Oil

Has the global economy become less vulnerable to oil price shocks?

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This paper examines the impact of oil price changes on global economic growth. Unlike some recent studies, this paper finds that oil price rises have had significant negative impacts on world economic growth. A time-series analysis of the data from 1971 to 2010 finds that an increase in real oil price by 10 dollars is associated with a reduction of world economic growth rate by between 0.4 and 1% in the following year. As oil prices approach historical highs, the global economy may be vulnerable to another oil price shock.

Understanding the new price of oil

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In the spring of 2011, when Libyan oil production — over 1 million barrels a day (mpd) — was suddenly taken offline, the world received its first real-time test of the global pricing system for oil since the crash lows of 2009. Oil prices, already at the $85 level for WTIC, bolted above $100, and eventually hit a high near $115 over the following two months. More importantly, however, is that — save for a brief eight week period in the autumn — oil prices have stubbornly remained over the $85 pre-Libya level ever since. Even as the debt crisis in Europe has flared.

A tough-oil world

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The principal cause of higher prices — a fundamental shift in the structure of the oil industry — cannot be reversed, and so oil prices are destined to remain high for a long time to come.

We are now entering a world whose grim nature has yet to be fully grasped. This pivotal shift has been brought about by the disappearance of relatively accessible and inexpensive petroleum — “easy oil,” in the parlance of industry analysts; in other words, the kind of oil that powered a staggering expansion of global wealth over the past 65 years and the creation of endless car-oriented suburban communities. This oil is now nearly gone.

Tough-oil reserves will provide most of the world’s new oil in the years ahead. One thing is clear: even if they can replace easy oil in our lives, the cost of everything oil-related — whether at the gas pump, in oil-based products, in fertilizers, in just about every nook and cranny of our lives — is going to rise. Get used to it. If things proceed as presently planned, we will be in hock to big oil for decades to come.

Oil, Iran and the peak – March 8

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– Stop blaming oil speculators and start listening to them: A war with Iran would devastate the economy
– We Can Live with a Nuclear Iran
– Oil creeps toward top of Asia’s economic worry list
– 10th ASPO-International Conference in Vienna May 30 – June 1
– Ölreserven: Der “Doomsday” war gestern

Review: Petroplague by Amy Rogers

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We have a brand-new entrant to the oil-eating-bug-runs-amok tradition: the self-published novel Petroplague. It’s a Crichton-esque thriller written by microbiology professor-turned author Amy Rogers, who says she aims to “blur the line between fact and fiction so well that you need a Ph.D. to figure out where one ends and the other begins.” The plot involves a batch of experimental, oil-hungry bacteria inadvertently loosed upon Los Angeles, which proceed to wreak a near biblical swath of destruction. Part ecology lesson and part cautionary tale, Petroplague is an entertaining entrée into the subject of oil depletion and its implications for society, human health and the environment.