 | Who is MOST to blame for the closure of the Forties Pipeline? | The Oil Drum | Grangemouth/Forties Update: Forties pipeline remains shut down (Thread 2) |  |
206 comments on DrumBeat: April 27, 2008
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206 comments on DrumBeat: April 27, 2008
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I'm on my way doing something interesting. I wanted to take a close look at the relative value of the dollar and the price increase of WTI. For the former I'm using the EUR:USD exchange rate: The higher the value the weaker the dollar. For the latter I'm using WTI spot prices. I'm taking a look at relative % changes of the two quantities, with the starting point of each being fixed at 100%
First off, I'm showing you the graph with the values (and the datatable) for 1st. October 2007 - 25. April 2008. The data are nominal, it is a rather short period of time and I didn't adjust it for inflation.
(But later on, I will - with historical data.)
Here are the first results:
More to follow.
Here is a nominal dataset for the period between January of 1999 and the 25th of April 2008. It is not inflation adjusted - yet.
Later on, I'll show you the inflation adjusted data using shadowstats and US gov., respectively. At the end, I'll work in exchange rate into the oil prices, so that we can see the change in the 'real value' of oil to the US.
But first, a nominal historical dataset and graph.
About a month ago I did a quickie comparison of WTI in USD, CDN and Euros.
Look here:
http://f1.grp.yahoofs.com/v1/4IYUSJxlnM7LcmBb8mXyl2gsWBokGImn42WvNP-IbuP...
At the time it looked like for the past year about one third of the price increase of WTI was related to the dollar decline.
Since the G7 meeting the USD is being defended against the Euro so even tho WTI has kept its cost in USD it has increased in cost vs the Euro meaning that oil is costing somewhat more in USD and a bit more than that relatively in Euros.
I was very much interested in your comparison but unfortunately I couldn't make your link work. Seems to be broken, tried it several times.
Sorry eastender .. it seems to work when I click it .. are you using IE for a browser?
Yes.
Tried it this morning (9:37 AM here) and still can't make it work, sorry. Neither IE nor Firefox were able to open it. In fact all I got was a 'file not found' screen.
Leanan,
I cannot edit my first post in this thread. The pics are too big in pixelsize, and it has a negative effect on the layout. I'd change it if I could - but I cannot.
Could you please change the URLs of the first two graphs? Thx.
1st: http://img0.tar.hu/tovabba/size2/34430761.jpg
2nd: http://img0.tar.hu/tovabba/size2/34430762.jpg
These are smaller and will work better with the TOD layout.
Thanks one more time.
- eastender -
Another reason you should have your own blog. You'll be able to edit it!
OK.
I hear you. :-) I won't be doing this again without former notification. :-)
Thank you one more time for your patience and efforts.
Thanks. That was very useful and helps avoid a lot of fuzzy analysis that wants to blame this mostly on exchange rates. Further, exchange rates may be even less important if one considers the possibility that part of the reason the dollar has gone down is because of increased trade deficits which are clearly related to the demand for oil and the price of oil. So we proabably have a positive feedback effect of oil prices which is helping to drive down the value of the dollar. Maybe that could be quantified in some way, too. Could that be your next project?
For doing what you were talking about I should do a correlation analysis, something I'll probably do later on. It may show that the increase in the real value of oil is driving the exchange rates, not the other way round.
I think it can be shown and I could do it in a keypost, because it takes a lot of space (and time) to do, and I simply do not want to litter this thread with my graphs. (So if someone asks me to do it, I will.)
However, I'm doing one more thing now. In the next step, I'm going to eliminate the exchange rate altogether, working the exchange rate values into the real price of the dollar.
You should start your own blog, if you don't have one. You can get a free blog from Blogger, WordPress, etc., if you don't want to pay for hosting. Posting something that's taken a lot of work like this in the comments is a shame, because it will be hard to find or reference later, and search engines may not pick it up. Trying to follow along if this turns out to be a series will be near impossible.
