Can we still expect to see sustained economic recoveries when oil, the world's principal source of energy, is trading in triple digit range?
As I argued several years ago in my book, Why Your World Is About To Get A Whole Lot Smaller, triple digit oil prices will redefine our notion of an economic recovery because as soon as the global economy picks up, oil prices will quickly soar to levels that challenge growth.
Last year was a case in point. In the second full year of recovery from as deep a trough as any seen in the post-war period, oil prices once again rose swiftly to levels that, in the past, torpedoed economic growth. Brent Crude, the world oil benchmark, averaged $111 per barrel. This cracked the previous record of an annual average high of $100 in 2008 -- a peak subsequently followed by a huge global recession.
The North American benchmark, West Texas Intermediate (WTI), rose even more, increasing by 20 percent from its 2010 average price of $79. Even with the hefty discount that it traded to world oil prices throughout most of last year (at times over $20 per barrel) WTI still averaged just a shade under triple digit levels at $95/barrel last year.
Of course there are always special factors to explain these price levels: the Libyan revolution, Iran's threat to close the Strait of Hormuz, or an increasingly destabilized Iraq. While all these events certainly pose credible threats to world oil production, they are, at the same time, background noise even if they dominate the front page.
The real story behind triple digit oil prices is not the threat of supply shocks, but the sheer, unrelenting rise in world oil demand. Already closing in on 90 million barrels a day, the quick rebound in world oil consumption to new record highs demonstrates the global economy can't grow without burning greater amounts of oil.
No matter how many rabbits the oil industry can pull out of its hat, be it tar sands from Alberta or shale oil from the Bakkens, supply just can't seem to keep pace -- at least not at the prices most consumers can afford to pay. That is the message that triple digit prices keeps telling us.
If the global economic expansion, troubled as it may be, continues, we will see even higher oil prices in 2012. But what does that say about the sustainability of growth?
And even if there is growth, what is the pace?
Follow Jeffrey Rubin on Twitter: www.twitter.com/@jeffrubin
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There is a lot of "woulda- coulda- shoulda" surrounding these issues, but we are stuck with muddling towards a no-growth economy whether we like it or not.
The economy will pick up just enough for demand to increase- until we get pounded again- and down the next stair step we go- the following recovery will be even weaker and longer, and down the next step, etc.
Jeffrey, I wish our *Celebrity Economists* Robert Reich and Krugman would read your posts, as there is always this disconnect between "Energy-In-the-ground-Reality" and the solutions proposed by most economists and politicians.
No matter- it is way too late to make the meaningful adjustments necessary to cope with the coming changes that we are all in for.
And if this fellow just went behind the scenes and studied the interlocks of The House of Bilderberg, The Pratt House (NY) and The Chatham House (EN) then he would understand very quickly on how The Carbon Economy is so easily manipulated by the powerful few.
No one gets on the Board of Directors at Exxon or JPMorgan Chase without the approval of the most powerful man in America. Here is a highly despised V/P talking to his real boss over at Pratt and joking about failing to disclose his membership in Pratt to the government vetting process: http://tinyurl.com/ctgofae .
And if the writer were to examine these events in The Hydrogen Economy, he too would abandon The Carbon Economy very quickly.
This is a 11.2 MW Fuel Cell Park in South Korea: http://tinyurl.com/6skgw9h .
This is a Hydrogen Gas Plant company selling Hydrogen Gas to the Oil refineries: http://tinyurl.com/6umyf7f .
This Mercedes Benz Hydrogen Fuel Cell Electric car just drove 33,000 kilometers over 5 continents this past summer and is production ready: http://tinyurl.com/6nxrcq2 .
Yes, the Fuel Cell electrical plant powers the Hydrogen Gas plant which fuels the Fuel Cell car!
These are Black Swans, highly improbable energy innovations that could knock the pins out from under high oil prices.
See Moving Beyond Oil, Cheap Green, Running on Water and Black Swans, all on the Aesop Institute website for a few examples.
A mortal threat that is still little recognized may accelerate development of decentralized energy on a 24/7 basis as it is widely accepted.
