be just as meaningful.
Good points.
When 70% of GDP in the US is said to be consumption...
Meanwhile the Dow is set to break 13,000. Oil at $105 and may be off to the races. Iran cutting off France and England and Saudi Arabia announcing cut backs instead of increases.
Be interesting to revisit this thread six months from now.
From the conclusion: " The effect is still not particularly large, however, with our estimates suggesting that a 25% increase in oil prices will typically cause a loss of real GDP in oil-importing countries of less than half of 1%, spread over 2 to 3 years..."
...Yeah, especially with central banks injecting $trillions in vapor currency into their economies. We see what happens when high oil prices and their effects meet payback time in Greece; more QE, bailouts, austerity - more folks at the bottom being swept under the rug. When measured in real terms, GDP in developed nations is near zero (my net income doesn't really increase because I took a big cash advance on my credit card, does it?). What is 1/2% from zero??
'Robbing Peter's kids to pay Paul' to offset perpetually increasing energy prices is as short-sighted as the energy policies that got us here, and a piggy with lipstick and massive debt is just a hopelessly indebted piggy.
I am going to have to read some of the references in the article, but from having read many papers like these - "Solow like" papers trying to look at the connection between oil and economic aggregates - tend to only look at very marginal changes.
As a thought experiment think of what would happen of say the KSA go to zero overnight, and what would happen to Japan if their oil imports to zero. The consequences would be massive.
Another thing the article does not adress is the net import/export balance between specific country pairs. Say the US gets 1mm bbl from KSA worth 100mm but exports the same amount in, say, weapons or whatever. If oil doubles the value of the oil imports goes up but the value of the exports also goes up, (albeit likely not as fast or as much) because of the likely inflation which would occur.
Think of what happened in australia a little back - one part of the country was flooded and the other part was parched. Yet it is possible that average rainfall was relatively normal. Tell that to their crops. Averages are nice in certain situations but can give a very incomplete picture. To take it to the absurd, the world as a whole does not have an oil import problem because global oil imports= global oil exports. The net is zero, but that doesn't mean that importing countries are at risk.
Looking at "real" GDP (versus nominal GDP which includes inflation) the implicit assumption is that both imports as well as exports are subject to the same inflationary force, something which unlikely to be true.
But like I said, I'll have to read some of the referenced stuff.
Rgds
WeekendPeak
The best description I've heard about the danger of taking averages too seriously:
Two duck hunters fire at a duck at the same time. One shoots over the duck, the other shoots under.
One hunter comments "On the average the duck is dead."
A better desciption od debt, is robbing Peter's kids to pay paul's kids. A debt, if paid is a transaction between two economic entities. Of course it can be generational, Paul hasn't died and still owns the bonds, so it becomes robbing peter's kids to pay a future retired Paul. To first order debt doesn't change future GDP, its the secondary effects (which come from redistributive effects) which wil matter.
Do you think this will actually ever be paid off? Just askin'...
.
My first though was taken , this describe a demand driven market mechanism
it might not apply to a supply driven market
most oil exporting countries are net importer of manufactured good ,
a sharp rise would see a drain in the exchange balance of importing countries until the increase demand from oil exporters would re-establish some balance .
that was the situation
now a lot of manufactured goods come from a few Asian countries,
I'm not sure what will happen to the rest
the price of imports enter (rightly) in the calculation of the GDP number
an increase in the oil bill is thus counted ans an increase in the GDP
25% increase for a 4% dependency turn out oh surprise to be a 1% increase in "national wealth"
this article speak of a pulse increase ,we now have seen a state of permanent increase
it would match a state of perpetual downward adjustment ,
chasing a stability in price which is always out of reach
the correcting mechanism would have to be a downward demand
This could equally well be interpreted as the US being one of the few economies that gains from a fall in the oil price.
The US has a competitive advantage when oil prices go down and loses it when they go up. This is what would be expected, since the US is more energy intensive.
The is why European economies have high taxes on oil. It gives them a competitive advantage when oil prices go up.
I think the competitive edge of European countries has been oversold, relating to their lower oil consumption. We keep hearing about the possibility of debt default in a number of European countries, and the tendency toward default is at least partly because of high oil prices. How many people have the funds to vacation in Greece or Spain, if oil prices are very high?
Another statistical analysis that is completely meaningless and proves only what odd theory you have come up with. What the does this mean? It's not even interpreted in dollars, but percentages. Just because GDP goes up in countries, it does not mean that there is more buying power for it's citizens or governments.
If you take U.S. and Japan as a percentage of world GDP, what is it? United States is around 22% and Japan is 7%.. So nearly 1/3 of the world Economy is affected negatively by oil shocks.
Why is the European Union broken down by countries, when economically it is considered one zone? Is it to exaggerate this OVERWHELMINGLY poor presentation of your idea? Germany is on the negative side, would that have offset a lot of Europe?
Where is the United Kingdom?
Where is China?
It's so hard to read that graph.
If you are trying to say that GDP grew in all these countries and only hurt a few, it seems like that is not the truth. The European Union is trying to keep itself together with a package to save Greece. Your graph shows a slight loss of GDP. Can I conclude it's because of this that they are failing, or absolutely awful government spending?
What was inflation? What about the decline in currency values?
I can't say I am impressed with this article either--I didn't read it before it went up. (I was traveling and involved with a birthday celebration for my mother.)
The original article on which it is based is better (or perhaps 'less bad'). One of the issues in both this article and in the original is that the analysis looks at oil shocks since 1970. There have been a lot of changes in the decades since 1970. Oil production is now pretty much maxed out, so an increase in oil prices doesn't have much of an impact on world production. Back in the earlier years (most of 1970 to 2004), an increase in oil prices did affect production. The analysis doesn't recognize these differences--just combines the indications of the earlier more flexible years with the later maxed out years (2005-2010). Since there are a lot more early, flexible years than there are recent maxed out years, this analysis is basically indications relating to a period where oil supply shortages were temporary and smaller than they are today.
If a person were looking at earlier years, where production was not maxed out, it might be reasonable to conclude, "Oil prices and imports tend to move in the same direction," and "Oil prices and exports tend to move in the same direction." In other words, high price leads to more oil supply. If higher price led to more oil imports and exports, if would not be surprising if GDP went up. But we know that oil production has been virtually flat since 2005, so the likelihood of higher prices leading to significantly higher exports and imports now is pretty much nil.
Also, the amount of oil price increase the authors consider typical is 25%. According to the abstract of the original paper, ". . . a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less." World oil price is now several times as much as it was a decade ago. Does GDP really drop 1/2 of one percent, for each 25% oil prices rise? If it does, we are in deep trouble, because the era of the 25% shock is long gone. We are in an era where a huge increase keeps building and building, only to be knocked back by recession, but not really being fixed by more oil supply. A person might ask what kind of GDP change a 300% increase in oil prices produces--is it 12 times the 1/2 percent quoted in the article, or 6%? Also, a person might ask if the kinds of impacts might not be different, with a large long-term run-up. For example, wouldn't such a long term increase result in debt defaults, besides the smaller issues being considered when there is a temporary 25% increase in oil prices?
I agree with Gail and Brian70809. There are lots of problems with this analysis.
Trying to compare oil price effects on GDP by looking at over 100 countries with the assumption that those economies are all equal is fundamentally flawed. First, as the authors acknowledge and somewhat handle, there are exporting and importing nations, but more importantly, the economies are not independent of one another an are of much different magnitude. For example, Saudi Arabia has a very positive relation with oil prices - for obvious reasons - and the US has a negative relation. Ok, so if oil prices increase by 50%, do you think that the positive effect in Saudi Arabia will have a greater impact on the world economy than the negative impact in the U.S.? No way.
In addition the authors claim: "Given that periods of high oil prices have generally coincided with good times for the world economy, especially in recent years,..."
Does anyone really think that the oil price spike from 2004-2008 resulted in "good times" for the global economy?
I say a response of 6% below trend for a quadrupling of oil price is quite manageable. Do you seriously expect oil prices to quadruple each and every year?
25% price increase per year for trend growth down by 0.5% per year is still substantial growth, and an incredibly high rate of price increase.
Those numbers don't say we are in big trouble, they say the oil price can double every 3 years, and keep on doubling every 3 years, and we merely get richer somewhat less fast.
Gail, I like your points, and maybe an analogy with a hydrogen balloon slowly leaking fits somehow with what you are saying.
A slow leak on a hydrogen balloon does not matter if the trip between hydrogen top-ups is short enough. Noone would ever notice any performance problems, except that a little ballast would have to be shed from time to time.
The same slow leak on the same hydrogen balloon attempting to travel nonstop around the world would be sufficient to plunge the balloon and its intrepid passengers somewhere unplanned, such as in the middle of an ocean, once the ballast runs out.
The equivalent to the slow hydrogen leak here is the extra money exiting from domestic circulation as a result of the oil price increases. In the past, before the oil supply became inflexible, the supply adjustment would bring oil prices down, creating a net inflow of money for the oil importers (the topping up of the balloon) which keeps the country going.
When oil prices fail to adjust, at some point balloons start falling out of the sky. It would be a nonlinear setup like Greece....these balloons keep shedding ballast (increasing debt) to keep the thing flying, until there is no more ballast left (can't borrow any more) and gravity takes over.
The balloons with the largest leaks and the lowest stocks of ballast would be the first to fall out. The holes in Greece's balloon were large enough to put a fist through, and the ballast was long gone (i.e. thrown overboard deliberately in order for it to be stolen)
It's really dubious that we can call, or equate, peak oil with an "oil shock". An "oil shock" seems to be a temporary disruption, maybe it's political or whatever, or a sudden price increase that puts oil beyond range of some, but again, temporary. An "oil shock" seems like a localized event. Temporary and localized.
But peak oil is another creature all together. Its two most recognizable features are that it isn't temporary and it isn't localized. It's systemic, it's fundamentally structural-altering because it affects the whole system simultaneously. It tears into the fundamental fabric of an economic structure that was built up over (arguably) centuries (if you count coal) or decades (if you go with only petroleum) and it effectively destroys this structure from the foundations up. It's not a shock of any kind, it's a reversion (OK, slow) to purely solar flows, it's a systemic, fundamental and radical sign of life forms giving up on one thing (oil) and turning to another thing (the sun) for sustenance out of sheer thermodynamic desperation because there is no choice.
And the best analogy I can remember reading is from the TODer named memmel, whose posts were always so fun to read. He said it would be like a phase change, like water becoming ice. Not melting, which is adding energy, but freezing.....things stop moving. We call it "the global slowdown", "economic stagnation", the media tosses off these phrases like they are temporary, like little storms passing, no, they are not.
Peak oil isn't an oil shock.
The people who wrote the article are just conducting very narrow analysis that has almost no interesting or long-term conclusions. Probably they are responding to the new trendiness of the topic of oil---but making sure to do so in a safe way that won't raise too many eyebrows.
pi - Just thought of a silly analogy: compare the situation to a man with a bad cholesterol level. Like PO, if left untreated it could end up with a very serious, if not fatal, situation. But long before that point it affects his health negatively in a variety of ways. Strenuous activity might be difficult (GDP growth). Over compensation like jogging (mortgage boom) to give the illusion of health. Knock some plaque loose and have a stroke (foreclosure nightmares)...he survives but further reduces his vitality. Denial in the form of eating/drinking more (huge govt bail outs/increased nat. debt/ creating huge sums of money).