More than one of our key posts started out as a post in the contributor's personal blog.
OK, thanks for the advice. :-)
Sorry for littering the thread with all these numbers and graphs, but I thought it was useful to post it here. It didn't take that long, 2-3 hours at most.
It's really not about all this going into a keypost or not. I may start a blog later on, but writing blogs and keyposts is not the issue I'm after. :-) I just thought you guys can use it here, and after having read the site for a long time and having learned an awful lot here I felt like giving something back to the community. Contribution... or else, I'm not sure what to call it.
So thank you again for your patience and for all the knowledge you all helped me pick up at TOD. I really appreciate it.
(And I hope you don't find all my long posts offensive. I won't do it often, I promise.)
They're not offensive. If they were, I'd delete them. ;-)
It's just a matter of practicality. The comments of a DrumBeat really isn't the place to post lengthy original work.
I thought for awhile that we might go with a format like DailyKos, where everyone can post their own diaries, but it doesn't look like that's going to happen. So I'd like to encourage people to get their own blogs at Blogger or wherever. I have one myself, here.
You've just convinced me. I'll do this blog thingy. :-) I'll get back to you in a few days with more detailed analysis and data, but that time around with a single URL and maybe a pic or two.
Here is the inflation adjusted data. I was using different numbers for inflation. Three datasets.
1) shadowstats data
2) US Gov data
3) 'mixed' data
In mixed, I assumed that the price of oil has an effect on inflation, so I used a weigthed average of shadowstats and US Gov data. I will show the datatable for mixed.
Here is the shadowstats graph for their inflation dataset vs. US Gov inflation dataset:
1) Inflation adjusted with shadowstats data
2) Inflation adjusted with US Gov data
3) Inflation adjusted with mixed data
4) Finally: datatable for 'mixed' data as shown on 3)
(Note: percentages in the 'own infl' column show 'mixed inflation data' for the period, usually 6 months)
The CPI doesn't include food and energy, why would you use that? I think you'd get an even better picture if you used a the CRB, a good basket of commodities. I think this would make the picture even more apparent.
In the final assessment I used my own 'mixed' inflation data, derived from the numbers given at shadowstats and the ones by the US Gov. Shadowstats data in itself is not sufficient in my opinion, because on the one hand it DOES include energy, but on the other, energy is also a CAUSE of the inflation, not only the result.
Hence, I arrived at the conclusion that I have to use data between the official US Gov data and the shadowstat data. How much it should be weighed in either direction is anyone's guess, I worked with a weighted average of 2:1 in favor of shadowstat data.
(I.e.: shadowstat = 8%, US GOV = 2%, so my mixed was 6%. And so on. In the last graph below, when excluding the exchange rate altogether, I was using the derived 'mixed' inflation data.)
Ohh ok, I see, that is very clever, even if the government data is understated the graph should still be pretty accurate. Either way it shows us an alarming picture. Excellent work though, I think you should try getting a guest post on here with work like this just done in comments. Also would you agree theoildrum should mobilize, and form some forums where members can share for instance campaigning techniques for peak oil awareness? They could share slide presentations for presentation to their own city councils and have formats for informational fliers ect. I've been toying around with the idea for quite some time to set this all up. I want to read Tainter's "collapse of complex societies" though, before I start reccomending people advocate policies that attack solutions and not symptoms.
Hi SoD,
re: "...before I start reccomending people advocate policies that attack solutions and not symptoms."
What do you mean by "solutions and not symptoms"?
Could you possibly please explain this further?
Well, I kind of meant like when your Car gets out of alignment or you get really sick with a sore throat. If you attack the symptoms only, your ultimately working in vain and exacerbating the problem without attacking the solutions. The problem in these examples is your tires keep wearing out really fast and you feel really bad. If you only keep replacing your tires or keep numbing your throat with cough drops your not really making the situation better or solving it. However if you fix your alignment your tires won't wear out so quick and if you get antibiotics your sore throat will go away.