See the Introduction and Dire Warnings on the same Aesop website to understand why human life on our planet might be at hazard.
Wise action to prevent the worst could sharply boost the economy, worldwide.
And might save many millions of lives.
get over oil. get over ALL Big Energy (including Chevron Solar an BP Wind) and start working on REAL solutions that will save our environment, our economy, our jobs market, our property values, our climate, our water and our open spaces. local, democratically-owned efficiency upgrades, passive heating/cooling and rooftop solar are shovel ready now.
It’s been 38 years since the first Arab oil embargo sent oil prices through the roof. It’s been 38 years and we still haven’t figured out how to operate an economy without being crippled by the price and availability of one commodity. One must therefore conclude that we are simply too stupid to function in the global economy.
We import over half of our oil. Half of the oil that we consume goes into the production of gasoline. We consume about half of the World’s total gasoline production or about 500 gallons per person per year. We still use multi ton vehicles to move ourselves around one at a time. We have thus chosen to crucify ourselves on a cross of petroleum. One must therefore conclude that we are simply too stupid to function in the global economy.
There are alternatives right now. We have access to vehicles that use half of the average consumption. We have access to vehicles that use no oil whatsoever. We have had 38 years to change our ways but we haven’t. Instead we keep doing the same things over again expecting different results. Indeed the sales of SUVs are inversely proportional to gasoline prices falling when gasoline is high and rising when it is low. One must therefore conclude that we are simply too stupid to function in the global economy.
If we had good policies we would have been drilling like mad for it while there was a downturn to protect us from the inevitable price rice - but we failed to do that...
look into oil speculation, because the airlines were going broke
and the rest of the US was hurting, guess what !?
That July the prices suddenly went south, for no apparent reason
except the hearings, the price went down. The speculators were
afraid of being exposed and permanently hurt.
So this is something we need to do occasionally, wack them down
one way or another. Even Exxon said that the price of gas should
be about $ 3, EXCEPT for excessive speculation. This affects
the middle class in particular, so the US government should
release more reserves more often to discourage speculation.
Obama did once this summer, it was not enough.
Several hits to the spec's would help the middle class recover
and the entire US. This is not brain surgery, call Congress
and WH.
If the US tries to control the oil markets in the US, the oil traders will just abandon the US markets and trade through the London markets. The traders may even start to trade oil in Euros or Chinese yuan instead of US dollars.
When will Americans finally understand that oil is a fungible commodity that the US has no way to control?
the speculation number's are much higher than they were even
several years ago.....it's far worse and we need the media,
Congress, etc. to recognize this and attack it....
expecting the GOP to do this is unfortunately a wild dream,
and Dem's are slow at best...
The news that 2011's biggest export was our very own, extracted from public lands and waterways and heavily subsidized oil resource, how can we continue to shift the focus to Middle Eastern developments? There has been instability in that region since the breakup of the Ottoman Empire. International oil companies are playing us.
There are things we could do immediately to control oil prices and supply. Pretending it's entirely out of our hands is a surrender to those who would wring still more subsidies, more environmental degradation and higher prices out of us. See http://nogginstrain.blogspot.com/2012/01/about-that-oil-self-sufficiency.html
Regardless where oil is pumped from the ground, it is sold to refiners at the GLOBAL oil price. Because of the US obsession with "free enterprise." no US oil producer will tolerate being forced to sell their oil for less than the GLOBAL oil price.
If you really want to sell oil produced in the US to US refiners for less than the GLOBAL price, are you willing to nationalize the oil producers? Because that is the only way you will be able to control the price of oil pumped in the US.
Of course there is the other "slight" problem that all the cheap to drill and pump oil in the US, is long gone (before the 1970s), and the current production REQUIRES the price of oil to be over $70/bbl to make the wells economically viable.
The basic problem that you (and many other Americans) can not seem to grasp is, the US oil production PEAKED in 1970 and regardless how much technology we try, US production has DECLINED every years since them.
The bottom line is there is NO MORE OIL left in the US to meet our needs (we currently IMPORT 75% of the oil we use), so we are stuck until we completely re-build our energy production, distribution and usage infrastructure.