Posted: Sat Aug 20, 2005 9:15 pm Post subject: US recession affecting oil price ??
Are there any economists or financial professionals that would like
to comment on the price of oil in the event of a major recession
caused by the collapse of the US housing market ??
How much temporary demand destruction would there be
to offset the tight oil situation we have today??
Joined: Sep 14, 2004 Posts: 6483 Location: Rural Virginia
Posted: Sat Aug 20, 2005 9:20 pm Post subject: Re: US recession affecting oil price ??
I don't think that most financial experts and economists are qualified to answer that question. They tend to be among the idiots who've gotten us into this fix. But who knows, you might get lucky. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Posted: Sat Aug 20, 2005 9:31 pm Post subject: Re: US recession affecting oil price ??
so can i have anyone's educated guestimate on
the price of oil considering all factors, 1-2 years into
a housing collapse in the US ??
I would assume that oil prices would retreat during the
deflationary phase... but it all depends on how
the supply situation is.
Posted: Sat Aug 20, 2005 11:04 pm Post subject: Re: US recession affecting oil price ??
I have an economic degree but I don't work in economics. I never got the marks to begin a master. Take your guest, I'm more idiot than average economist or I wasn't good in class because I wasn't able to understand stuff like economic growth. I always prefered Malthus and Kondratieff to Friedman and Keynes. This is not exactly what economic teachers like.
The house bubble will not crash fast by itself, without an external event, this is a slow decline. You will not sell at any price after one month, you can lower the price but, it take sometimes to realize that there is no buyer at all.
I think the gas shortages in the US or Europe will be the external event.
Because of the debt level in the US, you can see a panic by foreign investors to get their money out of the US. The US governement will default or more likely print money like crazy. The dollar will lose a lot of value if not collapse.
The recession will reduce world demand of oil but, for the price I think there is 2 possibilities.
1)the price can be lower in actual dollar but the drop in the dollar will make a price higher. Something like 400$ but it's worth 40$ in actual value.
2) The actual price don't take into account that it's not renewable, traders think how they can make money next week not in 5 years. Maybe they will finally wake up and in that case, the price will be higher.
If that happen, I think you can see something like Gold=Crude=Dow.
Don't forget that I only follow this as an hobby, this is only my guest in this and I can be more idiot than a professional economist. At least, you will never see me on tv trying to encourage people selling some stocks so I can cover my short positions.
Posted: Sat Aug 20, 2005 11:18 pm Post subject: Re: US recession affecting oil price ??
Under the current economic paradigm, whenever there is a problem with the economy there is only one solution. That is to grow our way out of it.
So whatever the problem with the economy, recession, depression, inflation, deflation, stagflation, constipation. The talking heads of media and government will present one solution, "We've got to get the economy back on track and grow our way out of this."
As we know, it takes energy to grow the economy, so it seems there will always be demand for oil. As for price predictions...hmm...erm...I guess if I knew that I'd quit my job and just trade oil futures.
My prediction though would be up (genius huh?) even if there is periodic demand destruction events that reduce oil demand. With future depletion rates combined with that desperate and futile attempt to grow our way out of our economic woes, it seems that we are in for a damn long bull run on oil prices.
Posted: Sat Aug 20, 2005 11:41 pm Post subject: Re: US recession affecting oil price ??
Something like that happened in the mid 90's. Back then there was a bubble in 'emerging markets' in Asia. Shortly after it crashed the price of oil hit its all-time low around 10$ since the emerging market nations could no longer afford oil. But things are different now. For starters there is no spare capacity, so should a recession cause a fall in demand it would likely be matched by a fall in supply. All the oil infrastructure working overtime would revert back to normal operations. I would guess that oil prices would then maintain their current levels. By current level I mean in terms of average currencies, in U.S. dollars it might well go to triple-digit prices if the U.S. economy crashes.
seldom_seen wrote:
As we know, it takes energy to grow the economy, so it seems there will always be demand for oil.
It doesn't take energy to grow the economy. When the economy grows people want to spend their higher income towards using more energy.
Posted: Sun Aug 21, 2005 3:43 am Post subject: Re: US recession affecting oil price ??
seldom_seen wrote:
jaws wrote:
It doesn't take energy to grow the economy.
You're joking right?
Guess you can argue whether energy consumption drives economic growth or whether economic growth drives energy consumption but either way the two are surely very tightly coupled. And if they aren't why does everyone get so upset when there is a power blackout?
My own amature empirical observation is that since 1965 to 2004 USA real GDP correlates with the three fossil fuel components of total primary energy consumption (oil, natural gas and coal) with a correlation coefficient of 0.9866.
Posted: Sun Aug 21, 2005 4:13 am Post subject: Re: US recession affecting oil price ??
Lehyina wrote:
Guess you can argue whether energy consumption drives economic growth or whether economic growth drives energy consumption but either way the two are surely very tightly coupled.
Indeed, I think what you have there is a feedback loop.
However, I don't think you can argue that the economy can grow without energy. Oil depletion creates a reduced amount of energy for economic growth. With less energy inputs, less houses are built, less widgets are produced by factories, less goods are shipped, et cetera, et cetera... At this point the economy begins to stagnate or even contract. The oil embargo of the 70s was a good dress rehearsal for what lies ahead. Unlike the 70s though, peak oil makes its debut on Broadway, but it never goes away. It's the show that everyone has to go see, but no one flips the lights on and the show never ends. If all PO meant was that I needed to give up my car, walk more, plant a garden and buy less stuff. It would be great and I would welcome it.
