How economy could survive oil at $100 a barrel

[José]

How economy could survive oil at $100 a barrel

By PETER FRITSCH and KELLY EVANS

The Wall Street Journal

The world economy has managed, with some indigestion, to swallow the rise of oil prices past $80 a barrel. How well could it survive $100 a barrel?

The answer is quite well - so long as several conditions still hold true. The price rise would probably have to be gradual. Inflation couldn't get so bad as to force big interest-rate hikes. Oil-rich nations would need to pump their profits back into U.S. and European economies.

All of this has happened so far. The happy confluence may continue, though fears remain strong that high energy prices will tip the U.S. into recession.

A host of factors, including tight oil supplies and a weak U.S. dollar, suggest that oil prices have further to rise. Some analysts continue to believe that oil is destined to reach an all-time high, as measured in today's dollars, of more than $101 a barrel. The record was set in 1980. On Friday in New York, the benchmark crude-oil futures price closed down $1.22, or 1.5 percent, to finish at $81.66, a little more than $2 off the all-time high, not adjusting for inflation.

High oil prices could lead to ugly consequences if they hit consumers' pocketbooks - especially in the U.S., where the housing slump is already hurting the economy. Consumer spending has been the primary engine of growth in the U.S. in recent years.

Target Corp. was among the major retailers in the last week cutting sales forecasts. Target expects September sales at stores open at least a year to rise just 1.5 percent to 2.5 percent, down from an earlier expectation of 4 percent to 6 percent growth.

For all the concern, the world today is better equipped to swallow expensive oil than it was when Jimmy Carter was installing solar panels and a wood-burning stove in the White House.

The main reason has to do with what some call the Wal-Mart effect. For every extra dollar taken from drivers' pockets at the pump in the form of higher prices in recent years, low-cost exporters from China and elsewhere have put roughly $1.50 back in the form of cheaper retail goods. Even at today's near-record prices, U.S. households today spend less than 4 percent of their disposable income at the pump, vs. over 6 percent in 1980.

Current prices are also a reflection of a strong economy, not an oil embargo or war in the Middle East. Since a market-share war between Saudi Arabia and Venezuela flooded the market with oil and drove prices to below $11 a barrel in 1998, oil prices have risen nearly eight-fold. During that run, the global economy grew roughly 5 percent each year.

Strong growth in places like China helps take some of the edge off the oil-price blow for U.S. and European companies such as Detroit's Big Three auto makers. Many emerging markets are hitting a "takeoff" stage, where per-capita income reaches a level that sparks serious auto demand, says Ellen Hughes-Cromwick, Ford Motor Co.'s chief economist. Growth in emerging markets is a "structural development" that is "less sensitive to oil-price changes," she says.

"There's a more relaxed attitude now," said Daniel Yergin, a noted oil historian and chairman of Cambridge Energy Research Associates. At a recent event promoting Alan Greenspan's new memoir, Mr. Yergin asked the former Fed chief on stage if $80 oil was a concern. "He basically shrugged and said, 'Not so far,"' Mr. Yergin recalls.

Economists see global growth slowing but still chugging along at a relatively healthy 3 percent this year and next. High oil prices also mean more money for oil-producing nations such as Russia and Saudi Arabia to invest globally. "If resource owners are now getting a bigger piece of the pie to spend and invest, then $100 oil shouldn't be a problem" in the absence of a U.S. recession, says independent energy economist Philip Verleger Jr. "And that investment is happening."

Such sanguine views, while they are far from universal, reflect a fundamental shift in economists' understanding of how energy prices affect the economy.

Historically, oil prices have doubled or trebled in a matter of weeks because of sudden and sharp supply disruptions, such as those in 1980 following the Iranian revolution and the outbreak of the Iran-Iraq war. That prompted the Fed to raise interest rates sharply in an effort to head off a spiral of inflation.

Current Fed chairman Ben Bernanke has spent a lot of time trying to understand such shocks. In 1997, he analyzed the effects of sharp rise in prices during the oil shocks of 1973-75, 1980-1982 and 1990-91 in the Brookings Papers on Economic Activity. His surprising conclusion: The Fed's cure for high oil prices was worse than the disease.

"The majority of the impact of an oil price shock on the real economy is attributable to the central bank's response to the inflationary pressures engendered by the shock," he wrote. Today, that view is fairly mainstream among central bankers.

Mr. Bernanke's Fed recently responded to the subprime mortgage crisis by cutting benchmark interest rates for the first time in four years. By implication, the Fed was saying it was more worried about the fallout from credit-market gloom than about the risk of inflation. At a time of record energy prices, that's a risky but educated bet.