For Peak Oil an example might be, lets only advocate policy's that will use conservation and efficiency measures, ultimately if your energy comes from an unsustainable source, if you don't address the sustainability of such a system your just putting any sort of collapse or economic disaster off a few years into the future. The fact is even if we were to start using wind and solar power then we might avoid an energy disaster and if we survive our transportation fuels problem, we are still creating more problems that will have to be addressed in the future. Everything in the world has limits, with renewable you ultimately have to be able to get to a point to where you can create renewable energy devices from renewable energy. Also you will always be limited by the EROI ratio and what net energy is free for society to use. I am saying Peak Oil is a SYMPTOM of a system dependent upon growth in population and economies. Peak Oil and global warming are a product of the amazing properties of exponential growth. We can help "solve" peak oil by attacking this root cause of diminishing marginal returns and our reliance on a society structured upon growth. However, if we simply tackle the symptom and just try to get more energy other ways, we just put or demise off a little further into the future, and it's quite obvious we can't do this forever. I think this is kind of what people mean is we need a paradigm shift in the way of thinking about how we live and how society functions.
That was a little long, I hope this helped, Thanks for asking
-Crews
Well, first of all it doesn't matter all that much whether I agree or not - as I'm a simple poster here, just like yourself and have nada to do with any of TOD's policies. :-)
But I can tell you what I think. Mhmm. I think TOD is good as is. On one hand it is a community, yes. But on the other: it is focusing more on theory than practice - and I tend to think the latter (i.e: focusing primarily on theory) is more important here. We are so far apart, often posting from different continents and cultures (I'm Hungarian, for example) that this phenomenon itself makes it rather hard to work out some common techniques for campaigning.
I somehow doubt that my technique would work in Kansas or yours would in Estonia. Sharing of ideas and basic presentations is a good idea, but I think you can take this only that far. Posters here disagree about more things than they agree on - the 'peak oil phenomenon' aside. But about mitigation/contingency/crash programs... effects, side effects, implications, history, psychology, politics, economics... one can see lots of differing views and takes here. You can't (and I think shouldn't) create a 'one size fits all' solution.
I just like it the way it is.
I would choose diversity over homogeny any day of the year. Diversity, especially during times of stress and chaos, however, is a luxury and inefficient. Let us keep it as long as we can.
The CPI does include energy and food. In fact the basket of commodities is pretty good. There is another measurement the "core" CPI that is also published that doesn't include energy and food.
For all things CPI go to: http://www.bls.gov/CPI/
We've come to the end of the journey.
Here is the real value of oil for the US, with EVERYTHING ADJUSTED. 1999 values = 100%, inflation adjusted data and the exchange rates worked in. Datatable and graph. (Exchange rate not shown, as it is already worked in the value of oil.)
Result: the real value of oil increased by 600% or 7-fold of the original 1999 value. This really is an 'everything adjusted' value, so take it at face value. :-)
I think this is the correct way to do this calculation. What do you guys think? (In case anyone of you need the excel for further modification, just let me know and I'll send it via e-mail.)
EVERYTHING ADJUSTED DATA FOR OIL
Thanks a lot, very useful perspective !
Sure.
The most frightening in all this is I think the sad FACT of these graphs showing reality, and it is not really a perspective. ;-)
You have to use inflation adjusted values and you also have the exchange rate numbers. Using inflation adjusted prices makes the change smaller (vs. nominal price changes), and working in the relatÃve value of the dollar makes the change bigger.
All in all we are looking at a 7-fold increase in the 'real value' of oil in the last 9 years.
Now, if we take a look at the US import numbers (quantity) and multiply it by the 'real value' for the respective years... we are going to arrive at a cca. 10-fold increase in 'real oil expenditure' between 1999-2008.
I'm not going to do it in this thread (unless directly asked to do so by Leanan ;-) ) but you get the picture. It's rather scary.
eastender , you certainly got my attention ! (others should as well!!) ...and for the perspective, I am not going to split hairs ;-)
Very good eastender! This is better than going to college! Thanks! Anyway, if I understand your work then...the bottomline is that the exchange rate has shown to only effect the price of oil on average by about 3%? So then what makes up the 97%? Supply mostly ?
