Stopping Oil's Rise Before Oil Stops Ours

I think the price of oil is probably the biggest constraint on growth that the country faces. The recent rise in the price back to near $60 per barrel is very ominous. Expensive oil will constrain personal consumption, which is one obvious way that recovery would begin. It will constrain savings, which will slow structual shifts and draw out the process of repairing household balance sheets. It may also lead to new pain for both the automobile and housing sectors.

There’s a limit to what can be done in the short term to reduce exposure to high oil prices, but we’re not really trying to take even those small steps.

Comments

[Kashyap_Swamy:]

Ryan - I think you are right. the Financial Times (FT) recently estimated that the savings from the fall in oil price since mid-2008 is about $1.6 tn. This figure is comparable to the large fiscal stimulus numbers announced by Governments around the World. What is more, this effect is immediately felt by the economy.
Its a pity that the financials are driving up oil prices again, despite high inventories and lack luster demand.

May 14 08:04 AM

[john s. gordon:]

kashyap -

do you suspect that the speculators that we had in 2008 are back in action today?
> jack

May 14 08:43 AM

[yank:]

I have news for you. $60 is NOT an expensive price for oil. We need to get our heads out of the 1980s. $20-25 is no longer the benchmark for WTI. Cost inflation over the past 10 years has easily added 40-45% to the bottom line cost structures of the oil/nat gas industries. Even with all the hysteria about demand destruction the decline in global oil consumption is expected to be around 3% in 2009. That's a drop in the bucket and a temporary condition while oil cos have slashed production almost 35-40%. Instead of seeing oil inflation as the "bogeyman" may I remind you that oil price inflation has coincided with every period of economic GROWTH in the USA since the 1950s. In short, stop whining about higher oil prices.

May 14 09:15 AM

[Mmarrkk:]

Maybe to complete the article you could add what those steps are that "we could take" to control the rise in oil prices?? Kind of left us hanging!

Hopefully, you are talking about drilling, opening up offshore lands, etc. But if you are, obamma and Colorado didn't get the message. They are doing the opposite...taking leases offshore off the table, increasing taxes on O&G companies. and Colorado just added huge burdens and delays to the permitting process!

May 14 09:18 AM

[The Aft Deck:]

How can you possibly constrain the price of a scarce commodity, the answer is assistance to those working in the alternate energy sector, a sector that offers great hope for the USA economy.

Oil is headed back to $100 a brl and higher by mid 2010

May 14 09:41 AM

[toobad41:]

Reduce conspicuous personal consumption. Get rid of the gas guzzlers in the driveway. Drive only when you have to not when you want to. Does you car get 25 miles to the gallon? Is your home energy efficient? Are you living a life style that is beyond your means? Energy conservation is a big area where we can save money and extend the valuable life of our depleting fossil fuels. The problem is people do what they have always done. As a result, because of conspicuous consumption we will all suffer the consequences.

May 14 09:41 AM

[Drew Arnold:]

I agree with previous comments that $60 for a barrel of oil isn't too bad. Secondly, I seriously doubt that the (moderate) price of oil is "the biggest constraint on growth that the country faces." Among other things, I can think of a broken banking system, lower demand for American exports abroad, and potentially problematic government intervention.

May 14 10:38 AM

[User 283977:]

Oil is a scarce resource - as the economy recovers, we are going to need more, and the price will increase. Higher energy costs will, at the minimum, slow the recover process. There is also the possibility that ever increasing oil prices could create an economic ceiling which would effectively CAP this countries economic growth potential.

We have natural gas - its cheep and abundant - see the following link by Seeking Alpha Author Michael Fitzsimmons: seekingalpha.com/artic...

This is a perfect opportunity to begin a transisition towards using more natural gas to fuel this countries economic growth. If we don't, I fear the high future cost of oil will at the minimum slow our recover, or I fear, could even trap us in a dependency position from which we could not escape. Natural gas is an ideal bridging energy resource until the next generation of energy sources (Advanced Nuclear, Solar, Wind, Waves) is ready to perform the heavy lifting. Its time for our so called leaders to stop "fiddling"… its past time to take action.

