Oh no! The oil price could fall  

Posted by Big Gav in ,

While I rarely agree with Ambrose Evans-Pritchard I do appreciate his continual columns on the energy industry and related topics. One recent column of his looked at oil price movements in the near term, predicting that oil prices may fall due to a surge in supply (and moving on to the even less likely conclusion that this will be the trigger for global deflation - surely the economic stimulus caused by cheaper energy would outweigh the loss in income for oil suppliers !) - Coming 'oil glut' may push global economy into deflation.

Personally I think the US shale oil boom will end pretty quickly if oil prices drop much below current levels so there's no chance of any long term "oil glut" depressing prices for any significant period of time. I do agree with his concluding paragraphs at leas...

To avoid confusion, let me be clear that the dangers of dwindling oil supplies in the long-run have not gone away. Easy reserves of crude are being depleted. New fields are more costly. Peak oil may have the last laugh. Yet this should not be confused with the short-term risks of deflationary shock.

I recently attended a Transatlantic Dialogue on Energy Security with senior military officers in London and Washington. The message was that shale will come and go - with US tight gas peaking by 2017 - creating a false sense of security as the deeper strategic threat continues to build. That is broadly my view as well. Much drama can intrude along the way.

Alan Kohler at The BS has a column weakly echoing Evans-Pritchard - Oh no! The oil price could fall.

There is a limit to what Saudi Arabia can do to limit supply. Lewis estimates that it would have to cut output by a quarter to stop the bottom falling out of the market, but Ambrose Evans-Pritchard of The Telegraph says this would push its budget into deep deficit and endanger the welfare subsidies required to keep a lid on tensions in its Eastern Province and the aggrieved Shia minority.

Europe is clearly at the greatest risk of falling into a Japan-style quagmire of long-term deflation and depression, caused by a combination of fiscal austerity and zombie banks.

Last week a report by researchers in Berlin and New York estimated that European banks have a capital shortfall of up to $US1 trillion, with French and German banks in the worst shape. Global bank regulators have let them off the hook to some extent by not increasing the leverage ratio as much as expected, but they still have a long way to go to get their balances sheets back to non-zombie status.

In that context a big drop in the oil price – a reverse oil shock – would not necessarily be a good thing, as you might think.

In theory deflation causes demand to shrink and the value of debt to rise, although in practice during the 19th century prices halved and output increased seven fold. The difference this time is the existence of so much debt and the fact that so many banks are still under-capitalised.

And in addition to Europe, China’s economy has serious problems with debt and falling money supply. Ambrose Evans-Pritchard wrote the other day that “China looks eerily like the US in 2007 when broad money buckled.”

If Chinese demand collapses at the same time as an oil supply glut emerges and United States imports continue to fall, we could find out what deflation in the modern world means in practice, instead of just in theory.

0 comments

Post a Comment

Statistics

Locations of visitors to this page

blogspot visitor
Stat Counter

Total Pageviews

Ads

Books

Followers

Blog Archive

Labels

australia (607) global warming (393) solar power (376) peak oil (343) renewable energy (253) electric vehicles (221) wind power (184) ocean energy (163) csp (156) geothermal energy (144) solar thermal power (143) smart grids (139) tidal power (137) coal seam gas (130) oil (129) solar pv (127) nuclear power (126) energy storage (125) lng (116) china (113) geothermal power (112) iraq (112) green buildings (109) natural gas (108) agriculture (88) oil price (79) biofuel (78) smart meters (72) wave power (71) uk (68) electricity grid (67) energy efficiency (63) coal (61) google (57) bicycle (51) internet (51) shale gas (49) surveillance (49) food prices (48) big brother (47) thin film solar (42) canada (40) biomimicry (39) scotland (38) ocean power (37) politics (37) tesla (37) shale oil (36) new zealand (35) air transport (34) algae (34) water (34) concentrating solar power (32) queensland (32) saudi arabia (32) california (31) credit crunch (31) bioplastic (30) offshore wind power (30) arctic ice (29) population (29) cogeneration (28) geoengineering (28) batteries (26) drought (26) resource wars (26) woodside (26) bruce sterling (25) censorship (25) cleantech (25) ctl (23) economics (22) limits to growth (22) carbon tax (20) coal to liquids (20) distributed manufacturing (20) indonesia (20) iraq oil law (20) lithium (20) origin energy (20) brightsource (19) buckminster fuller (19) rail transport (19) ultracapacitor (19) exxon (18) santos (18) ausra (17) michael klare (17) atlantis (16) cellulosic ethanol (16) collapse (16) electric bikes (16) iceland (16) mapping (16) ucg (16) bees (15) concentrating solar thermal power (15) ethanol (15) geodynamics (15) psychology (15) brazil (14) fertiliser (14) lithium ion batteries (14) al gore (13) ambient energy (13) biodiesel (13) bucky fuller (13) carbon emissions (13) cities (13) investment (13) kenya (13) matthew simmons (13) public transport (13) biochar (12) chile (12) desertec (12) internet of things (12) otec (12) texas (12) victoria (12) cradle to cradle (11) energy policy (11) hybrid car (11) terra preta (11) toyota (11) amory lovins (10) fabber (10) gazprom (10) goldman sachs (10) gtl (10) severn estuary (10) tinfoil (10) volt (10) afghanistan (9) alaska (9) antarctica (9) biomass (9) carbon trading (9) distributed generation (9) esolar (9) four day week (9) fuel cells (9) jeremy leggett (9) pge (9) sweden (9) arrow energy (8) big oil (8) eroei (8) fish (8) floating offshore wind power (8) guerilla gardening (8) linc energy (8) methane (8) methane hydrates (8) nanosolar (8) natural gas pipelines (8) pentland firth (8) relocalisation (8) saul griffith (8) stirling engine (8) us elections (8) western australia (8) airborne wind turbines (7) bloom energy (7) boeing (7) bolivia (7) chp (7) climategate (7) copenhagen (7) vinod khosla (7) apocaphilia (6) ceramic fuel cells (6) cigs (6) futurism (6) jatropha (6) local currencies (6) nigeria (6) ocean acidification (6) scenario planning (6) somalia (6) t boone pickens (6) space based solar power (5) varanus island (5) garbage (4) global energy grid (4) kevin kelly (4) low temperature geothermal power (4) oled (4) tim flannery (4) v2g (4) club of rome (3) norman borlaug (2) peak oil portfolio (1)