I'm sure some of our clever TODsters can offer some more comparisons
What they are doing is working out what they effect of oil is.
They do this by averaging out everything else over the time series. Its standard dynamics, but with economic variables rather than things like temperatures and concentrations which is what an engineer would normally use those techniques on.
Having done this, you can then speculate on what effect peak oil will have via a price mechanism, in a world that isn't too different from the historical period they analysed. It won't tell you what a collapse mode will look like, but you can see who gets squeezed most before collapse.
What their work shows, is that peak oil will hurt the US (and Japan) compared to most of the rest of the world. At least to start with, a squeeze on oil supply hurts the US more than anyone else, and a lot of economies that you might think would get hurt, actually benefit because the US can't compete as well against them in a world with higher oil prices. That isn't surprising. The US is notably inefficient at using oil.
The surprising result to me, is Japan competes poorly when oil prices rise, despite their cars being known for low energy use.
Japan fairs poorly when hit by massive earthquakes, tsunami, and nuclear meltdowns.
High oil prices are coincidental, even though they import all their oil.
So major earthquakes in Japan happened to coincide with high world oil prices and the observed correlation is an artefact of that? I don't think that fits the data. The Kobe earthquake happened in Jan 1995 and yet 1995 is actually the year when Japan's GDP was highest. (and oil prices were pretty low)
hot air: "peak oil will hurt the US (and Japan) compared to most of the rest of the world"
And Germany, Canada and the UK? The US and Japan were the largest economies in the world over the period the study considered. Economically speaking, they do matter more.
I think a 25% relative increase in oil price is not a good measure. Most of these 12 oil shocks between 1970 and 2010 were small in absolute magnitude. An increase from $20 to $25 per barrel is a 25% increase, but is likely to have a rather different impact than an increase from $100 to $125, no?
The annual change of the price of oil as a share of US GDP is at the level of US recessions since the 1970s, subtracting a bit less than ~1%/yr. from GDP that otherwise would be spent by consumers and firms on other goods and services.
Moreover, since after WW II, whenever the annual change of real GDP fell below 2% (as is the case today), a US recession had begun even as in many cases the unemployment rate and jobless claims were falling and quarterly annualized real GDP was reported as still positive.
Additionally, the post-2000 average trend rate of real GDP has decelerated from the long-term rate of 3.3% to 1.56%, halving the average real GDP growth rate, whereas the post-2000 average real GDP per capita is now ~0.6% and decelerating. The real GDP per capita trend since Peak Oil and the onset of the debt-deflationary regime in 2005-07 is 0% to -0.6%/yr., which is a full 1-3%/yr. loss of real GDP per capita and a cumulative loss of ~8% since 2007-08.
Therefore, with the trend rate of real GDP of ~1.6% and real GDP per capita of ~0.6%, the hit to real GDP and GDP per capita from the annual change of the price of oil and gasoline is unquestionably recessionary. The more printing by central banks, the lower the US$ will tend to be and the higher the nominal price of oil and gasoline at peak crude production (and a lower lever per capita since Peak Oil), reducing further the annualized and post-2000 real GDP per capita trend rates. Needless to say, central banks cannot print and gov'ts cannot borrow and spending into existence additional supplies of affordable liquid fossil fuels to allow for the growth of real GDP per capita.
The US economy has not grown in real terms per capita since 2005-06, has barely grown since 2000 (largely because of spending on "health care" and gov't spending on war), and has been in contraction since 2007.
The extension of the payroll tax holiday is not "stimulative" because it has already been spent due to the higher price of oil and gasoline.
Were the deceleration of the trend rate of real US GDP to continue for the rest of the decade, the US will have cumulatively lost 30% from real GDP and as much as 35-40% in real GDP per capita by 2020 that otherwise would have occurred had the long-term growth rate continued. Gov't spending on war, services, and wages, pensions, and benefits will have to be cut by a similar cumulative amount in real and per-capita terms over the next 10-20 years, i.e., Greek-like "austerity" is coming to the English-speaking world.
By any objective measure, this loss of (un)economic activity and the imposition of "austerity" is a depression, albeit a slow-motion version as has occurred in Japan since the 1990s.
Another bunch of "economists" charabia, that typically misses the big picture :
1971 : US Oil production peak and Bretton Woods definitely scrapped
1973 : first oil shock (US peak being the fundamental reason, even if not said on typical graphs or "common knowledge")
around same period : credit buble start with associated fake GDP growth
Now : global peak, huge ammount of debt that doesn't know where to sit anymore all over the place, recent and coming ressource wars.
Meanwhile "economists" keep on publishing blah blah all over the place about the so called "financial crisis", trying to avoid the basic flaw of their "field", which is that the capital represented by natural ressources in the ground is basically valued to zero in their calculus, theories, and other little games.
Why was this posted?
From figure 1: "The cyclical components have been estimated using the Hodrick-Prescott filter."
From Wikipedia on the HP filter: "if one-time permanent shocks or split growth rates occur, the filter will generate shifts in the trend that do not actually exist."
Rasmussen and Roitman filter out the very effect that they are trying to show does not exist. No wonder it doesn't appear in their results.
Neither figure 1 nor the text to that point make mention of using lagged GDP. A priori, a one quarter lag, or possibly a two quarter lag would be expected to show the effect most clearly. Certainly contemporaneous GDP would not be expected to show much, if any, effect.
This is disappointing, because I had hoped for a serious treatment. I won't waste my time reading past figure 1.
Read the full paper instead then. The pdf is linked, and the points you are worried about are discussed in rather more detail.
While you may not expect contemporaneous GDP to show an effect, they thought it was an open question, and they did the research and it did. They do also look at lagged effects as you can see if you read a bit further.
As for the filter, there clearly is a trend, and it need to be removed. There isn't anything obviously better than the HP filter for their data and I don't see any obvious artefacts in the results they got from it (which you can see in the full paper). Use a different filter or a different parameter in the HP filter and the numbers will change a bit, but I don't think the broad picture will.
The broad picture is that the US behaves differently to the rest of the world in response to changing oil prices, and if you extrapolate from the US, you get the world picture wrong. I think that is an interesting result, and well worth posting, because most of the analysis I see here is assuming that the US is typical in response to oil price changes.
hot air: "The broad picture is that the US behaves differently to the rest of the world in response to changing oil prices"
That's not how I would characterize it. A lot of big economies were over there on the left side of the second graph: not only the US, but Japan, Germany, and the UK, among others. Before China overtook the UK in 2006 or so, the US and Japan were the two biggest economies, and Germany and the UK were also in the top 5, so saying that the rest of the world behaves differently when 4 of the world's five biggest economies are in the same boat seems odd...
England is on the right not the left. You are misreading the labels.
Figure 2 seems to me to show the UK between Egypt and Senegal on the left. In addition, the fact that England is between those two countries is a pretty good illustration of my point. THe graphs here are a joke. Plus, they're nearly unreadable--so maybe I am getting it wrong; maybe that says "OK," rather than UK... ;)
I did not review this article before it went up--I was traveling. I would not have voted "Yes".
I think that the recent chapter by James Hamilton, "Oil Prices, Exhaustible Resources, and Economic Growth", in the book "Handbook of Energy and Climate Change" gives a better economic outlook on oil prices and economic activity, which can be accessed here:
http://dss.ucsd.edu/~jhamilto/handbook_climate.pdf
I think this gives a better overall look at oil price increases and economic activity as well as oil production growth & limits. Here is the abstract:
"This chapter explores details behind the phenomenal increase in global crude oil production over the last century and a half and the implications if that trend should be reversed. I document that a key feature of the growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggest that the end of that era could come soon. The economic dislocations that historically
followed temporary oil supply disruptions are reviewed, and the possible implications of that experience for what the transition era could look like are explored."
and one quote:
"If we should enter such an era [oil supply constraints], what does the observed economic response to past historical oil supply disruptions and price increases suggest could be in store for the economy?
[Hamilton's] analysis suggests that historically the biggest economic effects have come from cyclical factors that led to underutilization of labor and capital and drove output below the level that would be associated with full employment."
It is also interesting to read his take on US oil production over the last century and that even though oil technology has improved vastly it has not reversed or even stopped the depletion of oil reservoirs. And all of this from an economist!
I followed kram's suggestion and read Hamilton's paper. And I recommend it highly. Hamilton chooses words carefully. He is not, in any way, a "doomer" or a "cornucopian". I gather that he was asked to do an analysis of the effect of oil price shocks on national GDPs, for inclusion in a compendium of scholarly papers. But chose to include a preface to the requested analysis that warns the reader that there may be reasons to regard the results of his analytical work as profoundly misleading.
In his preface, he says that the increased supply of oil over time was generally not due to improved technology of extraction, but rather to finding new fields to exploit. He does not deny that there was technology improvement, but it was never enough to make the old fields alone recover their earlier productivity. The effect of this, he observes, is that we have no data to analyze for situations in which the market was responding to a situation that is reasonably analogous to peak-oil, namely a global resource limit.
The implication that he draws from this observation is that the analysis that follows gives us no information about what will happen when discovery of new fields is inadequate to meet rising demand, i.e. what you and I call 'peak oil'.
So he does a conventional analysis 'correctly', but with a preface that warns that it may be worthless if used to foresee the future. (Why else would it be done?) Or perhaps, he intends the paper to be a demonstration of the foolishness of such analysis. I think it is a good paper, but addressed to a different audience than us here at TOD. Whether it does some good is doubtful, given how it was summarized by Rasmussen.
Sometimes, I think academics can think and use fancy statistics to create a model of the world that is completely devoid of reality. The above analysis completely misses the fact that every major oil price spike has been followed by an economic downturn. High price spikes cause demand destruction, increased efficiency, or substitution. To the degree to which demand destruction occurs, that will have a negative affect on GDP.
This can be seen in many ways structurally. For example, a school might find its bus transportation costs increasing dramatically in an oil price spike and be forced to cut teaching jobs to make up the difference. A vacationer might choose to take one vacation by car or plane due to high costs instead of two. A trucker will not be able to make a profit at a certain level in fuel costs and so on.
I'm not hoping for downturn. But, since the last price spike, we've seen oil go from 40 dollars per barrel to their sustained current price of 105 dollars. I think, for the most part, the economy has grown used to prices of 100 dollars per barrel. But there's a wall out there -- maybe at $150, maybe at $200, maybe at $250. But it's out there. We hit it in 2008 at $145. Do we really want to hit it again?
It's possible that we can round out these crises a little bit by skillful use of the strategic reserves to keep prices within the 'safe range.' But to say the current recovery is benefiting from high prices would be highly myopic.
The article draws attention to the fact that the US economy behaves differently to most of the rest of the world. Whats special about US economy? (1) it uses a very large amount of oil(2) fuel taxes are low so a 100% increase in crude oil price translates to almost a 100% increase in consumer prices( heating oil and gasoline). Compare this to an economy that uses a lot less oil/unit of GDP and have much higher fuel taxes; consumer price rises are smaller and because less oil is being consumed the rises are a smaller part of family budgets.
How can the US economy adapt to future oil price shocks? Replace gas guzzlers with fuel efficient vehicles or EV's, or use natural gas instead of gasoline/diesel , and replace heating oil with natural gas or electric heat pumps.
And how do you push for these changes, how about a sizeable volume tax ?
Too late ? yes most probably ...
Neil1947: "The article draws attention to the fact that the US economy behaves differently to most of the rest of the world."