Growing fuel efficiency could also blunt the blow of higher prices. James Barnes, a Union Pacific Corp. spokesman, says the railroad has bought more fuel-efficient locomotives and trained engineers to operate trains in ways that conserve fuel. "From a macro level, we would anticipate that rising oil costs will make us more competitive (with trucks) and potentially drive more business our way," Mr. Barnes says.

In China, the engine of growth on which many are counting, other energy sources can make up for oil. China uses oil for only 21 percent of its energy needs, with most of the rest coming from coal. Unlike in the U.S., where imported oil goes to fill people's gasoline tanks, China mainly uses oil in industrial settings, where coal may be an alternative. Greater coal use, however, would also exacerbate China's already serious pollution problem and speed up emissions of gases that contribute to global warming.

Still, some fear the impact of $100-a-barrel oil would be too powerful for the U.S. to overcome. "If we aren't already headed for a recession, it could push us in that direction," says Bill Zollars, chairman and chief executive officer of YRC Worldwide Inc., a large trucking company based in Overland Park, Kan. "With a very fragile economy like we have now, this could be another burden for the consumer and the business community."

Mr. Zollars says shipment volumes at YRC, which serves many retailers and manufacturers, have dropped to 2003 levels. "We are not seeing the kind of volume we would normally expect" ahead of the Christmas retail season, he adds.

Higher oil prices could hit the beleaguered auto and airline industries. Detroit is still digging out from the fall in demand for sport-utility vehicles caused by the climb in gasoline prices. Paul Ballew, General Motors Corp.'s top sales analyst, explained sluggish industry sales earlier this month by citing in part high fuel prices, which he called "effectively a tax on U.S. households."

For now, most economists expect oil prices will stay high through next year. An unexpected hurricane in the Gulf or a sudden disruption to oil flows from a big producer like Iran or Mexico could push oil to $100, they say.

Demand is chugging along. The Paris-based International Energy Agency sees world oil demand in the fourth quarter rising by 2.8 percent, or 2.3 million barrels a day from a year ago, to nearly 88 million barrels a day.

Of course, those forecasts could go awry if the U.S. economy tanks and brings Europe and Japan along with it. Then demand would likely ease, and oil prices could fall, perhaps significantly. And then, the world would have something else to worry about.

http://money.aol.com/news/articles/_a/how-…001114209990007

[Chitah]

Le baril a déjà dépassé les 100 dollars, je crois, je vais essayer de retrouver un graphique.

[Jesrad]

Et en dollars constants, le pétrole est-il vraiment aussi cher qu'on pense ?

[POE]

Le baril a déjà dépassé les 100 dollars, je crois, je vais essayer de retrouver un graphique.

Tu as déjà mis un lien sur le topic End of cheap oil, mais sur ce graphique, il ne dépasse pas les 100.

[José]

Et en dollars constants, le pétrole est-il vraiment aussi cher qu'on pense ?

Observons les données du prix de l'essence aux États-Unis réunies par The Commons :

Si on se fixe sur le prix nominal, jamais l'essence n'a été aussi chère. Mais si l'on tient compte de l'inflation - c'est-à-dire le prix de l'essence mesurés aux autres biens -, on constate que le prix de l'essence est relativement stable depuis 60 ans, oscillant entre 50 cents et 1 dollar. Mieux : si l'on considère le prix de l'essence en relation avec les revenus moyens - ce qui donne une valeur de l'effort fourni pour payer l'essence -, on observe que le prix de l'essence n'a jamais cessé de baisser depuis 1948, excepté lors de la crise pétrolière des années '70.

[Jesrad]

Ah, merci, indispensable Lucilio C'est bien ce que je pensais, le pic, on n'en approche même pas.

[Chitah]

Mieux : si l'on considère le prix de l'essence en relation avec les revenus moyens - ce qui donne une valeur de l'effort fourni pour payer l'essence -, on observe que le prix de l'essence n'a jamais cessé de baisser depuis 1948, excepté lors de la crise pétrolière des années '70.

C'est tout à fait intéressant. N'oublions pas non plus qu'en plus, les moteurs (par exemple) de voiture sont de plus en plus efficaces, donc si on ramenait la distance parcourue avec un litre d'essence au revenu moyen, le ratio serait encore plus favorable à notre époque!

[Sous-Commandant Marco]

Ah, merci, indispensable Lucilio C'est bien ce que je pensais, le pic, on n'en approche même pas.

