Wednesday, March 31, 2010

More Dots

Nissan is introducing an electric car to compete with the Chevy Volt. Clearly the car maker's believe in Peak Oil. Corporations do not make massive investments and long range planning like this because of some silly conspiracy theory.

Imports of Oil into the U.S. continue their descent. Plunge is a more correct term. At .7% per month there is simply no better term. The U.S., even given the state of the economy, is easily the luckiest country in the history of the word. If it were not for corn ethanol and Shale Gas things would be FAR worse than 10% headline and 17.5% real unemployment. Still, the decline in Oil imports WILL ABSOLUTELY overwhelm these saviors in the not too distant future... though not quick enough for the "doomers" that have been rooting for Armageddon. These folks will likely have to wait through a long, grinding "play out" of the event. In real life, things just don't fit onto a 3:05 minute song track or 12 second sound bite.

Nat Gas prices AND the lagging performance of the energy equities seem to say that they believe Oil prices come in. Maybe, maybe not. All those folks saying that the world has all this "shut in" Oil production just does not ring true for me (doesn't mean I am correct). I mean, come on... all of a sudden the producers are not going to cheat like crazy on their quotas when the price of Oil is $83 per barrel? NAFC.




15 comments:

bureaucrat said...

Oil is over $84 this morning. If it stays up there, it will bring this so-called economic recovery crashing down in the U.S. Can't run the economy without cheap oil.

I applaud Jeffers on one thing at least. The EIA graph of oil imports is indeed falling over 4 years (though in the last few months, it's been rising). The imported gasoline graph continues to fall also. He blogged it first.

Greg T. Jeffers said...

THe last 4 months are rising? Not according to the EIA. Down roughyl 8.5% YTD when compared to 2009

Anonymous said...

bur- re: Crash

I though you did not believe in any kind of "crash" scenario.

Have you changed your mind? Please enlighten us.

Best, Marshall

bureaucrat said...

http://tonto.eia.doe.gov/oog/info/twip/twip_crude.html

Page down to "U.S. Crude Oil Imports." Ain't rising much, but it is rising.

Anon:

I'm prone to use impressive words like "crash" to overemphasize like anyone else. :) In the short term, we are indeed awash (that's overflowing) in lots of stuff: oil, natural gas, gasoline, empty storefronts, vacant apartments, low-cost labor, food, you name it. And lots of supply means low prices (except, apparently, for gasoline right now).

Long term ... who knows?

bureaucrat said...

Damn blog software ...

http://tonto.eia.doe.gov/oog/info/

twip/twip_crude.html

Anonymous said...

Bur-

You say that oil, nat gas, gasoline, empty storefronts, vacant apartments, low-cost labor, food, etc are now in great abundance. So we cannot be in a "crash" because we have lots of these things.

During the Great Depression, we had a similar situation where all these things were also then in great over abundance w oil at $0.10 bbl, food being destroyed etc. But most people still would regard that period as a major "crash".

A "crashed" economy loses it's ability to utilize these factors however it is still a "crashed" economy.

Best Marshall

Stephen B. said...

Marshall just said it, but I have to echo the sentiment too: A "crash" or depression is anything but a lack of gasoline product in the stations, a lack of apartments, or a lack of bread on the shelves. It's a lack of an ability or willingness of people to buy these things, which slows the velocity of money and economic transactions.

Sharon Astyk reminded her readers over and over again about this. In the Depression, there was still plenty of food. What didn't exist were people that could *pay* for it. Farmers lost customers. Farm product prices plunged. Both food producers and consumers failed and suffered (though at least farmers, if they ran general farms, could eat for themselves - until foreclosure time anyway.)

This phenomenon doubtless was repeated for many commodities, not just edible stuff. Indeed, we've seen it in many Third World countries where *some* people can continue to buy anything they want, while the masses suffer without, outside on the sidewalk. Double doubtless it's happening all over the US right now.

westexas said...