I wouldn't say so, since four of the world's five biggest economies are in the same boat. In the second graph, the US is joined over there on the left, in negative territory, by Japan, Germany and the UK. For the past forty years, the five biggest economies have been the US, Japan, Germany, France and the UK. So four of the five biggest economies in the world are negatively impacted by oil price increases. It's not just the US.
The graph is very misleading, because it assigns equal space to each country, even though the combined economies of the US, Japan, Germany and the UK outweigh something like all of the other countries on that chart combined.
the US is joined over there on the left, in negative territory, by Japan, Germany and the UK. For the past forty years, the five biggest economies have been the US, Japan, Germany, France and the UK. So four of the five biggest economies in the world are negatively impacted by oil price increases. It's not just the US.
After considering it carefully, I think the fundamental difference is that the US has approximately twice the oil consumption per capita of Japan, Germany, the UK, and France. The result is that US consumers will be hit twice as hard as their consumers by oil price increases.
Consumers in Japan, Germany, the UK, and France are used to high fuel prices because of historically high taxation, and only the rich are truly reliant on the private automobile to support their life styles. All the countries except the US have highly developed electric rail transit systems that can pick up the slack if fuel prices get too high, and that is what their working poor will take to work. The rich can just trade their gas-guzzling luxury car for a locally-available, fuel efficient, double-turbocharged, four-cylinder Mercedes, BMW, or Japanese equivalent.
OTOH, Bubba Q. Sixpack, driving a V-8 Ford 150 pickup to work in the US, is screwed.
the US has approximately twice the oil consumption per capita of Japan, Germany, the UK, and France.
Ah, but the US's per capita level of imports is no higher, because roughly 50% of production is domestic.
Don't focus too much on personal transportation: it's only half the equation. Europe uses rail much less for freight, and trucking much more - it's a real problem.
And, don't over estimate mass transit in Europe: only about 11% of travel miles are on mass transit.
BUt RMG's basic premise - that the direct and visible impact on the average person - is much greater in the US, is correct. And because the average "consumer" has to spend more of their discretionary income on fuel, they have less to spend on other stuff - which makes a big impact in the consumer driven US economy.
A rise in insurance premiums, mortgage payments or other things, of equal $ per month, has much less of an effect than the same $ in gasoline - everyone is hyper sensitive to it.
because the average "consumer" has to spend more of their discretionary income on fuel, they have less to spend on other stuff - which makes a big impact in the consumer driven US economy.
Business spending on oil has the same impact. If European businesses have to pay more for fuel, they have less money to pay employees (consumers), or are forced to raise consumer prices, etc, etc.
everyone is hyper sensitive to it.
Sure, but ultimately the actual volume of money involved is what matters. If European per capita oil imports are higher than they are for the US (which I think is now the case), then rising oil prices will hurt Europe more than the US. Especially when European per capita GDP is lower than for the US.
Finally, US per capita total energy imports are much lower than for Europe: coal and natural gas are much more expensive in Europe, and imports are very large. And, wind and solar resources are poorer in Europe, especially north of the Pyrenees.
Europe has much larger energy problems than the US!
You're overestimating the energy self-sufficiency of the US. True, it is self sufficient in coal, but it imports oil, natural gas, electricity, and uranium. The overall US energy balance is rather negative - in fact, not much different from Europe.
And, you forget that until 2005 the UK was a net exporter of oil, and its per-capita imports are still not nearly as high as as the US. Its peak of oil production was in 1999, whereas that of the US was in 1970, so it's not nearly as far down the decline curve.
The point I was making was that, due to the very high per-capita energy consumption of the US, an increase in energy prices will hit it harder than other countries which, while they have to import oil, do not have to import as much per-capita.
In addition, these other countries have not abandoned their electric rail transit systems, so if oil prices go through the roof, people can just ride the widely available electric trains every where. Most Americans do not have that option.
True, it is self sufficient in coal, but it imports oil, natural gas, electricity, and uranium. The overall US energy balance is rather negative - in fact, not much different from Europe.
The US exports coal. NG imports are small, low priced and dropping. The US imports and exports a lot of electricity with both Canada and Mexico - last I saw, it's net imports were very small. Uranium import costs are very small.
OTOH, Europe's imports of coal and NG are large, and expensive. They also import uranium. Their per capita oil imports are higher.
until 2005 the UK was a net exporter of oil, and its per-capita imports are still not nearly as high as as the US. Its peak of oil production was in 1999, whereas that of the US was in 1970, so it's not nearly as far down the decline curve.
No question about it. OTOH, the UK now imports quite a lot of coal. Oil and gas imports are significant and rising quickly. And, of course, different Euro countries differ: the UK and Norway are different from France and Germany, but on the whole, Euro energy imports are substantially larger than those of the US, and a real problem.
due to the very high per-capita energy consumption of the US, an increase in energy prices will hit it harder than other countries which, while they have to import oil, do not have to import as much per-capita.
And, my point was that this is incorrect, at least compared to Europe. Imports are what matter, not consumption. If coal prices in the US rise, it doesn't matter much for the country as a whole: some people suffer, but others are better off in exactly the same amount. The same applies to domestic oil: if oil prices rise, Texans are happy and people in Maine suffer, but those transfers don't change the overall income of the US.
these other countries have not abandoned their electric rail transit systems, so if oil prices go through the roof, people can just ride the widely available electric trains every where.
This is unrealistic: Europeans use mass transit much more, it's true: about 11% of the time versus about 2% of the time. But, 89% isn't that different from 98%.
You're missing the point, which is not that they use mass transit, but that they DON'T use cars.
Leaner nations bike, walk, use mass transit
So, leaving aside the fact that Europeans are a lot thinner than Americans, they also don't drive nearly as much. Thus, when gasoline prices shoot up, they are not nearly as badly effected. They can just walk, bike, or use mass transit more (and become leaner). Their cars are also much more fuel efficient, which also contributes to the lack of price impact on them.
England is in the weaker position on the surface but it is smaller and easier to get around, biking is very doable in just about every town and public transportation is far from terrible (No matter what whiney people say). Our weather is also quite temperate.
America is huge and has little room to change and little of the infrastructure necessary to do so.
Most US citizens live in urban areas which are just as dense as European urban areas. More importantly, changing to more efficient vehices (and carpooling while you wait for your hybrid order to arrive, or a used hybrid to become available) is pretty easy.
Have you seen the traffic jams into Paris?
Who cares about the traffic jams in Paris? Go to a good restaurant. Eat some cheese. Drink some wine. Take the Métro home.
Seriously, there's not nearly that much room on the Metro.
Paris Metro, hell you haven’t seen a “packed” metro train untill you have been to Japan.
http://www.youtube.com/watch?v=STNWc7Rlpfk
Most US citizens live in urban areas which are just as dense as European urban areas.
Huh? At best this seems doubtful - from Wikipedia:
Even tiny Copenhagen is much more densely populated than Chicago, and Paris crams 'em in twice as densely as New York. Most US citizens don't live in New York City proper. Most don't live in places as crowded as Paris, since only about 0.5% live in Manhattan, the only sizable place that crowded. They live in places that many Europeans might not consider urban - in suburbs or low-ish density urban (by American notions) areas. That in a sense is the problem.
But even with European density, walking/cycling/transit are often not the way to go, hence the awful car traffic almost everywhere in Europe even with $8+/US-gal fuel. So they look more like silver BBs than like panaceas.
Oh, and absent a severe physical shortage, they'll probably not carpool all that much while waiting for the hybrid, they'll just drive what they have for a little longer. Not worth the time: the carpool will last until the day's driver has to stay late at work an extra hour or two, and by the time the brutally expensive taxis get the other partners home, kids' soccer games and whatnot have been missed.
You're right - I believe I said it wrong: I think it should have been: "The average density for US urban areas (SMSAs) is the same as the average for all Europeans." So, there are some rural areas in the US that are very low density, but most US citizens aren't very different from Europe overall.
Yes, much of US urban areas not all that dense. OTOH, if the US wanted to make mass transit work, it could. If it wanted to...and had a very long time in which to do it.
I probably shouldn't have brought up that distraction. It's not really relevant, and I'm not all that sure of it, now that I think of it.
And yes, I think most people will resist carpooling. Still, it's worth noting that more people get to work in the US via carpooling than by mass transit; it only takes two people in a carpool to cut costs by 50%; and carpooling could be made much easier with iPhone apps, and other modern miracles of telecom.
Or...just slugging: people show up at bus stops, and drivers pick them up in order to drive in the HOV lane (bus drivers, of course, aren't excited about this system - that's why they called those who used it slugs, as in fake coins).
You're missing the point, which is not that they use mass transit, but that they DON'T use cars.
That's not what the article says. The quote you pulled is looking at the nations who walk and bike the most, not the average. "Europeans on average walk 237 miles and cycle 116 miles per year". That's all travel, not just commuting. It adds up to about 1 mile per day: that's not enough to make a big difference, or make Europeans independent of cars.
Have you looked at obesity rates in Germany? They're pretty close to those of the US.
US commuters can pretty easily move to more efficient vehicles, or carpool. OTOH, Europe has a much bigger problem: European economies will be hurt much more by energy imports.
Well, I did leave the Germans out of it because they really need to ease up on the beer and the sausages, and walk and bicycle more often. Park the BMW and bike to the train station.
However, the essential point is that most Europeans don't drive nearly as much as most Americans, and when they do, they drive more fuel-efficient cars. This means that skyrocketing fuel prices don't hurt them as much as it hurts Americans.
European economies will be hurt much more by energy imports.
I have serious doubts about that. The US imports most of its oil these days. I'm speaking from the perspective of Canada, which is the largest supplier of oil to the US. At this point in time, Canada is exporting more oil to the US than it is consuming itself.
Canada is not going to be hurt badly from rising oil prices, in fact it probably will benefit. However, the US is running out of money (and by money I mean tradeable wealth) to pay for all the oil it is consuming. This means that the idyllic freeway-oriented suburban wonderland that most Americans live in is going to come to an end, and the transition to a more compact urban form and a more energy-efficient lifestyle won't be pretty to watch.
most Europeans don't drive nearly as much as most Americans
This is true - fewer and shorter trips. Still, most drive to their job. There's not enough mass transit for them all.
they drive more fuel-efficient cars.
Sure. OTOH, it wouldn't be hard for most people in the US to switch, and they have room to do so, while Europeans have much less.
The US imports most of its oil these days
US imports of all liquids have dropped below 50%.
the US is running out of money (and by money I mean tradeable wealth)
hmmm. I think US exports are larger than you realize.
the transition to a more compact urban form and a more energy-efficient lifestyle won't be pretty to watch.
Sheesh. They'll buy a hybrid, an EREV, or an EV.
I agree that the bleeding of US wealth to oil exporters is hurting the US. Still, this conversation started with the comparison with Europe, and I'd say they're hurting more.
Imports are what matter, not consumption.
The energy used is the important thing.
The same applies to domestic oil: if oil prices rise, Texans are happy and people in Maine suffer, but those transfers don't change the overall income of the US.
The tax man gets paid every time there is a transaction. So if Maine has less transactions, the State gets less income.