Le prix est tout de même monté, en dollars constants comme par rapport au revenu, depuis 2003.

[Jesrad]

Le prix est tout de même monté, en dollars constants comme par rapport au revenu, depuis 2003.

Car en 2003 il s'est produit… ?

[Chitah]

Car en 2003 il s'est produit… ?

Je ne vois pas de quoi tu parles.

[José]

…si on ramenait la distance parcourue avec un litre d'essence au revenu moyen, le ratio serait encore plus favorable à notre époque!

Tout à fait :

YOU might imagine that cars are more fuel efficient these days compared with, say, the dark and distant 1980s. At least in America, however, the answer depends on what is measured. Per tonne lugged around by the engine, new cars are indeed more efficient than before. […]

http://www.economist.com/daily/chartgaller…tory_id=9891188

[Sous-Commandant Marco]

Car en 2003 il s'est produit… ?

Ce qui s'est produit en 2003 n'a pas d'importance. Ce que j'ai voulu dire, c'est que ta remarque est infondée: on ne peut rien dire du pic pétrolier en se fondant sur le prix du pétrole. Il faudrait examiner les chiffres de production.

[Mike]

Tout à fait :

Et encore les moteurs américains, de gros V8 gloutons, ne sont pas des modèles en la matière.

En France un foyer doit dépenser au pif pour 15 000km d'essence en moyenne et par an, ça fait même pas 100€ de pétrole si on enlève les taxes. C'est un poste de dépense complètement marginal. Le poste de dépense qui grève le budget c'est la TIPP et la TVA, pas autre chose.

[José]

Why I Want Oil to Hit $120 per Barrel

Here on The Futurist, we have a long tradition of seeking permanent independence from oil-rich dictatorships and theocracies, with the pursuit of long-term gains taking precendence over the avoidance of short-term pain. I refer you to :

Why $70/barrel Oil is Good for America (February 1, 2006).

$70+/Barrel Oil, the Non-Crisis (April 25, 2006).

Terrorism, Oil, Globalization, and the Impact of Computing (August 22, 2006).

When oil first hit $70/barrel nearly two years ago, there were widespread fears of the US economy tipping into recession. I pointed out that a much smaller piece of the US economy has exposure to oil than was the case in 1974 or 1981, which were the last times such high prices were seen (in inflation-adjusted terms). Google, Oracle, and VMWare are far less vulnerable to oil prices than General Motors and Federal Express. Sure enough, after 2 years of oil prices hovering around $70, the US economy has successfully adapted to it. The specter of the $70 barrier is behind us, permanently.

However, $70 oil also fattens the coffers of the world's notorious 'Petrotyrants'. From Iran to Venezuela to Saudi Arabia to Russia, one can note that there is a rather close corelation between an economy being heavily dependent on oil exports and the leaders of that country resisting or even rescinding democracy.

Thomas Friedman has many interesting articles on the subject, such as his 'Fill 'Er Up With Dictators' :

But as oil has moved to $60 to $70 a barrel, it has fostered a counterwave — a wave of authoritarian leaders who are not only able to ensconce themselves in power because of huge oil profits but also to use their oil wealth to poison the global system — to get it to look the other way at genocide, or ignore an Iranian leader who says from one side of his mouth that the Holocaust is a myth and from the other that Iran would never dream of developing nuclear weapons, or to indulge a buffoon like Chávez, who uses Venezuela’s oil riches to try to sway democratic elections in Latin America and promote an economic populism that will eventually lead his country into a ditch.

But Mr. Friedman is a bit self-contradictory on which outcome he wants, as evidenced across his New York Times columns.

Over here, he says :

In short, the best tool we have for curbing Iran’s influence is not containment or engagement, but getting the price of oil down

And here, he says :

So here’s my prediction: You tell me the price of oil, and I’ll tell you what kind of Russia you’ll have. If the price stays at $60 a barrel, it’s going to be more like Venezuela, because its leaders will have plenty of money to indulge their worst instincts, with too few checks and balances. If the price falls to $30, it will be more like Norway. If the price falls to $15 a barrel, it could become more like America

Yet over here he says :

Either tax gasoline by another 50 cents to $1 a gallon at the pump, or set a $50 floor price per barrel of oil sold in America. Once energy entrepreneurs know they will never again be undercut by cheap oil, you’ll see an explosion of innovation in alternatives.

As well as over here :

And by not setting a hard floor price for oil to promote alternative energy, we are only helping to subsidize bad governance by Arab leaders toward their people and bad behavior by Americans toward the climate.