May 14 11:02 AM

[Rick Krementz:]

Oil actually is cheap now. If the world is going to improve living conditions, we need to increase energy consumption/production, not reduce it. Higher energy prices will finally let alternate energy sources become viable - so we become less dependent on petro-dictators.

The rest of the world (except for some oil-rich countries) have not seen gas or diesel as low as $5 for a decade. We pay less than $3.

There has been no demand destruction - do you really think millions of Hummers have been scrapped? Or the Mac-mansions and apartment buildings heated with oil have been demolished? Tankers and freighters have been sunk? Demand has slowed, true, but real supply destruction - rust, incompetency in Venezuela and Nigeria, deferred maintenance, and under-investment, will be apparent even to Cramer in a few months.

In less than three years, we will long for the good ol' days of $100 oil.

May 14 11:18 AM

[Mmarrkk:]

Toobad41: I'm kind of confused by your advice. Conspicuous consumption? Here's the definition:

conspicuous /kən sp kyuəs/ –adjective

1. easily seen or noticed; readily visible or observable: a conspicuous error.

2. attracting special attention, as by outstanding qualities or eccentricities: He was conspicuous by his booming laughter.

So should we stop our consumption that is "easily seen or noticed"? Maybe I should get a stealth suburban or Hummer? That way I wouldn't be conspicuous?? Or maybe its just by attracting special attention??

I drive when I need to drive...which pretty much equates to when I WANT to drive. Sorry. There will be alternatives to oil before it runs out, but for now, I use what I got. Nat gas is a great alternative, but the greenie weenies don't seem to like it very much either. Since oil is running in "short supply", maybe our government might want to encourage finding more of it; instead, they are punishing O&G companies through regulation, taxation keeping prime acreage off the market!

Looks like our atmosphere has been on a cooling spell the last 3-4 years; maybe we need to worry about global cooling again instead of global warming?? Al Gore, new slides for the presentation! Of course, they won't come out until Al and his cronies have moved all of their money to places where they can benefit from their new "crisis"!!

May 14 11:21 AM

[erewhonman:]

Bring on $200 oil! North America should have learned the lessons of the early 70s, the mid 80s, the early 21st century, the lessons most of the rest of the world picked up on. Fossil fuels are increasingly scarce, increasingly expensive, increasingly nasty in their negative externalities.

But no, there was no lesson learned. Dinosaur SUVs now careen the streets! While oil wars rage.

Get with it. Treat resources as if precious not a fiscal stimulus. Conserve them, might be needed in the future. Develop efficient infrastructure, smart cities, clean public transportation. Save the atmosphere and lots of other things too, including a reasonable hope for the future.

As for green house gases, it has become an intelligence test. All the thinking world recognizes it as a real risk. Some dim chimps still think there is no risk at all. Go figure

May 14 11:58 AM

[mdmrjsds:]

On May 14 11:58 AM erewhonman wrote:

> As for green house gases, it has become an intelligence test. All
> the thinking world recognizes it as a real risk. Some dim chimps
> still think there is no risk at all. Go figure

Ahh, if you are part of the 'thinking world', you might want to find the book 'Assessing Climate Change' by Donald Rapp. It takes a balanced look at all of the factors used to determine climate change, and evaluates their uncertainty. One of the things that stood out for me, was the fact that when experts in data analysis pointed out flaws in the 'hockey stick model' of Mann et al, they responded with ad hominem attacks rather than technical refutation. Just as you do above.

If you don't have first year calculus, and technical discussion and graphs make your eyes glaze over, don't bother looking for the book. Just continue being a "true believer", for critical analysis is obviously beyond you (just like chimps). Touche. ;-)

May 14 12:59 PM

[ArtfulDodger:]

Good comment, Yank! Thank you.