Only partially so. Europe is crowded, but there's more to it than the hypercrowded Paris-Amsterdam-London triangle. The traffic is often terrible; the Autoroute du Soleil becomes a parking lot during the season of Soleil, and so on. The rails often lack excess capacity, so if they try to double their 11%-of-trips, well, good luck. And IIRC their truck usage is (oddly, perhaps) higher proportionally than in the US, so if they want to eat and so forth, they may be needing a good chunk of their existing intercity rail capacity to carry freight instead of passengers.
So it will remain that most won't have particularly useful access, though more will than in the US. Indeed, even in less crowded parts of The Netherlands, one may get only a desultory bus every half hour or so on a weekday, never mind the weekend. That is, the pesky first-and-last-miles problem that drives car usage so hard, as it were, is and will stay essentially unsolved.
Oh, and considering all the debt and currency issues, people may not be able to ride trains paid for by "somebody else" - which has been the really huge advantage - as much as they are used to. It will probably end up costing nearly as much per mile as driving a car alone, as is occasionally the case even now. IOW it will be useful but far, far from a panacea or "solution".
OTOH, Bubba Q. Sixpack, driving a V-8 Ford 150 pickup to work in the US, is screwed.
Seen with such clarity from high on yonder mountain.
It will mostly cost J-6 time, assuming it doesn't cost too many J-6 jobs. Ride sharing is inconvenient, adds a half hour to a couple hours commute a day. Three people in a car can pay three times as much to operate said a rig as one person in the same rig all things being equal (of course things wouldn't be quite equal)
But ride sharing will cost some jobs because the trips to the store, quick food joint or whatever will be consolidated. A lot of that on that discretionary feel good spur of the moment spending won't happen with a half rack instead of a six pack getting carted around in one rig--that will cost somebody a job somewhere.
J-6 isn't totally screwed unless his chances to earn living wage totally dry up--very hard calculations in complex OECD economies. And of course the US J-6 isn't exactly short of per capita living space either. Kids are staying home longer already, extended families will consolidate if they need to. Screwed is a very relative term...
...just look at the names of the countries on the charts in this key post.
Well, it is quite clear up here in the high Rockies, although it looks like some high cloud is coming in from the direction of the Pacific, meaning we'll probably have some snow by tomorrow.
But Bubba Q. Sixpack (whom I'll call BQ6 because I don't understand your J-6 abbreviation) is probably not going to share a ride with 2 of his neighbors (even though he can fit 3 people in his F-150) because they're not all going the same direction at the same time.
Most likely, he'll continue to drive, spending all his money on gas, until he loses his job. Then he'll stay home and drink beer until he loses his house, after which he'll live in his F-150 until he loses that, and then he'll live in a cardboard box and drink after-shave lotion.
That is probably too negative, but it won't be particularly good because BQ6 is not at all prepared for Peak Oil. If he was, he wouldn't own the F-150 and would be near a bus route he could ride to work.
I don't understand your J-6 abbreviation
Joe six-pack.
they're not all going the same direction at the same time.
There are a lot of people in single-occupant vehicles going in his direction. There are a lot of web-sites designed to connect them, though they don't get much use now.
There is a highly effective, time honored method of carpooling - it's out of fashion, but it works. It's called hitch-hiking. Yes, I know...it's very out of fashion. But, again, it would work - it needs no planning or infrastructure. Just a thumb.
There are other lots of other methods.
Standards of both safety and "safety" have become far more strict since it was fashionable. Entire generations have since grown up in mortal fear of "stranger danger". That's not going to be undone easily if at all.
So true.
We'd need complex security screenings from Homeland Security.
The UK isn't on the graph. England is, and its on the right, well in positive territory.
With England Importing oil now, my bet is that they flip to the left.
This graph shows that most countries who export benefit from a price spike and that most countries who import have difficulty. The problem is, that the countries with the highest GDP tend to import and so the price spikes hurt them the most. And we haven't even gotten into the idea of a structural shortage...
Figure 2 seems to me to show the UK on the left, between Senegal and Egypt. It looks that way in the pdf of the original paper, too...
Looking at the pdf in the paper I see you have the right location and what I was looking at was DR (east Germany?) and Finland rather than UK and England.
However, isn't zero where you want to be on that graph?
GDP is interesting, but as to being a predictor of the economic well being of the majority of the population, does any one single measure tells you much that's useful?
Perhaps relevant to any discussion of GDP, is the idea that maybe our GDP is part of a big Ponzi and Ponzi schemes always end up collapsing.
Per Zero Hedge
http://www.zerohedge.com/news/us-debt-gdp-passes-101-global-debt-ponzi-e...
As US Debt To GDP Passes 101%, The Global Debt Ponzi Enters Its Final Stages
Submitted by Tyler Durden on 02/21/2012 17:29 -0500
Today, without much fanfare, US debt to GDP hit 101% with the latest issuance of $32 billion in 2 Year Bonds. If the moment when this ratio went from double to triple digits is still fresh in readers minds, is because it is: total debt hit and surpassed the most recently revised Q4 GDP on January 30, or just three weeks ago. Said otherwise, it has taken the US 21 days to add a full percentage point to this most critical of debt sustainability ratios: but fear not, with just under $1 trillion in new debt issuance on deck in the next 9 months, we will be at 110% in no time. Still, this trend made us curious to see who has been buying (and selling) US debt over the past year. The results are somewhat surprising. As the chart below, which highlights some of the biggest and most notable holders of US paper, shows, in the period December 31, 2010 to December 31, 2011, there have been two very distinct shifts: those who are going all in on the ponzi, and those who are gradually shifting away from the greenback, and just as quietly, and without much fanfare of their own, reinvesting their trade surplus in something distinctly other than US paper. The latter two: China and Russia, as we have noted in the past. Yet these are more than offset by... well, we'll let the readers look at the chart below based on TIC data and figure out it.
That the Fed is now actively monetizing US debt is beyond dispute (although some semantic holdouts remain - we are quite happy for them). Alas, with China, which has traditionally been the biggest buyer of US paper, no longer buying Treasurys, we are confident that the Fed will have no choice but to be dragged kicking and screaming once again into the fray, especially since traditional buyers of paper, even when allowing for exponential repo market leveraging (and someone please look at what is going on in the BoNY, State Street sponsored $15 trillion quicksand of repo'ed securities, which is the biggest black hole in the shadow banking system and will be the next pillar of the ponzi system to collapse) will be unable to keep up with US issuance. Especially since Primary Dealers already saw their Treasury holding rise to an all time high in the past week, and are loaded to the gills with US paper. So who is buying? Why Japan and the UK.
Japan and the UK? Hmm, if these two names sound oddly familiar, allow us to refresh one's memory. Behold the pristine leverage condition of both these two countries, in all its glory.
see the article at the link above for graph and linked references.
Hi, gem! Yeah, and total US debt to GDP is well above 300%.
http://www.gfmag.com/tools/global-database/economic-data/10403-total-deb...
those who are gradually shifting away from the greenback, and just as quietly, and without much fanfare of their own, reinvesting their trade surplus in something distinctly other than US paper. The latter two: China...
How large is China's trade surplus lately?
China reported a trade surplus equivalent to 27.2 Billion USD in January of 2012.
My reading suggests that the Chinese trade surplus is shrinking, and that's the primary cause of reduced T-bill purchases.
"Chinese trade surplus stood at USD 160 billion in 2011, as per the data published by the Chinese Commerce Ministry. China’s trade surplus stood at USD 183 billion in the previous year of 2010. This 12.5% fall in trade surplus was due to lower global demand and uncertain global economic outlook because of euro zone sovereign debt crisis." http://currentaffairs-businessnews.com/2012/01/05/chinese-trade-surplus-...
The January numbers appear to be an outlier.
Silver closed at 34.35 today, so in terms of silver certificates and not FRNs, the price of oil is about 3 ounces of silver. 3 * 34.35 equals 103.05 US frns.
With silver as a gauge of value, oil's price is about 33 percent more than the historical average.
The current price isn't really too much.
Silver prices are not a great barometer to compare Oil prices. Silver prices have been manipulated and held low for the better part of 30 years. There are class action lawsuits by major market players being resolved right now as the information has come to light. Chris Martenson has a great set of podcasts related to this issue. Silver should realistically be priced higher than gold as it has more industrial applications and is available in less of a volume commercially in comparison to gold. Using silver prices is not the best way to translate price, especially historically!
Since silver coins were money before 1970, it is useful to determine the cost for comparison.
I could have used hay, but it would be more confusing.
Good hay sells for 190 per ton USD, so .6 ton of hay will buy a barrel of oil. Texas needs hay more than they need oil with the drought that occurred there last summer. Hay was being trucked 1500 miles to Texas. Hay for Oil program.
A quarter of land will produce 300 round bales, be worth probably 9 grand, about 88 barrels of oil from 140 acres of land, 160 acres less the roads and shelter belt.
Can't feed oil to cattle, so hay has more value than oil. More will grow next spring. Paper covers rock.
I hope silver does surpass gold. Never been a gold bug. Silver is where it's at.
If silver increases to 1800 USD, I doubt oil will follow. Oil at 5000 is la la land. If it does, it will be hyperinflation. You'll trade a wheelbarrow for a loaf of bread or maybe even a barrel of oil. The FRNs will be used to boil water.
Silver prices have been manipulated and held low for the better part of 30 years.
Would you say that silver prices are still being held low?
Gold/silver ratio, 36 year:
What does that tell us?
Not much if you are "graph challenged". Most attribute silver's more recent ratio to gold as a result of it being a by-product of the production of other metals...
...much as natural gas is a byproduct of crude oil production. Like crude, gold is getting harder to find and produce, but often results in silver production as a bonus.
Not much if you are "graph challenged".
Sheesh - why the personal remark? FWIW, I like (and produce) graphs a lot, but the message still isn't clear to me.
The ratio of gold:silver has been dropping for the last 20 years: is that gold rising too much, or silver not enough?
How does the chart answer my question about whether the earlier poster feels that silver is still being suppressed?
There have been many claims made about the historical ratio, gold/silver, being around 16 to 1, and evidence of silver market manipulation:
I posted the graph to show that the ratio has fluctuated quite a bit, but that the current ratio isn't anomalous in recent history. Doing the math from various sources, current silver to gold production is around nine to one (2010: 22,889 metric tons for silver, about 2500 tons for gold, if my sources are accurate). Considering silver's uses as an industrial metal, one would think that the price ratio would be closer to the production ratio.
I suspect, except as a store of wealth, folks are comparing apples and oranges. Gold is what it is, but I expect that as currencies get eroded, the relative value of both will go up. Many have predicted for rational reasons that gold is in a bubble and that its price will drop relative to silver, but since when has the desire to own and hold gold been "rational". A friend of mine is a precious metals broker and since the recession started, he's been buying far more silver, much of it 'scrap' (sterling ware, etc.), while folks seem more determined to hold their gold.
Interesting. Thanks.
I see this as a prime example of the difficulty of forecasting commodities.
he's been buying far more silver, much of it 'scrap' (sterling ware, etc.),
I remember when the Hunt brothers got killed by people in India selling their old silver...!
Yes they are still artificially being held low. JP Morgan Chase is the main culprit. Do a little bit so searching and you'll see exactly what I'm talking about.
What this report doesn't take into account are the marginal people in the equation who have no income pricing power and have to spend more for food and fuel.
All the MENA countries were showing increases in GDP while their populations were being driven to hunger and starvation due to higher food and fuel costs.
GDP measures only the monetized formal economy. So while the the wealthy get rich the population gets poorer and poorer. Oil price increases skew national income upwards.