All of these articles were written within a 4-month period in early 2007. Both philosophies are true by themselves, but they are mutually exclusive. Mr. Friedman, what do you want? Higher oil prices or lower oil prices?

But forget about Mr. Friedman wanting it both ways. Instead, I am going to go with the second choice, that of higher oil prices. I see this as a golden opportunity for permanent, far-reaching, multifaceted geopolitical change. The US economy has successfully adapted to a permanent $70/barrel oil price with almost no real pain, and thus it is the time to take the bull by the horns, and lure the Petrotyrants into the ultimate irreversible trap.

It is time to hope that the price of oil rises to $120/barrel by 2010.

Why, you may ask? Won't such a high price make Iran, Venezuela, Saudi Arabia, Russia, Nigeria, Sudan, Kazakhstan, and others even wealthier, without them having done anything to earn it? Won't it make Sudan more genocidal, and Iran more able to equip terrorists? Won't Saudi Arabia be able to fund even more Madrasas across the world?

Sure it will, for a time. But consider the perils of burning the candle at both ends.

But won't this also cause economic suffering in the US? For a time, yes. Gasoline will be at $5/gallon, the trade deficit will widen. I claim the possible recession will be brief, if there even is one at all, as the run-up from the present price of $80/barrel up to $120/barrel is already less of a shock than the jump from $20 to $80 that we already have successfully sustained. I say all of this is worthwhile short-term pain, for when the quietly toiling engine of technological innovation emerges from its chrysalis, it will be gigantic.

The technological climate of 2007 is very different from that of 1974 or 1981. There is so much breadth and depth in energy innovation right now, even at the present $70-$80/barrel, that $120/barrel will move the technology and economics of alternative energy into fast-forward. Consumers will migrate towards hybrids, plug-in hybrids, and electric vehicles so rapidly that the auto manufacturers will start engaging in aggressive competition to lower prices and accelerate innovation. Simultaneously, cellulostic ethanol research efforts will get supercharged, greatly increasing the probability of a breakthrough that enables the attractive math of cellulose to replace the unimpressive economics of corn ethanol. These two technologies in combination will cause the consumption of oil across the US and even China would drop dramatically and permanently within just a few short years.

The terrorists and despots who get lured into profligate spending under $120 oil will eventually find that the demand for their exports is plummeting. Furthermore, the thing about subsidies such as those that Iran doles out is that they are self-propagating. Note that in 2005, Iran exported $44 billion in oil, but spent $25 billion in subsidies, meaning that if oil fell to $30/barrel, Iran's export revenue would effectively become zero if the same level of subsidies are maintained. 34 cent/gallon gasoline leads to more car purchases and hence more demand for gasoline, increasing the cost of maintaining the subsidies, and hence the oil price floor at which Iran's export revenues would shrink to zero. At $120/barrel, the subsidy obligation will be so burdensome that even a drop back down to $70/barrel would lead to a revenue falling behind expenses. At the same time, China will have no choice but to aid in the hastening of these technological advances, as they will have to shift their priorities from locking up oil contracts to reducing the crushing cost of oil imports at $120/barrel.

On the other hand, if oil stays at or below $70/barrel for the long term, Petrotyrants will survive to continue their nefarious activities for at least another 20 years to come. China, too, will continue their current stance of propping up Petrotyrants.

Thus, I say bring $120 on. We outspent the Soviet Union on defense, and we can outspend the Petrotyrants while setting them up for an inevitable cornering and collapse. Give me $120/barrel oil by 2010, and I will give you the demise of Petrotyranny in Russia, Iran, and Venezuela by 2015. Count on it.

Related :

A Future Timeline for Automobiles

A Future Timeline for Energy

Terrorism, Oil, Globalization, and the Impact of Computing

http://futurist.typepad.com/my_weblog/2007…-want-oil-.html

[Nick de Cusa]

C'est tout à fait intéressant. N'oublions pas non plus qu'en plus, les moteurs (par exemple) de voiture sont de plus en plus efficaces, donc si on ramenait la distance parcourue avec un litre d'essence au revenu moyen, le ratio serait encore plus favorable à notre époque!

Non. Surtout pas aux USA. Bien sûr les ingénieurs ont réalisé des miracles, et ce n'est pas fini, pour améliorer le rendement des moteurs. Ceci ne s'est pas traduit par une baisse de la consommation mais par une augmentation de la puissance et, surtout, du poids des véhicules.