It depends on the period you are focusing on. For example, take a look at this graph showing the change in price and exchange rates between last October and Friday:
The dollar lost some 17% of its value relative to the euro in this period - but the price increase of WTI spot was 47%. So cca. 30% of the price increase (or cca. USD 25) was caused by something else.
What else? Mainly three things in my opinion:
The oil price went up USD 40. USD 15 was due the exchange rate, that much we know. As for inflation, 4% would add another USD 3. Speculation? In my opinion USD 7 at the most. That's 25 altogether. The remaining USD 15 (or USD 20) is simple supply&demand.
At least that's my understanding of the situation.
regarding commodity speculation, Moe makes a very convincing case a few threads below: not really much in there. That leaves us again with the usual suspects: supply&demand. Looks like we can rest our case !
Yeah, I tend to agree with Mr. Gamble. :-)
As far as commodity speculation is concerned, I think there is a USD 5 minimum, which is in there 'always' and another 1-10% depending on the profit taking period. I.e.: the price of WTI can almost always go down 10-15% at the most, which is at the moment USD 12-17.
But that amount is not 'always included', some weeks it's there, then it disappears for a few days and then it is in the price again.
All in all I doubt commodity speculation being more than USD 7 on average. Which is like 6% of the price. So Moe is right in my opinion: the majority of the increase is caused by neither speculation, nor inflation or exchange rates: It is first and foremost supply&demand.
Again, it depends on which graph and dataset you are looking at. If you look at the nominal historical (1999-2008) graph then what you say is not true. Depending on the numbers you use for inflation coming from which institution, you can see that a near 1,000% nominal price change is only like 700% or 450% if you use US Gov or shadowstats data, respectively. (Yes, using shadowstat data means a lower 'real relative value' change in the price of oil. Using US Gov data the increase is more severe.)
On the other hand, if your data is already inflation adjusted, then all you have to take a look at is the % change in the exchange rate of the USD vs. the EUR. That's some 36% from 1999 to 2008.
Meanwhile, the price of oil went up by 350% or 600% - again, depepnding on the institution you use for your CPI data.
I hope this brief explanation helps.
Eastender,
My compliments, Sir; A very fine piece of work. On that CNBC, and the rest of the MSM has declined to provide for us.
I really wish that the proprietors of TOD would put it up as a Post so it would be easier to link, and spread around some other sites.
I would make one recommendation. One series of charts putting WTI against the CPI, minus energy. Personally, I think a chart that uses "shadowstats" marginalizes the end product. If you stick with "official" statistics you won't risk "poisoning the well" with a large percentage of the people you'd like to reach. However, that said,
It is an impressive work; and I congratulate, and Thank you.
K.Dolliso
Hi kdolliso,
sure I can do all that using US Gov data. But if I do so, the picture becomes even more alarming. Why so?
US Gov inflation data is far lower than shadowstat data. Resulting in a much bigger change upwards on the 'inflation adjusted oil price'. You may want to compare the two graphs upthread - one using 'shadowstat adjusted' and the other 'US Gov adjusted' data. As you can see, using US Gov inflation will give us an adjusted price increase of 600% (or 700% of the original), and 'shadowstat inflation adjusted data' only in the neighborhood of 350% increase (or 450% of the original).
You are right, I could do the final graph (working in the EUR:USD exchange rate as well) using US Gov inflation data... but if I do so, the result will be a lot worse... roughly a 10-fold increase instead of an 'only' 7-fold one.
I thought it was alarming enough as is. :-)
Oh, I forgot to say thank you as far as your compliment is concerned. This analysis was not that hard to do though, I used only 15-20 datapoints with each curve. The data was there, MS excel was there, I had an idea and some spare time... I just decided to go for it. :-)
Anyway: Thanks.