Oil, utilities, and food are the prime areas for investment.
People with lower incomes receive eitc from the US gov if they file a tax return and have earned less than 49 grand. So it is more or less a grant for transportation costs.
The gov pays for their gas.
The cure for high prices is high prices. However, I doubt the price of gas will go any lower anymore.
Demand destruction is preferred and oil at 150 USD will have a huge downside effect on gasoline demand. 5 to 6 dollars for a gallon will be the deciding factor. Food comes first, shelter next, i.e. nobody will give up electricity or running water.
Driving will be dead and dead last. The cost will be too great to bear. It will be number one on the list of 'can do without'.
Anyhow, it is to the point of obscene that there is one driver per car everywhere you go. Especially in places like Boulder, CO.
In 2007 and 2008 when the price of crude oil was climbing, the price of natural gas was also high. Currently the price of natural gas is much lower, and it does not appear that it will be rising much this year. U.S. consumption of crude oil has decreased by 10% or so since 2008. The demand most vulnerable to an oil price shock has been eliminated. Thus the U.S. consumer should be able to tolerate a higher price of crude oil in 2012 than in 2008.
What this article suggests is something that should be self-evident but is not: the use (waste) of petroleum fuel does not generally produce any return on that waste. Petroleum fuel (and largely coal for electrical generation) are 'loss-leaders' for fuel-waste enablers such as automobiles and suburban tract houses.
The effects of high fuel prices are systemic and effect businesses rather than retail consumers. Claiming that fuel 'shocks' have little short-term effect on output is a non-sequitur. It does not matter whether short-term effects are large or small if the longer-term effects of higher fuel prices is national bankruptcy!
The entire world has been absorbing -- and spreading out -- the costs of acute fuel shortfalls since 1973. Almost all of the economic 'grand strategy' has been the creation of elaborate fuel price hedges such as inflation of assets and 'wealth effect' (real estate, stock and credit 'bubbles' in Japan, US, Canada, Australia, EU and China), currency union (EU), outsourcing of labor (US, OECD) and nuclear power (US, OECD, China and Japan). Certainly, these hedges have had and continue to have ongoing ruinous costs. The failure of the euro as a Europe-wide fuel price hedge (gain for the EU currency seigniorage privilege as w/ the US) looks to cost the EU 20% or more GDP on an ongoing basis. Embedded 'costs' have been pushed forward rather than made to disappear.
Japan has been in deflation after credit shrinkage for 20 years: how does one measure GDP that Japan might have had? Reactor meltdown costs are unknown at this time but ongoing reactor 'difficulties' at Fukushima could mean the abandonment of Japan and its conversion into wildlife refuge. What sort of cost would that debacle represent to Japan? Minus- 100% GDP for 300 years!
Bankruptcy is already underway in Europe, in Japan without the reactors, to some degree/in certain sectors in the US and to come in China and even in energy supplier states such as Iran and Nigeria.
The effects of fuel prices in Europe.
At issue is the fact that $120 crude oil is no more productive by way of its waste than the $20 variety. However, the same amount of credit can purchase far less of the high-priced oleo than of the lower. The outcome is that there are far fewer losses to lead. While the average US customer is able to afford the higher priced gasoline, he certainly cannot afford the new McMansion or the gigantic pickup truck, the new yacht or jet vacation. Unsurprisingly, the industries in the US and elsewhere that struggle terminally are real estate, automotive, airline, trucking and shipping along with the finance industry. This latter actually pays for everything by way of generated credit. Almost all of the largest banks in the world in all countries including China are over-extended and dependent upon 'phantom' capital issued by those bankrupt national governments. This is the consequence of non-performing lending to energy-waste 'industries' such as housing construction, auto manufacture as well as to the governments themselves.
Another issue is that GDP is a false metric, it mainly (entirely in my opinion) measures inflation: the expansion of the supply of money (including finance credit). Because credit tends to expand when inventory cycles contract there is the illusion of (more) organic business activity taking place than there really is. The appearance produced is 'growth': what grows is more and more debt.
Right now, the fuel price is acute due to saber-rattling between the incompetents in the US and the EU and Iran. Crude prices are set to test the $128 price level set last year. If for some reason the incompetents tilt into outright hostilities and the Straits of Hormuz are closed, it will become instantly clear what the effects of a large cut in petroleum fuel will have on waste-dependent economies. The largest -- China, Japan, US and the EU -- will shock themselves into rigor mortis. It will be a major challenge to keep food on the shelves of grocery stores and basic services operating. Private auto use would be banned or severely restricted: this would be an out-and-out calamity in the US which is almost completely auto-dependent.
After such an event for various reasons well known to oilfield geologists (many of whom are contributors here @ TOD) the production of the states in question will be much less -- perhaps a great deal less -- than before any cutoff. The consequence is that shortages would tend to be permanent as the issue would be fuel that is unaffordable to the increasingly straitened users/wasters of the fuel.
Keep in mind, prior fuel shortfalls to the US/OECD have been of the order of 3-5%. A complete closure of the Arabian Sea/Persian Gulf output would be a shortage of 22% or more. This would be similar to the 20% oil shortage seen in Cuba after the collapse of the USSR in the 1990s. That shortage made Cuba into a nation of vegetable gardeners.
Following is a quantitative analysis of production and net export data, in response to two recent doubling in global crude oil prices. I have shown where we would have been in 2010, at the 2002 to 2005 rates of increase in various measurements of production and exports (our "Gap" Charts).
I would particularly emphasize the CANE metric, discussed below. This is the post-2005 cumulative volume of (net) exported oil available to importers other than China & India. It is very much analogous to the remaining gasoline in a fuel tank. If, and obviously this is a big "If," but if we extrapolate the 2005 to 2010 data trends, I estimate that the post-2005 cumulative volume of (net) exported oil available to importers other than China & India will have fallen by about 50% by the end of next year, 2013.
We have seen two annual Brent crude oil price doublings since 2002, from $25 in 2002 to $55 in 2005, and then from $55 in 2005 to $111 in 2011.
In response to the first price doubling, we did of course see a substantial increase across the board in global total liquids production (inclusive of low net energy biofuels), in total petroleum liquids, in crude + condensate, and in Global Net Exports (GNE) and in Available Net Exports (ANE). GNE and ANE numbers are calculated in terms of total petroleum liquids. ANE are defined as GNE less China and India’s combined net oil imports.
In response to the second Brent crude oil price doubling (2005 to 2011), we have so far seen a very slow rate of increase in total liquids production (up 0.5%/year from 2005 to 2010), virtually flat total petroleum liquids and virtually flat C+C production (through 2010), and a 1.3%/year and 2.8%/year respective decline rate in GNE & ANE (through 2010).
Five annual "Gap" charts follow, showing the gaps between where we would have been at the 2002 to 2005 rates of increase, versus the actual global data in 2010 (common vertical scale):
EIA Total Liquids (including biofuels):
http://i1095.photobucket.com/albums/i475/westexas/Slide1-18.jpg
BP Total Petroleum Liquids:
http://i1095.photobucket.com/albums/i475/westexas/Slide06.jpg
EIA Crude + Condensate:
http://i1095.photobucket.com/albums/i475/westexas/Slide05.jpg
Global Net Oil Exports (GNE, BP & Minor EIA data, Top 33 Net Oil Exporters, Total Petroleum Liquids):
http://i1095.photobucket.com/albums/i475/westexas/Slide07.jpg
Available Net Exports (GNE less Chindia’s net imports):
http://i1095.photobucket.com/albums/i475/westexas/Slide08.jpg
I would particularly note the difference between the first chart, total liquids, and the last chart, Available Net Exports (ANE).
I estimate that there are about 157 net oil importing countries in the world. If we extrapolate the Chindia region’s rate of increase in their combined net oil imports, as a percentage of Global Net Exports of oil (GNE), in 19 years just two of these oil importing countries--China & India--would consume 100% of GNE.
Assuming that the Chindia region's combined net oil imports were to approach 100% of GNE around 2029, I estimate that the current CANE (Post-2005 Cumulative Available Net Exports) depletion rate could be on the order of about 8%/year (versus a 2005 to 2010 2.8%/year rate of decline in the volume of ANE). The CANE depletion rate would be the rate that we are consuming the cumulative post-2005 supply of global net exports available to importers other than China & India. Based on a simple model and based on actual case histories, note that it is common for the initial depletion rate to exceed the initial annual rate of decline in net exports.
In round numbers, I estimate that the remaining cumulative supply of (net) exported oil available to importers other than China & India is falling at an annual rate that is about three times the rate that the annual volume of (net) exported oil available to importers other than China & India is falling.
westexas,
Thank you very much for this cogent analysis, as always. That goes for Gail and Rockman, RMG and Darwinian as well. And many others. This bleg is pure unobtainium, and I would like to shake its hand.
It is vital that (somewhat informed) laymen (like myself) can understand and explain to others, the rudiments, at least, of the structural and institutional settings of energy markets and policy, and the dynamics at play. People are fed so much garbage info, it is exceedingly difficult to cut through it and find solid ground on which to stand, so to speak. This forum has been a lifeline for me.
Thank you again.
Here is the ongoing demand-driven 'shock' which manifests itself at times and places not necessarily where economists wish to look. Anyone in the world including OPEC with access to a television is exposed to the American-style waste based economy: the houses, the cars, the lawns the malls with indoor ski-slopes in the middle of the desert. The TV is instant demand. With crude oil prices over $100/barrel, the means to the American lifestyle is in hand.
The Arab Spring is the flowering of demand, not an addition to supply. Instead of the needed four or more Saudi Arabias there are more Chinas instead.
Here are two must-read reports:
- The first is from Deutsche Bank by way of Estimable Jim Hansen and Master Resource Report.
Deutsche Bank by Mark C. Lewis and Michael Hsueh:
Crude Oil: Iceberg Glimpsed Off West Africa
This report examines net exports, the qualitative difference between classes of fuels, the effects of subsidy on net exports, effects of 'demand moderation' strategies within oil importing nations and the likelihood of higher real prices for fuel.
The other report from The Council on Foreign Relations by Robert McNally: it digs into a range of consequences of a conflict between the West and Iran:
Managing Oil Market Disruption in a Confrontation with Iran
Two very sobering reports.
I'm not sure I trust Deutche Bank's judgement. They seem to think that Europe should increase demand by reducing petrol taxes, thus unleashing new supply!
"Just as subsidies in oil-exporting countries are a market distortion, so too are taxes or volume mandates on alternative fuels in oil-importing countries: both distort the natural level of demand that would prevail in a free market. And to the extent that taxes and subsidized bio-fuel mandates reduce demand against business-as-usual (BAU) conditions in the oil-importing countries, they thereby reduce the incentive in oil-exporting countries to invest in new capacity. It might therefore be argued that market distortions in importing countries have in fact created frustrated supply on the part of exporters."
Wow.
Most tellingly of all, though, given that crudeoil
prices have been much higher on average in real
terms over 2006-11 than over the first half of the
decade, we do not think it is plausible to argue that
there has not been enough demand globally since
2005 to incentivize a supply-side response. As a
result, we would say that crude prices have risen to
all-time real highs since 2005 despite the distortions
created by taxes and alternative-fuel mandates in
importing countries rather than because of them.
You have to keep reading any time you see a phrase like
It might therefore be argued
What I added was only two paragraphs farther on.
Back to the Deutche Bank report (~1.2 mb pdf.) for me. It looks to deserve a complete read.