Bur:

"we are indeed awash (that's overflowing) in lots of stuff: oil. . . "

The average price of oil in 2010 through the first quarter exceeds all previous annual oil prices except for 2008, when we hit $100. But I do agree that this is the conventional wisdom, i.e., that weak demand is forcing oil prices up. Note that the recent annual low of $62 that we saw last year exceeded all previous annual oil prices prior to 2006.

I have an alternative explanation for the fact that all post-2005 US annual oil prices have so far exceeded the $57 that we saw in 2005. We are seeing a cyclical pattern of higher highs and higher lows as oil importers bid against each other for declining net oil exports. We did see some voluntary reductions in net oil exports last year, but I think that we are transitioning from voluntary + involuntary reductions in net oil exports last year to mostly involuntary reductions in net oil exports this year.

Stephen B. said...

It remains to be seen just how quickly car makers can get truly meaningful amounts of electric cars into people's hands to allow the country to deal with oil decline.

If say, they get 100K cars on the road this year, and assuming those cars are replacing 100K cars that each go about 80 miles per day at 20 mpg, I'm figuring these replacement cars will save around 4 gallons of gas a day, or 400K gallons total. Given that a barrel of gasoline is around 42 gallons I think, that's not quite a daily savings to the US of around 10K bbls. That's not very impressive. (I'm also ignoring, for the moment, the fact that crude does not convert 100% into gasoline of course.)

We'll have to get a whole lot more electrics on the road real fast to keep up with the coming import declines.

In order to save 1M bbl/day, we need to replace somewhere on the order of 10 million cars (again 20 mpg @ 80 miles per day, per unit) to cut approx. that 1M bbl/day of crude.

I wonder if we can do it? Then too, this analysis only goes so far, ignoring the loss in gasoline sales taxes, the fact that *manufacturing* 10 million new cars a year uses lots of oil and natural gas, and that not all cars being replaced are 20 mpg/80 mile-per-day cars to begin with.

This will be *very* interesting.

bureaucrat said...

So much morning commenting! In between the "farm talk." :)

I think I can wrap this up in a nice bow using what info. I've accumulated from the Austrian economic people & from Mish ....

Inflations and deflations are additions and subtractions of cash and credit from the economy. Most of us are familiar with inflation (a la 1970s). We don't have deflations very often .. the last serious one was the Great Depression (which is a good thing, cause they are damn tough to fight -- only time, bankruptcies and loan forgiveness end them).

Deflations come every 75 years or so (starting with the Tulip bubble in 1620), but they have the same things in common: ultra-low interest rates give over-excited people the excuse to borrow lots of money, and then they buy things. They bid prices up and everyone feels rich (2007). It's called an "asset bubble." Then, for whatever reason, the bubble pops, and while prices "crash," all this excess stuff (produced in anticipation of high prices and lots of buyers) piles up (as the list above shows).

At the same time, the people who loaned all that money have trouble getting their money back, and so they stop loaning (today, the banks aren't loaning any money to anyone now -- also an exaggeration :)).

That is a deflation: cash and credit disappear (the world is in the process of canceling $20 trillion dollars in credit), and so the economy piles up inventory in everything (oil, gas, storefronts, apartments, food). Everyone (including me) has piled on so much debt (in the U.S., credit is now 375% of our GDP) that they can't spend and can't borrow any more. The economy just lays there.

We'll have to see if oil/oil products follows this pattern as, unlike most commodities, oil has no real substitute.

We are in a deflationary depression, and it will last for years cause of all the money that was borrowed, much of which will be defaulted on. We don't see today as bad as the 1930s cause we have programs today that "hide" this depression (unemployment compensation, food stamps, rent assistance, etc.) But the "bread lines" are out there .. they are just hidden.

And the national debt is $12.7 trillion and climbs each day.

So when I say "crash" I am, of course, overdoing it. It is just for emphasis.

West:

You need to adjust your prices over time. A barrel of oil cost in 1999 is different from the cost in 2010. There has been little inflation, but over several years, it has a compounding effect.

Lastly, the success of the electric cars hinges on the batteries. It has ALWAYS been about the batteries, and how much lithium the world actually has for these batteries.

Anonymous said...

Greg,

Have you been following China and India in regards to oil imports? Are they getting those missing US barrels? Or is this decrease world wide?

peace

westexas said...