I think what is unsettling about oil depletion is not the lack of oil but the lack of an economy. There will be lots of people standing on the street corner saying WTF? If you could grow the economy without energy, PO would certainly be a less daunting problem.
Joined: Dec 20, 2004 Posts: 890 Location: Scotland
Posted: Sun Aug 21, 2005 5:38 am Post subject: Re: US recession affecting oil price ??
Quote:
jaws wrote:
It doesn't take energy to grow the economy.
You're joking right?
You dont need to increase energy use to increase GDP. That is self evident. The US doesnt use an enormous amount more oil now than it ever has, and yet its GDP has increased astronomically. Thus, they are using the oil more efficiently, not using more of it.
the UK's energy use hasnt grown all that much in the past few years, but the economy has.
Posted: Sun Aug 21, 2005 6:01 am Post subject: Re: US recession affecting oil price
jaws wrote:
Something like that happened in the mid 90's. Back then there was a bubble in 'emerging markets' in Asia. Shortly after it crashed the price of oil hit its all-time low around 10$ since the emerging market nations could no longer afford oil. But things are different now.
Things are not different now. Every jack and jerry in the world wants to say 'its different now'. Those make up the 95% who consistently fail to learn from history, or think they are too smart to study it.
Here is what has happen to demand in countries that experienced a recession or economic upheaval in the past :
Britain
Year Amount
1973 2341
1983 1531
Korea ('Asian contagion' economic slide)
1997 2255
1998 1917
USA ('stagflation' early 80s)
1978 18847
1983 15231
Japan (also 'Asian contagion' victim)
1996 5785
2004 5353
The argument that increased oil consumption is necessary for economic growth is also not consistent with the facts, unless you want to tell us that Britain, Germany, and France's economies have shrunk over the last 30 years. Britain for example, peaked in its oil consumption in 1973 and had declining oil usage through most of the 1990s.
In fact, Europe as a whole peaked in oil usage in 1979 - 26 years ago.
A major worldwide economic crunch will decimate oil prices. Even a mild recession will send them into a decline. Count on it. _________________ Welcome to the Kondratieff Winter
Posted: Sun Aug 21, 2005 6:20 am Post subject: Re: US recession affecting oil price ??
linlithgowoil wrote:
Quote:
jaws wrote:
It doesn't take energy to grow the economy.
You're joking right?
You dont need to increase energy use to increase GDP. That is self evident. The US doesnt use an enormous amount more oil now than it ever has, and yet its GDP has increased astronomically. Thus, they are using the oil more efficiently, not using more of it.
the UK's energy use hasnt grown all that much in the past few years, but the economy has.
In replying to this I am repeating what I have said on previous posts but there seems to be confusion in peoples minds with total energy consumption and oil consumption. It is true that the USA uses quite a lot less OIL per unit of GDP than it used to but that doesn't exactly apply to TOTAL ENERGY consumption. In the case of oil it is because after the 1973 and 1980 oil price shocks there was a very large amount of fuel substitution of natural gas in particular for oil - especially in power generation. This has left oil to become primarily a transport fuel. It is self evident to me that increasing GDP requires increasing energy consumption because if the economy is building things and making things etc it requires energy to produce raw materials, transport them and put them together etc. Granted individual processes can become more energy efficient but on the whole GDP and total energy use increase in tandem.
Joined: May 02, 2005 Posts: 3424 Location: Oh really?
Posted: Sun Aug 21, 2005 6:51 am Post subject: Re: US recession affecting oil price ??
In 1980 oil production/consumption fell off due to the world wide recession that had some basis in energy cost.
If the current energy prices, along with other factors, drive the world economy into recession, then you could expect oil prices to fall significantly as soon as a capacity cushion emerges.
rinse and repeat.
Thus you get the downward spiraling "roller-coaster" scenario to a semi-soft landing. _________________ "It's not demand; It's not supply.
It's coming up with credit to buy"
Posted: Sun Aug 21, 2005 9:02 am Post subject: Re: US recession affecting oil price ??
oilluber wrote:
Are there any economists or financial professionals that would like
to comment on the price of oil in the event of a major recession
caused by the collapse of the US housing market ??
How much temporary demand destruction would there be
to offset the tight oil situation we have today??
thanks
I'm not an economist but I play one on this board.
We obviously can't consume more than is being produced plus
whatever has been produced in the past but not yet consumed.
Inventories are never that great compared to consumption levels.
Any consumption level consistently below production will deflate
prices and increase inventories. I don't think we are now at 101%
consumption of current production, so a small drop is all that is
necessary. 1% possibly, with our consumption continously adjusted
so it would usually be below the then current production level.
Joined: Oct 16, 2004 Posts: 1425 Location: Appalachian Foothills of Virginia
Posted: Sun Aug 21, 2005 11:00 am Post subject: Re: US recession affecting oil price ??
MD wrote:
In 1980 oil production/consumption fell off due to the world wide recession that had some basis in energy cost.
If the current energy prices, along with other factors, drive the world economy into recession, then you could expect oil prices to fall significantly as soon as a capacity cushion emerges.
rinse and repeat.
Thus you get the downward spiraling "roller-coaster" scenario to a semi-soft landing.
However, the capacity cushion gets smaller and smaller, so the landings become harder and harder, with recoveries being shallow and short.
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If all PO meant was that I needed to give up my car, walk more, plant a garden and buy less stuff. It would be great and I would welcome it.