Well, they are arguing that European petrol taxes are a distortion in the market that has suppressed supply. They do concede that this distortion effect isn't the primary cause of high prices (who argued that???), but still!
This seems to be in part a defense of exporter subsidies: they're arguing that European tax revenues are much larger than exporter fuel subsidies....!
This is very, very odd.
The report is merely stating the facts. If European oil taxes hadn't been as high it is assumed European demand for oil would have been higher (pretty standard price point demand/supply stuff) so the taxes do/did create market distortion, it follows that they have had a larger effect on oil demand than the exporter subsidies because of the oil volumes affected by the respective markets and the sizes of tax/subsidy distortions within them. What problem to you have with that reasoning?
We of course can't say for certain what European oil demand would have been without the taxes, but that is the is the case with any price/demand/supply analysis, so in that matter there is nothing unusual about this one.
I haven't had time to finish the report yet but at about 1/4 way through I've only seen them describing the export subsidies, not supporting them. I might have time to finish reading the report this evening.
the taxes do/did create market distortion
I would strongly disagree. There are very large external costs to oil, so the Euro petrol taxes in fact make the market much more accurate and efficient (a Pigovian effect). This is a glaring display of bias or incompetence on their part.
Further, I think we can agree that there really isn't a lot of supply that could be created by higher prices, so the argument that "insufficient" European demand has reduced supply over what it would have been is highly unrealistic.
Finally, they seem to take seriously the ludicrous argument that reduced European demand might have actually raised market prices!! This argument wouldn't need an extended analysis to answer - it's ridiculous on the face of it, and they could lift charts from an intro econ class to show it.
Really, who would make these silly arguments? This appears to have been written as a defense of OPEC (especially ME fuel subsidies, but also overall market pricing) - it has that "through the looking glass" tone that we see in OPEC public relations.
Nick,
I rather had the impression that they were making opportunity cost comparisons: costs of subsidies in producer states and (anti) subsidies in Europe and other high-tax states. I think this was more to maintain the integrity of the document rather than to make a particular economic point or support a theory.
As for the relationship between increasing prices and reduced demand, the issue is a matter of (producers') costs rather than a balanced supply/demand marketplace. A better argument would have left that entire matter for some other analysis. The producers needs to meet costs, they use hedges to push the price. Whether the producers succeed over more than short time periods is open to question. There have certainly been periods when crude inventories have been very high but also very high market prices.
I thought the article integrated well with Jeffrey Brown's net export model, producer subsidies effect producer demand and are a sticky factor. (I thought it would have been fair if the authors had acknowledged Brown's and Foucher's work.)
My opinion: the DB analysis has more substance than the IMF doc keypost.
Nick says:
Finally, they seem to take seriously the ludicrous argument that reduced European demand might have actually raised market prices!!
DB says:
Despite importers’ policies, crude prices have
risen to record real levels since 2005:
'Despite' does not mean 'because of' last I heard--seem is the definitive word you use
Repeatedly the authors state that since 2005 oil prices have been high enough not to have frustrated supply, but that crude oil supply has been stagnant anyway. This analysis is only about the 2000-2010 time period. So after forcing myself to wade through every word in the DB report it certainly did not seem the authors said anything of the sort to me.
I read the whole report carefully, something that someone who has 'seen red' might have difficulty bothering with. It was even handed (except in stretching a minor point about biofuel export availability).
Yes externalized costs oil were ignored--what else is new? Economic analysis usually doesn't extend out to the true free market level--the one so aptly described by Darwin.
Rather these analyses use 'free market' the way Friedman described it and Friedman would certainly call the substantial oil taxes and subsidies below
market distortions.
Like Steve, I thought the DB author's should have acknowledged Brown and Foucher's work. They were soft pedalling the 'net export model' all the way through-with lots of hard facts to back it up.
All in all nothing new in the DB report for a TOD regular, except...
...this report is stating all of these facts (and a few more) for consumption in the mainstream financial market....
...Cumulative oil field production decline rates requiring 4mbd of new production every years just to keep world production flat
...China and India's demand is increasing
...OPEC's per capita oil consumption increasing by 24% in the last decade while world per capita oil consumption remained flat
...net exports thru 2010 peaked in 2005
The authors don't defend OPEC oil subsidies, but they do acknowledge it to be very unlikely oil producers will be able to eliminate them and keep the peace within their borders.
Finally
Improving energy efficiency: In the final analysis, the
most effective way to neutralize the trend of stagnating
crude production and declining crude exports is for both
importing and exporting countries to become more
efficient in their use of it.
is hardly a radical conclusion but it does not address the effects policy, including high petrol taxes, can have in forcing such efficiencies...it does give it a yea or nay...that was not the purpose of the report...educating about the realities of the current net export situation was.
Yes externalized costs oil were ignored--what else is new? Economic analysis usually doesn't extend out to the true free market level--the one so aptly described by Darwin. Rather these analyses use 'free market' the way Friedman described it and Friedman would certainly call the substantial oil taxes and subsidies below
Milton Friedman was very aware of market externalities. He would have found this analysis risible.
The idea that OPEC price subsidies can be compared to European taxes is absurd. Ask any European policy maker why they are in place, and they'll explain that there are very good reasons for them - reasons which can easily be put in the language of market externalities.
Only an OPEC PR person would suggest such comparison.
------
The authors take care to address the argument that Euro taxes have suppressed demand (and therefore supply), and say that it has, but that this suppression was inadequate (due to prices otherwise rising due to other demand). That's the meaning of "despite", in their language above.
Again, the idea that Euro taxes have suppressed supply is....silly. Only an OPEC PR rep could suggest such a thing.
-------
I agree that the report has some useful information in it. I suppose it's conceivably arguable that it's useful to address absurd OPEC arguments and debunk them, but I don't see such a need...
The idea that OPEC price subsidies can be compared to European taxes is absurd. Ask any European policy maker why they are in place, and they'll explain that there are very good reasons for them - reasons which can easily be put in the language of market externalities.
Really? absurd? Neither has a an major effect on the demand and thus the price of oil? Hmmm...and I thought a major reason for European fuel taxes was to reduce the demand for oil...
Again, the idea that Euro taxes have suppressed supply is....silly. Only an OPEC PR rep could suggest such a thing.
again really? What has brought all this recent US and Canadian high production cost supply onto the market? Higher oil prices. If European oil tax structure had been the same as that in the US for the last forty years do you believe European demand would have been as low as it was? Of course not, demand would have been higher and prices would have started their recent rise earlier...higher European taxes did lower world oil prices (on average over time) and thus did frustrate supply by making it uneconomical to bring higher production cost oil on line sooner. Nothing risible about that line of reasoning.
But that all goes far beyond the scope of the report...that purpose was to show Peak Net Oil Exports occured in 2005. You are uncomfortable with that fact, so it is not surprising you attack weakness in the DB report which in no way materially affects the point they are driving home--which was again, just in case you missed it the first ten times, was that net exports thus far have peaked in 2005. OPEC subsidies have been and likely will continue to be a significant factor in determining what world net exports are.
As for the European tax structure, without it peak net exports might well have occurred a few/many years earlier...it might be interesting to see an analysis trying to determine when that would have occurred if Europe had the same oil tax structure as the US, but I can't see why anyone would bother to do one.
So am I arguing we'd have been better without the higher European oil taxes, lower oil demand and thus lower world oil prices for the last few decades? Not really, I've always felt the US low price at the pump was the distorted one. But higher US taxes would have frustrated supply--if they had been high enough we might not have needed to bring North Slope oil online until the 21st century...frustrating supply is not necessarily a bad thing.
Neither has a an major effect on the demand and thus the price of oil?
The argument presented by Deutche Bank is that additional demand would have created additional supply, which would eventually reduce prices again. Thus, lack of demand from Europe made prices higher. Silly, right?
that purpose was to show Peak Net Oil Exports occured in 2005. You are uncomfortable with that fact
Not at all. I think that makes perfect sense. I think it's a mistake to focus too much on net exports, but it's a perfectly useful idea if not taken too far.
So am I arguing we'd have been better without the higher European oil taxes, lower oil demand and thus lower world oil prices for the last few decades? Not really, I've always felt the US low price at the pump was the distorted one.
Exactly. We agree.
higher US taxes would have frustrated supply
Of course. I completely agree that overall consumption and production have been lower because of Euro taxes....and, that's a good thing. You wouldn't know that from this report.
The argument presented by Deutche Bank is that additional demand would have created additional supply, which would eventually reduce prices again
I really didn't see them trying to push this point, you for some reason are completely focussed on this one paragraph
But what about distortions in importing countries?
Just as subsidies in oil-exporting countries are a
market distortion, so too are taxes or volume
mandates on alternative fuels in oil-importing
countries: both distort the natural level of demand
that would prevail in a free market. And to the extent
that taxes and subsidized bio-fuel mandates reduce
demand against business-as-usual (BAU) conditions in
the oil-importing countries, they thereby reduce the
incentive in oil-exporting countries to invest in new
capacity. It might therefore be argued that market
distortions in importing countries have in fact created
frustrated supply on the part of exporters.
my emphasis...as that line is used to set the first part of the paragraph up for a fall...
...all through the rest of the report they show how little effect the 'distortions' caused by importing nation policies have had on world crude oil supply since 2005. The whole report gets down to a focus on 'a tale of two halves' in the first decade of the millenium.
Their conclusion, on page 25, which they work to after exhausting all other plausible explanations in previous twenty odd pages
That is to say, prices would have risen to even higher
levels in real terms over 2006-11 in the absence of the
market distortions we have looked at in importing
countries, as under such a scenario demand for crude
would likely have been significantly higher
(particularly if EU taxes had been closer to US levels).
As a result, we conclude that frustrated demand for
crude oil in importing countries has been a much
more important factor in driving prices over 2006-11
than has frustrated supply in exporting countries.
merely says that without the taxes oil prices would even be higher, not that there would be a lick more supply.
The report makes no judgement whatsover about whether or not that would have been a good thing...and such a judgement, in my opinion, is well beyond the intended scope of the report, which was again pretty much to define 'Peak Oil' (they are very careful not to use the term) as 'Peak Net Exports' and that as the point where available oil supplies show a minimal, if any, upward response to price increase. Considering all the other stuff out there in the financial markets on oil this is hardly not a worthwhile point to address and to address at length.
hhhmm.
Well, I re-read the report, and on balance...I agree, it's not bad.
I wish they'd stop talking about Euro taxes as a distortion, and acknowledge externalities, but maybe they figured that they had to educate their audience one step at a time.
I also wish that they showed a little more imagination about what they call "efficiency". Moving to electric vehicles isn't efficiency, it's moving to better and cheaper substitutes. But again...maybe it's one step at a time.
No argument with you there. I figured using 'distortion' in that way would be very acceptable to the audience the DB authors were targeting. I pretty much stuck with the report to see what that bunch was getting fed. Some of the targeted audience may have stuck with it because of the way 'market distortion' was used from the outset.
No doubt efficiency is used in the broadest and blandest sense, but that does fit in with the whole tone of the report--at this juncture introducing the term 'BAU' may have been about as risque a move as the authors dared...so many inflamed exchanges revolve about that term in the blogosphere ?-)
Like you say maybe it's...one step at a time...for some fathoming this report would be a very large step...
...it's going to take a whole lot of us moving in step to step away from 'the big three' that make up the bulk of this picture...