On May 14 09:15 AM yank wrote:

> I have news for you. $60 is NOT an expensive price for oil. We need
> to get our heads out of the 1980s. $20-25 is no longer the benchmark
> for WTI. Cost inflation over the past 10 years has easily added 40-45%
> to the bottom line cost structures of the oil/nat gas industries.
> Even with all the hysteria about demand destruction the decline in
> global oil consumption is expected to be around 3% in 2009. That's
> a drop in the bucket and a temporary condition while oil cos have
> slashed production almost 35-40%. Instead of seeing oil inflation
> as the "bogeyman" may I remind you that oil price inflation has coincided
> with every period of economic GROWTH in the USA since the 1950s.
> In short, stop whining about higher oil prices.

May 14 01:16 PM

[TheKing:]

Ax this for what it is. Hate speech. This has no place on an investment forum, or any other site for that matter. The editors of Seeking Alpha need to do a better job of clearing this stuff out.


On May 14 02:07 PM JEWS KILLED MR.WIM DUISENBERG wrote:

> Pigs, jews, Pedophiles, Americans (95% of s.a. blowjobs) are not
> allowed to click website. Those that will, will be hanged in public
> in the city center.
>
>
> Fuck this.

May 14 02:30 PM

[DownOnMyLuck:]

On May 14 11:18 AM ricardoRI wrote:

> The rest of the world (except for some oil-rich countries) have not
> seen gas or diesel as low as $5 for a decade. We pay less than $3.
>
Oil trades on world markets and everybody pays the same price. The difference is taxes. Most retail products are quoted pre-tax, gasoline is always quoted after taxes. Some countries subsidizes gasoline prices, other countries regulate prices. When Europeans buy gasoline, they also get health insurance and other public services with it.

May 14 03:37 PM

[Jimbo:]

I am so far astonished and dismayed that the present administration seems to not realize the importance of natural gas as a transportation fuel and as a fuel for power plants. Our electrical grid is on the brink of shattering if there is a surge in demand. We refuse to produce oil and gas domestically and then find ourselves hostage to lawless countries that hate our guts. We seem to have entered some kind of suicide pact.

May 14 04:52 PM

[toobad41:]

Mmarrkk,
Your points are well taken but my point is that our society is one of wanting more and bigger material things. We want to impress our friends, our family, or make a better life than our folks had. All those grand thoughts are now coming to a screeching halt. All related in some way to energy and how we use it. ICE's are the most inefficient mode of transportation there is and we continue to waste energy to get to the grocery store.
My reference to conspicuous consumption obvious in driving Hummer's, Ford Excursions, RV's, Speed boats, Motor Racing, Drag Racing, Super extended cab trucks, etc..... We will have a day when gasoline is $8 a gallon or more in the states. As it should be. Natural gas is already in use but it is not found everywhere. But is it yet an alternative? My personal SUV runs on battery as a supplement to gasoline. Where is the infrastructure for your alternatives? We've talked about alternatives since the early 1970's and nothing has been done. Why? Because there still is not a better deal than petroleum. I really don't think we need an "alternative" to petroleum but a viable replacement. Nothing comes to mind.

May 14 10:39 PM

[Kashyap_Swamy:]

To all those who believe oil is "cheap at $60". Sorry, you have mixed up time scales. Oil at $60 may be cheap for 2010 or 2011 but not for 2009. OPEC spare capacity is at 5 mn bpd and will the commissioning of Khurais (1.2 mn bpd) it will increase further this year. OECD inventories are at historic highs.

Firms like Total are using super tankers to store oil and take advantage of the contango. ETF investors are subsidizing the contango trade by paying the negative roll yield.

May 15 05:23 AM

[Valley Boy:]

New oil is being extracted in North Dakota and Arkansas.
More oil is being recovered in existing oil fields in Texas and
Alberta with new techniques. Oil companies will bring more
oil to market as the oil price rises ensuring a profit for them.

May 17 12:43 AM