52 comments on Have Oil Prices Bottomed Out?
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52 comments on Have Oil Prices Bottomed Out?
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Regarding oil prices, I agree, and they rose for 9 out of 10 years, from $14 in 1998 to $100 in 2008 (annual average), and the fastest rate of increase was 2000, not 2008. The one down year was 2001, following the rapid 2000 increase. It remains to be seen what the average 2009 price will be.
I've been looking at some price and crude production numbers (EIA).
Let's use 5/05 as the index rate, 74.2 mbpd (which has been revised downward, from a higher estimate, I believe). The price of of oil (WTI spot) averaged $50 in 5/05. We have 43 months of data after 5/05. Let's go back to October, 2001--43 months after October, 2001 would put us in May, 2005.
Production & Price:
October, 2001: 67.7 mbpd & $33
May 2005: 74.2 mbpd & $50
Annual oil prices:
http://tonto.eia.doe.gov/dnav/pet/hist_chart/RWTCa.jpg
In the 43 month period ending in May, 2005, the cumulative increase between what the world would have produced at the October, 2001 rate and what we actually produced, through 5/05, is about 3.1 Gb.
In the 43 month period ending in December, 2008, the cumulative shortfall between what the world would have produced at the 5/05 rate and what we actually produced, through 12/08, was about 0.95 Gb. For 42 of the 43 months, the price of oil exceeded $50. We did see one month--July, 2008, subject to revision, generally downward--that exceeded the May, 2005 rate and we did see some voluntary reductions in production in the fourth quarter of 2008.
However, the 43 month period ending in May, 2005 showed increasing cumulative production, relative to the October, 2001 rate (in response to generally rising oil prices), while the 43 month period following May, 2005 showed declining cumulative production, relative to the May, 2005 rate (in response to generally rising oil prices).
Whats interesting is using my reverse concept i.e we have a command economy and for a long time the availability of oil was a key factor in how fast it was allowed to expand you get the same result.
As we entered the late 1990's the command economy was increasingly allowed to expand regardless of its effect on oil prices.
Rising oil prices where no longer taken in to consideration for putting breaks on the economy.
And I assure you despite the Feds claiming they don't look at food/energy prices as a guage of inflation this is exactly what they look at since this the key in determining of the economy is growing faster than its underlying resource base can be expanded.
You can work the problem both ways however viewing it as our leaders becoming less and less interested in the expansion of real inflation in commodities shows that they for whatever reason no longer felt that commodity price inflation was important or controllable.
This is compared to the previous decades where growth was far more controlled and commodity price inflation kept bounded.
Thus if you look at it from the perspective that the managers of the command economy became unconcerned with the strain on commodity prices caused by monetary practices you get a telling result.
This is why I like the way you look at this the economy was forced to grow despite this short fall in oil production.
Also this problem was widespread across a wide range of commodities across the board growth was straining the supply of practically every single commodity.
In the period October '01 to May '05 much of the increased production is from OPEC bringing spare capacity back into production. It is hard to get a handle on OPEC spare capacity because some of it is unusable for practical purposes. It would be my guess that the world capacity to produce oil hasn't increased much over the past ten years.
The stagnation in production since 5/05 is particularly disturbing in the context of a massive energy investment boom. Given the amount of activity we ought to be seeing a large increase in production capacity.