If for some reason the incompetents tilt into outright hostilities and the Straits of Hormuz are closed, it will become instantly clear what the effects of a large cut in petroleum fuel will have on waste-dependent economies. The largest -- China, Japan, US and the EU -- will shock themselves into rigor mortis. It will be a major challenge to keep food on the shelves of grocery stores and basic services operating. Private auto use would be banned or severely restricted: this would be an out-and-out calamity in the US which is almost completely auto-dependent.
I don't think this applies to the US. The US imports bulk of its oil from Canada, Mexico, Venezuela and Nigeria. Why would that be impacted by a closure of the Strait of Hormuz? The US also has 300 million barrels of oil in the SPR. That should last for several months if some imports are substituted with oil from the SPR.
I would argue that a closure of the Strait of Hormuz would benefit the US by destroying its economic competitors in Asia. Maybe that is what Obama has in mind?
"I don't think this applies to the US. The US imports bulk of its oil from Canada, Mexico, Venezuela and Nigeria. Why would that be impacted by a closure of the Strait of Hormuz? "
If only it were that simple. Oil gets shipped to the highest bidder, and those who are currently benefitting from Persian Gulf oil can bid the price up pretty high.... and Obama contemplating an oil price/supply shock in an election year? He might as well announce he isn't running for re-election.
Canada does not have the infrastructure to ship oil to the highest bidder.
The US can cut a deal with the Mexican government (ship us your oil at WTI price and we will not deport the illegal aliens).
The US can also cut deal with Hugo Chavez (sell us your oil at WTI price or our Navy will stop and search your tankers for illegal weapons and terrorists).
If there is a war with Iran, doesn't that make Obama's reelection more likely? The price spike could be blamed on a belligerent Iran and republicans would have nothing on him.
People are forgetting that the Cantarell is collapsing and will not be supplying the US with oil very much longer.
Almost 15% of US imports are from Saudia and Iraq.
ftp://ftp.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
15% of US imports amounts to 1 million barrels per day. This could easily come from the SPR for several months. The only way for the US to retain its economic supremacy and to bring the jobs back (jobs are now a national security issue) is to cause a collapse of its economic competitors. There is no better way to cause a collapse than by goading Iran into closing the Strait of Hormuz. Any pain and suffering could be blamed on an intransigent Iran. It will hurt the US, but it will hurt Europe and Asia even more.
Industrialization has now become a game of last man standing.
suyog - Last time I saw the numbers the US SPR was close to fill capacity...a bit over 700 million bo.
That makes my argument stronger :-)
Iran is provoked into closing the Strait of Hormuz. Asian economies collapse. The US is bruised but survives because it imports very little oil from the middle east and it has a big SPR that will last for two years at a withdrawal rate of 1 mbpd.
But isn't oil on the world market fungible enough (not perfectly, just enough) that a severe shortage would affect everyone? It's not as though the tankers are confined to running on rails like trains.
And what exactly will we do with all of our oil when "Asian economies collapse", as Europe, our largest customer follows, as all hell breaks loose in MENA, and our banks and corporations, who are heavily invested in all of these regions, begin to fail? What happens when collapsing Asian economies cash in the $trillions in US Treasury bonds they hold? What about the US industries who are utterly reliant upon Asian parts suppliers. WHO'LL MAKE YOUR NEXT I-PHONE?! OMG!
I don't think you've thought this globalization thing through very well...
I agree with everything you've posted. If our economic "neighbors" experience a slow down that would dramatically affect our economy on the whole. These economies are all interconnected now through globalism. As one suffers, so does another. Its silly to think we in the US would just get a "bruising" while our economic partners collapse. If they go down .... they realistically take our economy with them. The goods and services provided between everyone carry an external economic cost when the prices change, currencies fluctuate, and nations struggle through bouts of their own economic turmoil. A good example would be the worldwide slow down of the global economy when just one sector of the US economy faltered :Housing. Granted, it was one of the largest sectors of the largest economy in the world, but the fact was that sovereign funds and other foreign investors were heavily invested in our sham, that collapsed and so did they.
There is now way to systematically plan to tank another nations economy without taking pieces of our own down with it.
Ghung et al - Just a tech note on SPR that surprised some folks the last time we had a withdrawl. There are fed laws (http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States) that dictate how fast and how much oil is withdrawn. I forget the number but there is a max total withdrawl allowed...I think around 200 million bbls. There is also a law dictating the price it's sold at. They can't sell it cheap. Essentially at current La Sweet Light prices I think...and that's never cheap.
Of course, laws can be rewritten but that would take joint aggreement by all of Congress. These days short of a true national emergency I suspect such agreement might be difficult to manefest.
It would not help our economy whatsoever if the Straight were to be closed. We still import roughly 10%, if not more, from the Middle East. Considering we run our economy on oil , a short term 10% reduction would most definitely have an impact on prices, as well as the service sector that relies on that supply of oil to brings goods and services to market. We are dependent on Middle Eastern oil from an economic standpoint. 10% reduction in oil supply would translate to job loses and higher prices in the short to mid term in our economy. Its not clear if that supply was lost whether we would be able to make it up via other suppliers either. Meaning that short to mid term shock potentially could extend into a long term scenario of economic turmoil.
The author is neglecting the duration of the closure, petroleum stocks and strategic petroleum reserves located around the world. Patriotic Americans would even curtail their gasoline consumption to help the war effort. If Iran closes the Straits of Hormuz for a day, a week or a month, then there will be panic but the oil importing countries can cope. Iran would have to close it for 6 months to a year to create a real problem. Both Iran and Iraq working together were unable to close the Straights of Hormuz during the Tanker War in the 1980's. Like in the 1980's, mining the Straights of Hormuz would slow shipping traffic, but would not halt it. Does anyone here seriously think the Iranian military could withstand a full assault from U.S., NATO, Israeli and Arabic militaries for even a month? Iran would have to sink U.S. carrier task forces and completely destroy the oil terminals of their neighboring countries. Iran could probably do it with nuclear tipped missiles, but they do not have a chance with anything less.
Something I've always wondered was how we could ever get people to respond to long slow squeezes like Peak Oil and Global Warming as the true crises they are. Our old friend the hyperbolic discount function rears its ugly head, and people yawn, roll over and go back to sleep assuming the faceless "They" will figure it all out.
The bubbling crisis with Iran and the threat to oil shipping through the Straits of Hormuz points to a probable mechanism by which "we" will address this conundrum. Regional wars brought on by PO have the potential to convert the abstract, unfamiliar squeeze into a clear and present danger that people can respond to collectively in familiar ways. If the problem is not seen as Peak Oil or climate-driven water shortages, but rather a shootin' war of good guys v. bad guys, people will end up (among all the inevitable wrong-headed responses) embracing conservation and lifestyle modifications that they wouldn't otherwise support. We saw exactly this mechanism at work in the USA in 1973-74, just after American oil production peaked in 1970.
This situation has the added advantage of fooling people into believing that they are coping with a short-term crisis. That (mis)perception makes drastic changes much more palatable. It gets people "over the hump" so that when the crisis doesn't abate once the war is won or lost, their behaviour is more in line with the realities of the biophysical situation.
Basically, long-term crises will present as short-term ones, and that will allow people to cope with them psychologically and respond with action instead of apathy and denial. The realpolitik benefit is that it makes the realignment of population, consumption and resources more dynamic, and may facilitate better regional outcomes in some places while pushing the losers offstage a little prematurely.
"Iran could probably do it with nuclear tipped missiles, but they do not have a chance with anything less."
You think? Iran has a full arsenal of missles with conventional warheads and plenty of range and accuracy to reach oil facilities throughout the region. I'm in Steve from VAs camp; if this thing with Iran goes hot it could tip already struggling economies into their next step down, and it'll be a big one.
I think most folks fail to realize the precarious situation markets are in; we've used up any resilience there was avoiding the depressionary cliff-edge we peered over in 2008/2009. Persistently high oil prices, historically high leveraging and unprecedentedly high debt levels, defaults on a massive scale, food and energy prices stressing families already dealing with un/underemployment, political disfunction at many levels; all are representative of a high fragility factor for globalism. Reducing global crude availability by 20%-40% for just a few months would be a major tipping point and accelerate contraction dramatically.
Releases from SPRs and conservation could not compensate for a sudden 40% loss of world C+C production (~30 Mb/d), but Iran would not be able to disrupt that much.
EIA C+C production in August 2011:
Iran 4050 kb/d
Iraq 2625 kb/d
Kuwait 2600 kb/d
Saudi Arabia 9940 kb/d
World 74207 kb/d
In the very unlikely event of the entire C+C production of these countries being completely shut off for a long duration, the loss would be ~19 Mb/d or ~26% of world C+C production. The entire world would be very angry at Iran to the extent that Russia and China would not sell them any more missiles (or anything else) to cause more damage. Iran would basically be alone fighting against the world.
Yes, Iran has many missiles, but they are ballistic missiles which are rather inaccurate. They can hit cites, but not oil wells, pipelines, buildings, oil refineries and ports without luck. Iran could terrify populations but not shut down the oil industry in countries within a radius of 2,500 km. The U.S. needs laser guided bombs, sophisticated guidance systems, GPS satellites and spy satellites, none of which Iran possess, to accurately strike their targets.
Iran's missile development, The International Institute for Strategic Studies, Volume 15, Issue 1 – February 2009:
Iranian Missile Messages: Reading Between the Lines of "Great Prophet 6", Arms Control Association, Volume 2, Issue 10, July 12, 2011
- First of all, I doubt there will be any attack, Israel does not have any worthwhile targets. Hitting a nuclear target -- and causing a large release of radiation in Iran (and elsewhere) would be counterproductive to Israel. Israel waited too long to attack.
- A meltdown @ Bushehr could leave the Persian Gulf too radioactive to be a workplace.
- Saber rattling benefits OPEC, it causes higher prices which means more income (to produce more petroleum).
- Iran can shut down petro exports without closing the Straits of Hormuz. They can harass oil terminals around the Persian Gulf with rockets, mortars (from the mainlands), by way of small boats, they can harass shipping. Look and see what Somali pirates have done with some small boats. The outcome would be to make maritime insurance prohibitively expensive. There is nothing the US could do (and the Iranians would avoid a slugging match with the US.)
- A slugging match would be very risky for the US. http://www.rense.com/general64/fore.htm
If the US lost ships, if the Israelis caused a nuclear disaster, if the Persian Gulf oil supply was cut off it would be hard to see anything but catastrophe. Israel would become an international pariah state. The US would lose its 'military supremacy myth': if the Iranians can damage a US fleet, what could China do? The developed world would pretty much belly up economically.
Anyone who thinks the US can walk out of something like this is kidding themselves.
I agree that neither Israel nor the U.S. will bomb an operating nuclear power reactor in Iran. They could bomb other facilities needed for making nuclear weapons. If they want to shut down the nuclear power plant, then the plan would have to be attack, invade and take control.
Incompetent leadership of a superior force can definately lose a war. If the U.S. Navy does something stupid like sail a carrier task force into the Persian Gulf while Iran still has a navy, air force or shore-to-ship missiles, U.S. ships would probably be sunk.
If I understand the description correctly, Van Riper took advantage of the limited area in which the war games were being played. Both forces were initially placed close together. The U.S. Navy had to turn off real defensive systems so they would not attack real civilian ships operating in a nearby shipping lane. That caused the defensive systems to be listed as off in the simulation. The lesson: if you operate your warships like Captain Glenn Brindel, then you will lose.
if this thing with Iran goes hot it could tip already struggling economies into their next step down, and it'll be a big one.