[Sous-Commandant Marco]

Je me dis depuis quelques temps: "peu importe le prix du pétrole, pourvu qu'il soit décidé sur un marché le plus libre possible". Pour savoir si l'économie mondiale se portera mieux, il faudrait savoir si le marché du pétrole se libéralise ou pas. Je n'en ai pas l'impression mais peut-être me contredira-t-on?

[Chitah]

Je me dis depuis quelques temps: "peu importe le prix du pétrole, pourvu qu'il soit décidé sur un marché le plus libre possible". Pour savoir si l'économie mondiale se portera mieux, il faudrait savoir si le marché du pétrole se libéralise ou pas. Je n'en ai pas l'impression mais peut-être me contredira-t-on?

Je crois que les compagnies pétrolières extraient (en valeur et de mémoire) environ 30% du pétrole, le reste étant extrait par des compagnies nationales.

[Nick de Cusa]

Tout à fait :

Tout à pas fait. Ton graphique démontre le contraire: la consommation moyenne par véhicule n'a pas baissé depuis 1980. Encore chapeau aux ingés moteur, mais les ingé chassis, eux, ne sont que des flemmards qui à chaque question répondent: rajoutons du poids. Pour un objet destiné à se mouvoir, c'est stupide.

[Nick de Cusa]

Je crois que les compagnies pétrolières extraient (en valeur et de mémoire) environ 30% du pétrole, le reste étant extrait par des compagnies nationales.

Tu opposes les compagnies pétrolières aux compagnies nationales de quoi? De PTT?

Sinon, non, ce que tu écris ne reflète pas la réalité. Les compagnies nationales exploitent, en gros, les champs qu'elles interdisent aux autres (certaines se lancent aussi à l'étranger comme Petrobras, avec une expertise dans l'offshore très profond, qui est assez présente en Afrique de l'Ouest). Ca n'est pas plus compliqué ça. Il y a bien des compagnies qui se spécialisent dans les champs en fin de vie, mais ce sont en générales de petites sociétés de type entrepreneuriales, agiles. Exemple en France: Rubis. Aux USA il y en a des centaines (dont un certain nombre qui ont, genre, un puit en Oklahoma).

[José]

Ton graphique démontre le contraire: la consommation moyenne par véhicule n'a pas baissé depuis 1980.

Certes, mais il montre surtout que la consommation moyenne par tonne a bien diminué (et fortement encore). Maintenant que les ingénieurs en aient profité pour construire des monstres sur roues est une autre question. L'important est bien que la technologie est là qui permet d'économiser de l'énergie.

[Nick de Cusa]

Je me dis depuis quelques temps: "peu importe le prix du pétrole, pourvu qu'il soit décidé sur un marché le plus libre possible". Pour savoir si l'économie mondiale se portera mieux, il faudrait savoir si le marché du pétrole se libéralise ou pas. Je n'en ai pas l'impression mais peut-être me contredira-t-on?

Non, c'est même le contraire, les sociétés nationales essaient de reprendre les concessions qu'elles avaient laissées aux entreprises privées, comme par exemple Shell Sakhaline et le Venezuela. Plus les cours sont hauts plus ça devient irrésistibles pour les politichiens à la Poutine de reprendre la main.

Au Koweit et en Arabie Saoudite, phénomène parallèle: on attire les entreprises privées pour faire des offres pour des concessions, puis, quand l'affaire ets proche de se faire, ça devient politiquement beaucoup trop sensible ("pillage de nos ressources stratégiques par les étrangers") et ça capote. Ca fait des décennies que ça dure.

Un autre exemple, ou aborder le sujet de la libéralisation assure de perdre les élections, c'est le cas PeMex, au Mexique.

Je vous rappelle que nous consommons environ 85 millions de barrils par jour. A USD 80 par barril, ça fait pas mal. Dans les 5-6 millards qui tombent, plouf, plouf, chaque jour (beaucoup de bruts sont moins chers que le WTI et le Brent)

Certes, mais il montre surtout que la consommation moyenne par tonne a bien diminué (et fortement encore). Maintenant que les ingénieurs en aient profité pour construire des monstres sur roues est une autre question. L'important est bien que la technologie est là qui permet d'économiser de l'énergie.

Dans la fiction oui, dans la réalité où les voitures sont de plus en plus lourdes, non.

Mais je vais être bon avec toi: l'industrie, et même les consommateurs, semblent graduellement réaliser que le poids est un facteur à prendre en compte dans la conception d'un véhicule. Je pense que la consommation par véhicule va commencer à diminuer aux USA. Vous pouvez me la ressortir plus tard si cette prédiction ne s'avère pas.