Re: Chindia

From 2005 to 2008, Chindia's (China & India) net imports increased at about 9%/year (EIA). Expressed as a percentage of combined net exports from the (2005) top five net exporters (Saudi Arabia, Russia, Norway, Iran and the UAE), Chindia's net imports went from 19% in 2005 to 27% in 2008 (probably to about 33% in 2010). If we take our best case for net exports from the (2005) top five and project Chindia's current rate of increase in net imports out to 2018, then in 2018, Chindia's net imports would be equivalent to 100% of projected (2005) top five net exports.

But have we ever seen a sustained near double digit rate of increase in net oil imports over a long time period?

From 1949 to 1977, the rate of increase in US net imports was 11.8%/year, exceeding the current rate of increase in Chindia's net imports. Of course, until 1973, oil prices were fairly stable and this time period (1949-1977) corresponded to generally increasing global net exports, but on the other hand Chindia has shown increasing consumption and net imports, even as oil prices rose at 20%/year from 1998 to 2008.

EIA (PDF) production, consumption, net imports chart for the US:

http://www.eia.doe.gov/emeu/aer/pdf/pages/sec5_4.pdf

Incidentally, the rate of increase in net imports from 1949 to 1970 was 11%/year, but US net imports really kicked up after US production peaked in 1970, going from 3.2 mbpd (million barrels per day) in 1970 to 8.6 mbpd in 1977 (and then entering a period of decline, before resuming the increase in later years). But in any case, the rate of increase in net imports from 1970 to 1977 was 14%/year, after US production peaked in 1970. Over the same time period, 1970 to 1977, US oil prices also rose at 14%/year (EIA).

Note that two factors contributed to the late Seventies decline in US net oil imports--falling consumption and rising production from Alaska, as the Alaskan pipeline was finished.

It would appear that the all time annual record high for US net imports was in 2005, at 12.5 mbpd.

Bur:

It appears that global oil demand in the Thirties fell only one year, in 1930, and US oil prices hit bottom in the summer of 1931. Oil prices then rose at 11%/year from the summer of 1931 to the summer of 1937.

bureaucrat said...

As I've said, I have no problem with the ELP (export land model) itself. If you give the people an opportunity to use oil to their lifes' betterment, they will take it. Oil is an amazing thing, right up there with gravity and changes of state (gas-liquid-solid), and the cheap power they all provide.

But again, oil supply isn't the whole issue. Oil demand also plays a big part.

The idea that China and India (and the rest of the developing world, for that matter) are ready to explode with real and efficient economic activity (which requires oil) is nonsense. All these economies have hundreds of millions of subsistence farmers with no real money or access to much credit. These countries are in no way ready or able to sell to their own populations yet, and likely never will be.

Chindia relies on the credit spigot of the U.S., Japan and Europe, and that spigot is slowly closing, mostly because of worldwide debt. With the U.S. at 275% debt to GDP, Japan at around 227% debt to GDP and Europe around 150-400% debt to GDP, Chindia will have fewer and fewer people to sell products and services to (China itself has around 160% debt to GDP.)

2000-2008 was a great time for China and India because of a worldwide debt & asset bubble that has now popped. Today we are in a deflationary depression. The only good economic news comes from government stimulus, which also cannot continue indefinitely. The U.S. itself has borrowed $12.77 trillion.

We made our beds borrowing and borrowing (just like in the 1920s), and the only thing that will resolve it is bankruptcies and loan forgiveness. That process has barely started. Oil demand worldwide is going to drop.

bureaucrat said...

The thing I'm thinking now is, if we are well-supplied with oil and gasoline (there is no supply problem), what's to stop this summer from occurring just like the summer of '08, when the per barrel price soared to $147 because of speculation (and the dollar value)? Since you can borrow at near zero interest rates, why wouldn't another bubble in oil happen again, with prices crashing down again? Or, are they expecting a really great summer driving season? :)

Anonymous said...

Westexas,

Thanks for the info.

Greg,

Granny Miller has a new site ,access from her original blog.

peace