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Oil and the Economy: The Impact of Rising Global Demand on the U.S. Recovery
Donal, TPM Cafe
Oil and the Economy: The Impact of Rising Global Demand on the U.S. Recovery
On May 20th 2009, the Joint Economic Committee of the U.S. Congress held a sparsely-attended hearing on the implications of rising world oil demand for the U.S. economy. JEC chair Representative Carolyn Maloney (D) delivered an opening statement, James D Hamilton, economics professor at UCSD and founder of Econbrowser spoke, followed by Daniel Yergin, author of The Prize and Co-Founder and Chairman of Cambridge Energy Research Associates.
The initial statements weren’t that interesting. Hamilton cautioned that demand could well drive up prices again, while Yergin advised that our strategic future lies with Canada’s “oil sands.” But they seemed to agree on a lot more than they did before the economy tanked.
During question and answers, both committee members and speakers recognized that securing our “energy independence” now involves procuring energy from a variety of sources. Yergin proposed nuclear plants to provide the heat necessary to cook the bitumen in “oil sands” into synthetic oil. No one dismissed nuclear although Hamilton at least mentioned the risks.
The discussion of “hedging” vs “speculating” near the hour mark is worth following.
… Update: I’ll have to watch again, but I don’t remember anyone using the word, conservation.
(26 May 2009)
Kevin Drum on the coming volatility in oil prices
Kevin Drum, Mother Jones
Chart of the Day
As I’ve mentioned before, one of the big problems with reaching peak oil isn’t just that oil prices will go up, but that they’re likely to spike up and down fairly violently. In 2006, for example, demand for oil pretty much bumped up against the total available supply, which meant that even a small amount of additional demand was enough to send oil prices spiraling up past $150 in little more than a year. The ensuing recession reduced demand by only a modest amount, but that was enough to cause oil prices to plummet to under $50 in the same timespan. And this isn’t just a demand-side problem: a small glitch in supply could easily have caused the same kinds of violent price spikes.
As a general rule, the world can handle high oil prices. In fact, to the extent that high prices get us off our butts and looking for cleaner, more sustainable sources of energy, high oil prices are a good thing. But what the world economy can’t handle is constant, huge gyrations in oil prices: nearly all of our recessions since 1973 have been jump started by a sudden spike in oil prices.
So what happens next? Via Ryan Avent, Paul Kedrosky points us to this projection from McKinsey, which shows that demand will once again bump up against supply very shortly: probably within a couple of years, but almost certainly within four years at the outside. And when that happens, prices will once again rise unpredictably.
(31 May 2009)
The recession: First, there was expensive oil (Jeff Rubin)
Jeff Rubin, Globe and Mail
If indeed oil, and not subprime mortgages, lies at the heart of our current economic malaise, we may be sicker than we know
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Knowing the nature of a disease is usually a precondition for finding a cure. Similarly, identifying the cause of a recession goes a long way in defining what type of recovery is likely to follow.
Conventional wisdom ascribes the current downturn, which in many ways is already the postwar’s deepest one, as a financial-market crisis with origins in the bursting of a U.S. real estate bubble. But how did the demise of the American subprime mortgage market create earlier and much deeper recessions overseas than in the U.S. economy itself?
Maybe there was something else going on, like triple-digit oil prices for example.
If past oil shocks, like the two OPEC ones, created deep world recessions, why wouldn’t the biggest oil shock of all be a logical suspect for triggering today’s recession?
(1 June 2009)
Jeff Rubin Talks about Oil and the Economy
Jeff Rubin, YouTube via The Oil Drum
Jeff Rubin talks about how skyrocketing oil prices will see a regression in global economies, and a return to local ones, as outlined in his new book, Why Your World Is About to Get a Whole Lot Smaller.
(28 May 2009)