And that fear may be why such has not happened - yet.
What happens if the EU's Euro collapses tomorrow? How about if the US Dollar stops being the medium of exchange? Look at Britain - the Pound is a Pound world round - how much benefit did they have by being the worlds reserve currency?
So long as Iran doesn't challenge the US Dollar as world exchange medium - what's the incentive for an attack?
This paper submitted to the Naval War College is worth a quick glance. It of course is out there for Iranian digestion as well, and I'm betting you can find a whole better Navy stuff than this.
Rethinking the Straits of Hormuz (pdf. about 1mb) by Daniel Dolan, Commander USN
It really all boils down to whether the Iranian regime gets completely backed into a corner and adopts the attitude, 'well were are going down, lets take everyone we can with us' or not.
just making the Straits appear more dangerous would substantially increase insurance premiums on shipping--that jacks oil prices.
A strategy where the fleet sits in blue water watching damage to oil shipping while getting a sound coalition formed and then putting together a fast and overwhelming strike force would put tremendous strain on oil supplies. If the 'we'll take everyone down with us we can' attitude came to prevail a several month shutdown after oil prices had already shot up under the strain is not entirely unforeseeable.
No doubt Iran would be more capable with nuclear tipped missiles--but you do have to wonder what level of response using them would trigger from the substantial number of much larger nuclear warheads that are already trained on that country.
What a lovely bunch of choices.
I do not think Iran can be brought to its knees by bombing as CMD Daniel Dolan suggests by analogy with Kosovo.
Yes, coalition naval forces will have to operate their aircraft carriers outside of the Straights of Hormuz and outside of Iranian striking range.
As for defending civilian shipping traffic in the Straights of Hormuz, a CNF would have to use more sophisticated tactics than a direct battle between surface war ships and Iranian missiles, mines, submarines and speed boats. Begin with an aerial attack destroying all the relevant military targets that can be located. I expect the Iranian air force to be destroyed, and they need to sink the 3 Iranian submarines. During this phase allow Iran to close the Straights of Hormuz, if they so desire. Later the CNF would need to use decoys to squander Iranian missiles and draw out hidden Iranian naval forces so that they can be struck by air power. A decoy is a supertanker filled with water and equipped with antimissile defenses. Iran would probably have to expend 20 or 30 missiles to sink one, and they would have no idea they are shooting at a decoy. The defenses against speed boats are UAV's and helicopters armed with machine guns and missiles. Stealth aircraft invisible to surface-to-air missiles fly overhead striking Iranian radars and missile launchers that are located upon use. These operations would be conducted at night.
Several tankers configured as decoys could be used as shields for cargo ships. Without an air force and navy, Iran could not identify the ships they would be shooting at from 20 or 30 miles away on shore. Air power would again be available to strike targets as they are located.
Eventually a land invasion would need to be undertaken to seize control of the Iranian land bordering the Straights of Hormuz. Instead of an amphibious landing, paratroopers would be deployed. Overwhelming force would have to be used against Iran. Half-way measures are a formula for failure.
If Iran begins shooting first before coalitions forces are assembled, they would be able to disrupt shipping for a longer period of time. I wonder how much damage the Saudi air force could do to Iran while a coalition of OECD countries is being assembled.
All good points, I wasn't impressed enough with Dolan's piece to more than just skim it, but two real big words start your last two paragraphs
Eventually
and
If
tough both on shakey financial and on tight oil markets
fun, fun, fun it won't be for just about everyone
There are so many flaws and flawed assumptions in this paper that it is difficult to know where to start. Among them:1. It was written by economists, you know, those guys who think oil and energy are externalities.2. It assumes GDP is something constant and definable across all nations.It is not. A trillion borrowed by Bush or Obama and spent shows up as GDP even though it is paper printing and debt creating GDP. A million shares of Goldman Sachs mortgage tranches sold to unwitting recipients is GDP as are GS bets against those same MBS when executed.3. It assumes inflation across all nations is a constant which of course it is not. These are manipulated statistics with the degree of manipulation dependent on political exigencies. 4.It treats correlation as causation if I read it correctly. 5. The type of statistical analysis is not clear to me. If you have a system with many variables one needs to be very careful with your conclusions to tease out the dominant factors using tools like multivariate linear regression analysis. 6. It doesn't emphasize debt's contribution to the model enough IMO.7. If you want to see how important oil is to a world economy, I think availability(supply) is of course way more impt than price. Mine Hormus and tell me what you think will happen to GDP and your inflation
figures.Price will shoot up. Availability will drop. How do you decide what IS DOMINANT? I do think that a paper like this does pose a most interesting question. What is a high oil price? $20 was high when it used to be $10. $100 is high when it used to be $50. $200 will be high when it used to be $100. Will we be saying that $500 is high when we were used to $200? In other words, what is the real inflation adjusted price that will incontrovertibly establish a threshold price where a certain price without question crashes the economy? My guess is that high energy costs will harm nations where there is high per capita oil use(eg US, Australia) and have less impact on nations who make money trading paper. Gail and Virgina Steve seemed to offer the best critiques BTW, IMO.
But what do we fear the most? The end of cheap holidays? The end of cheap hamburgers? The end of our job career? Or maybe to be killed, and violently, by another civilian for material or spiritual "poverty" reasons. Let's see if it's really bad with oil/energy/food inflation (prices increase).
I'm thinking at violence in society*... We do not have the total death number of the arab civil unrests, anyway... From 2004 to 2010, the continents/countries' listing of intentional homicide rate per year per 100,000 inhabitants says that the situation is way better... People in the world has really "calmed down" (ok, we have data until 2010...), even with almost two big economic collapses and one big oil crash:
Homicides per 100,000 inhabitants (data 2004 to 2010):
Africa down from 20.0 to 17.4
Americas down from 16.2 to 15.5
Europe down from 5.4 to 3.5
Oceania down from 4.0 to 3.5
Asia down from 3.2 to 3.1
Anyway, we could zoom on "oil export" country and see that it's clearly getting worst...
Venezuela is up, from 32 (in 2011) to 67 (in 2011)
Mexico is up, from 10 (in 2003) to 18 (in 2011)
Iran is up, from 2.6 (in 2003) to 3.0 (in 2009)
Ecuador is up, from 14 (in 2003) to 22 (in 2008)
Saudi Arabia is up, from 0,86 (in 2000) to 1.04 (in 2009)
Qatar is also up, from 0.17 (in 2000) to 0.93 (in 2009)
*See this link ... List of countries by intentional homicide rate
There's something wrong with that Wikipedia map of countries by homicide rate. It breaks the US down by state and Canada down by provinces, but it shows most adjacent US states and Canadian provinces the same color, whereas Canadian provinces usually have murder rates half or a third as high as nearby US states.
E.g. take Montana - its murder rate in 2010 was 7.0 per 100,000. The map shows it the same color as the adjacent provinces of B.C. (1.83), Alberta (2.07), and Saskatchewan (3.25) for the same year. It shows Alaska (murder rate 4.4) the same color as BC (1.83 again), and lighter (lower murder rate) than the Yukon (2.9) and the Northwest Territories (2.29). The map is definitely whacked, and shows the US as much safer and Canada more dangerous than it really is.
It also lumps Canada (murder rate 1.62 per 100,000 in 2010) in with the US and calls it "North America" (murder rate 4.7 per 100,000 in 2010). I detect a political agenda here.
In reality, Canada has a murder rate about 1/3 of that in the US, and has had a much lower rate for some decades, but someone doesn't want that fact to be known.
I don't dispute lower murder rates in Canada than the U.S. but it's a global map and I think the color ranges are defensible (2-5 includes a lot of Western Canada and the bordering U.S. states).
Where are you getting 7.0 for Montana in 2010? The FBI says 2.6 per 100,000.
http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/crime-in-the-...
Incidentally, over 50% of homicide victims in the U.S. are African-American, which is part of why the murder rate is low in Montana compared to the U.S. average.
I was following the references in the Wikipedia to the source data the map was purportedly prepared from to get the Montana murder rate of 7.0/100,000. It appears that the map data is actually more recent than the purported source. Apparently the the map data has been updated, but the references for it have not. If they're going to update the data for the US, they should update it for Canada as well, because Canadian murder rates have been falling as well.
The map, as I said, has problems. It needs a complete rework. I edit Wikipedia articles from time to time and this sort of thing irritates me because it's supposed to be a reference work.
Anyhow, to get back to the original point, Canada is a major oil exporting country and its murder rate fell from 1.73 in 2003 to 1.62 in 2010, despite the fact that its crude oil exports increased. This is a counterexample to the thesis that "Oil exports cause murders". More likely it's drugs and ethnic violence for most oil exporters.
Oh, and African-Canadians don't have a particularly higher homicide rate than whites. It has been impossible to figure it out what it is because if you ask Canadians their ethnic group they'll say, "Canadian" and if you ask them their race, they'll say, "human" and they won't change their answer.
French Canadians are particularly snarky about it since their roots go back to French immigrants in the 1600's, but they are heavily mixed with indigenous Indians, English soldiers, Scottish fur traders, and Irish Catholics, and they don't want to talk about it.
Statistics Canada tried to categorize Canadians by race and ethnic group, but they discovered that a lot of them are "Heinz 57's" as a result of generations of racial and ethnic mixing. If you ask them to "pick one", they'll pick three or four and they won't change their answer.
It seems rather clear that the nations that benefit from the higher oil prices are high export nations. There is a reason why Japan (a nation devoid of any hydrocarbon reserve) does not benefit from a high price of oil.
However, I came across an article on www.energygridiq.com that had an interesting analysis on the economics of oil subsidies. It tied into the fact that when oil prices increase, the United States and other subsidized oil nations wind up spending a larger proportion of their GDP on keeping the oil price artificially lower. This has the counter intuitive action of removing funding from other energy sources which could, if not for subsidized oil, circumvent the economic (and inevitable) hardship of TRULY high oil prices.
One only needs to look to see that these attributes are true.
Does it make any sense to compare ratios using different GDP deflators for each country while a common crude oil deflator (US-CPI)to be applied to all the countries without corrections made on exchange rates?
I find the whole premise really weird [and deliberately confusing?].. all it is saying is the impact of high oil prices is delayed if you read between the lines.
this sentance stands out as a masterpiece of double talk
a small majority? nice wording
Interview with John Burbank (Passport Capital):
"Oil won't stop until, the economy 'breaks'"
http://www.zerohedge.com/news/oil-wont-stop-until-economy-breaks
Quote from the interview: "The average 'consumer' is not doing well"
In the interview, Burbank contends that increased liquidity from QE3, TWIST etc, resulted in feedback loops that are seen now in the oil market, ie increased capital availability goes into buying oil, thereby increasing the cost. Burbank also contends that isn't good for our economy because as he states, "The average 'consumer' is not doing well" and salaries have been flat for at least ten years, but it is very good for the exporters, who stand to make some more money. Burbank also goes on to discuss trading strategy...
increased liquidity from QE3, TWIST etc, resulted in feedback loops that are seen now in the oil market, ie increased capital availability goes into buying oil, thereby increasing the cost.
So he's arguing for speculation raising oil prices?
More money chasing less supply, or something to that effect I think.