For every price there is a season
I've read around here and there and the situation seems to be that higher oil prices are here to stay - or at least we're going to challenge the market and see if higher prices really can increase production.
For the U.S. oil industry itself, it benefits by higher prices. Higher prices may not increase how fast we can extract oil from the ground, but they will increase the money oil companies take in, and ultimately increase the total yield as our depletion falls into the sunset.
Apparently reserves are actually higher now than a year go. This makes higher prices counter intuitive, but perhaps oil traders are finally getting the picture.
Imagine last year your savings was hovering around $2000 and you felt pretty good. Now a year later your savings is $3000, but you're worried about your job and inflation and the economy and suddenly this reserve doesn't look so secure. We don't know which is more "reasonable" - low worry before or high worry now.
If prices stay high many will start blaming oil companies for their excessive profits.
In theory high profits means the oil companies have more money available for exploration. The same logic held back in 1974 and 1981 when prices skyrocketed. The big oil companies searched for all the new oil they could find, and succeeded, only to be hit by an oil glut that plummeted the price after 1985 or so.
http://research.stlouisfed.org/fred2/series/OILPRICE/98/Max
That effort lead to nearly 15 years of excess supply, only running short after 1999.
So rather than taking the easiest oil first, harder nonOPEC oil was extracted for "independence", and we successfully delayed our "dependence" another 20 years. Now nearly all nonOPEC production by country is falling, and OPEC itself may not be able to meet new demand.
15 years of cheap oil prices encouraged more of the world to become dependent upon oil. Now prices are moving back where they should be perhaps. Who will be most hurt by higher prices?
Higher prices are supposed to reduce demand. This will be a test - in the coming months - if prices stay high ($45/bbl+), will the rate of demand growth slow? Obviously it must slow by market forces of supply and demand. If demand can't keep up, prices will rise until some decide they don't need it.
America, consumer of 25% of the the world's oil production, would seem to be most vulnerable to higher prices. I'm guessing the opinions of some economists are correct - that we can adjust to higher prices. How high? Obviously there are limits, but consider drivers. America is rich enough that people have long ignored fuel economy - and vehicles got bigger and bigger. I talk to people (not people on the bottom, but average older adults), and they say gasoline prices don't affect their driving. Thus, $3/gallon gasoline appears within the comfort zone of many americans, even if they complain.
Certainly Europe prices are much higher because of taxes - $4/gallon or more. They've accepted those prices too, and so can we.
I worry about people on the bottom side of the U.S. economy - those making under $10/hour. I've seen how such people "make it". They buy "junkers" for <$1000, and run them until a repair bill exceeds their budget, and then they buy another one.
Those on the bottom are "subsidized" by the wealth on the top - by those who appreciate the luxury of buying/leasing a new car every 3-4 years. So as long as people continue this, people on the middle and bottom will continue to have options to stay on the car track.
Overall I'm hopeful short term problems can be responded to, but when we go 15-25 years, I lose more and more hope. I hope we're lucky to face more hardship earlier than later. The taller they are they harder they fall, right?
We shall see!
For the U.S. oil industry itself, it benefits by higher prices. Higher prices may not increase how fast we can extract oil from the ground, but they will increase the money oil companies take in, and ultimately increase the total yield as our depletion falls into the sunset.
Apparently reserves are actually higher now than a year go. This makes higher prices counter intuitive, but perhaps oil traders are finally getting the picture.
Imagine last year your savings was hovering around $2000 and you felt pretty good. Now a year later your savings is $3000, but you're worried about your job and inflation and the economy and suddenly this reserve doesn't look so secure. We don't know which is more "reasonable" - low worry before or high worry now.
If prices stay high many will start blaming oil companies for their excessive profits.
In theory high profits means the oil companies have more money available for exploration. The same logic held back in 1974 and 1981 when prices skyrocketed. The big oil companies searched for all the new oil they could find, and succeeded, only to be hit by an oil glut that plummeted the price after 1985 or so.
http://research.stlouisfed.org/fred2/series/OILPRICE/98/Max
That effort lead to nearly 15 years of excess supply, only running short after 1999.
So rather than taking the easiest oil first, harder nonOPEC oil was extracted for "independence", and we successfully delayed our "dependence" another 20 years. Now nearly all nonOPEC production by country is falling, and OPEC itself may not be able to meet new demand.
15 years of cheap oil prices encouraged more of the world to become dependent upon oil. Now prices are moving back where they should be perhaps. Who will be most hurt by higher prices?
Higher prices are supposed to reduce demand. This will be a test - in the coming months - if prices stay high ($45/bbl+), will the rate of demand growth slow? Obviously it must slow by market forces of supply and demand. If demand can't keep up, prices will rise until some decide they don't need it.
America, consumer of 25% of the the world's oil production, would seem to be most vulnerable to higher prices. I'm guessing the opinions of some economists are correct - that we can adjust to higher prices. How high? Obviously there are limits, but consider drivers. America is rich enough that people have long ignored fuel economy - and vehicles got bigger and bigger. I talk to people (not people on the bottom, but average older adults), and they say gasoline prices don't affect their driving. Thus, $3/gallon gasoline appears within the comfort zone of many americans, even if they complain.
Certainly Europe prices are much higher because of taxes - $4/gallon or more. They've accepted those prices too, and so can we.
I worry about people on the bottom side of the U.S. economy - those making under $10/hour. I've seen how such people "make it". They buy "junkers" for <$1000, and run them until a repair bill exceeds their budget, and then they buy another one.
Those on the bottom are "subsidized" by the wealth on the top - by those who appreciate the luxury of buying/leasing a new car every 3-4 years. So as long as people continue this, people on the middle and bottom will continue to have options to stay on the car track.
Overall I'm hopeful short term problems can be responded to, but when we go 15-25 years, I lose more and more hope. I hope we're lucky to face more hardship earlier than later. The taller they are they harder they fall, right?
We shall see!
posted by Ares Olympus at 4:12 PM
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