Leading Economic Indicators Warn of China Downturn

americandream

yes of2, it is all about national pride. securing access to resources is not about objective forces, instead as a species of tribes, ritual and protocol are paramount as we seek to sequester our share. Why do you think we have racism and tribalism? Having said that, we haven't yet reached that stage yet and will continue to play at polite marketing. When we have, you will know

In conclusion, you miss my point entirely! This debate is not about oil, it is price and how it will work in relation to the current oil market, price, a mechanism you appear to have so much confidence in. It is about the fact that the price mechanism you so loudly trumpeted, is obscured by a number of regulatory factors and well before it kicks into touch in the unravelling crisis, one of these regulatory factors (one example is war) will be brought into play to ensure that oil's conquest premium is not lost to capital.

This is all rather complex I can see, but in a nutshell, pure economics will never, never, see the light of day on this planet simply because as a species, we never let dispassionate forces work themsleves out. Invariably, we fear the unknown and price, if let to its own devices, will strip us of control.
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Bugger me, I hear oil's runnin out mate!

OilFinder2

OK americandream, you're right, the people and/or governments of China and India can afford to pay infinite prices for oil - just out of national pride.

Rolling Eyes

While we're at it, the Americans, Canadians, Europeans, Japanese, and everyone else can do the same. Everybody's got national pride! Therefore, everybody on the entire planet can afford infinite oil prices!

Rolling Eyes

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Abundance - what a concept!

jdumars

D'oh!

The economies of China and India are so saturated with US dollars that oil would probably have to quadruple in price to make a dent in their reserves. Think about a really rich person who drives a really nice, expensive car. Do you think $50 or $100 a fill makes any difference to them whatsoever? That is a minuscule percentage of their overall financial responsibilities. The same is true of China and to a lesser degree, India. AmericanDream is absolutely correct. Keeping the economy growing at any cost is a huge matter of pride. I have been to China, and have seen the unfathomable levels of environmental destruction there. They don't give one good god damn about the quality of life of the "regular people" -- only about making money and being the world's predominant economic power.

There may well be extensive demand destruction in the US, but look for that oil to go elsewhere, not stockpiling in reserves.
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Dismantle globally, renew locally!

yesplease · Fission Joined: Oct 03, 2006 Posts: 2100

Doomcopianism. We don't have infinite oil, but we do have infinite wealth. Laughing

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oilluber · Heavy Crude Joined: Jul 03, 2005 Posts: 421

dorlomin · Light Sweet Crude Joined: Aug 05, 2007 Posts: 1004

China has over a trillion dollars in dollars and dollar denominated assets. It cant use them to buy euquities or property in the US and EU. It cant use them to buy very high end technology in the EU or US.

What are they worth as they devalue? All they can do is turn them into euqities and property in lands that are not hostile to Chinese economic domination or buy comodities. Subsidising energy purchasing is a form of buying comodities with dollars, deliberately inflating the price of oil in dollars predicating a wealth transfer in terms of disposable energy from the West to the East.

Mercantilism with oil rather than gold.

ROCKMAN

First, Happy Holiday to all.

This short story addresses the question of demand destruction vs. decline rates. Please bear with the length.

Many are asking/demanding that Saudi increase production so prices are pushed down. But if they were to offer an extra 500,000 bopd to the market they have no requirement to offer it for less than $140/bbl. At the moment there are no buyers for that extra production. What we’re really asking Saudi to do is lower their asking price so they take market share away from another exporter. That could push the other exporters to lower their prices…or not. They might be content to sell less oil while keeping upward pressure on prices. Consider Mexico: it’s absolutely confirmed – they are depleting very quickly and in the next 5 to 10 years they’ll loose 60% of the government’s income. What would you do if you were them: sell your reserves cheap now or save them knowing prices may be higher down the road? A tough game of chicken when you consider you’re playing with the lives of millions of your citizens.

Thus it brings us to the basic question of why the refiners are paying the asking price. Very simply, the refiners, though their profit margins have shrunk, know that they can pass on the bulk of the increase to the consumers. Valero, our largest US refiner, could easily tell the producers they aren’t going to pay over $100/bbl. So the producers say “Fine…no oil for you because we have buyers who are willing to pay the price”. Then Valero goes from making a small profit to bankruptcy in a blink of an eye. Even though current production capacity may exceed demand there is no pressure on the producers to sell for less because they are satisfied with their current market share and income. Essentially there is little to no incentive for the producers to compete with each other on pricing.

Now let’s jump back to 1986. The early oil price spike sent the world into a deep recession and cut consumption by about 15% (10 million bopd). Suddenly the producers were loosing market share so they began lowering their asking price (remember…the producers will always be the ones setting the price) so they could take customers away from other producers. This period truly showed how ineffective OPEC was as a “cartel”. Crude prices didn’t immediately plunge. Saudi kept cutting back their production and loosing market share as the other members kept lowering their prices. Eventually Saudi was faced with shutting in their entire production stream to maintain pricing. At that point Saudi opened their wells up and quickly drove oil to $10/bbl. But, I’ll keep reminding you, Saudi set the price at $10/bbl. It wasn’t us or any other buyer.

Crude oil prices have been climbing for several years although at times in big spurts. Trust me, after the price meltdown in the 80’s Saudi et al have been watching the world economy very closely. They know another world wide recession would hammer prices again. They also know it takes a year or two for the effects of higher crude prices to filter through the world’s economies. But they also know that most of the exporting countries are in decline. Even more important: Saudi knows something none of us can be certain about – true Saudi decline rate. Saudi may be at PO…maybe not. But most of the other exporters are there now.

So to sum up this long ramble it’s the lack of competition among the exporters combined with the ability (so far) of the world economy to absorb the price increase that has led us to where we are today. Certainly the world economy is retracting. India, often mentioned after China, as a growing buyer of oil, appears to be collapsing as we speak. Time will tell if the world wide demand destruction outpaces declining production rates. There are a few big projects coming online in the next few years. I won’t guess how the demand destruction/production declines/new production will balance out in the next few years. Nor do I believe anyone else can make an accurate prediction. But I do know that in 5 years Saudi will set the price for their oil. And it may be $200+/bbl or $40/bbl. But it will be their choice. All we (and the rest of the world) can do to effect that decision is conserve more/drill more.

So, both groups out there can take your best shots at my ramblings. But remember, any assertions you make that demand destruction won’t overtake decline rates will be a duplicate of those made in 1979. No one…and I mean no one (all the big name economists, big oil, gov’t “experts”, etc) foretold even the slightest possibility of the demand destruction (not a term even used back then) that came to pass. In fact, if you were not predicting $100/bbl by 1990 you were deemed an idiot and were tossed to the curb.

I’m neither predicting $40 nor $200+ per bbl oil in a few years. I’m neither that arrogant nor stupid. I don't predict...I make models. I generate economic analysis of O&G drilling projects for a living. Right now we’re using $70 to $80/bbl in our price forecast (and it's equivalent for NG). If I threw $140/bbl into my analysis my bosses (who survived the mid 80’s) would run my ass off in a heart beat.

EnergyUnlimited · Fission Joined: May 15, 2006 Posts: 2989

DantesPeak

yesplease · Fission Joined: Oct 03, 2006 Posts: 2100

DantesPeak

yesplease · Fission Joined: Oct 03, 2006 Posts: 2100

How can I intentially misread something? Do you have any proof of these purchases, and how do they indicate that the dollar is losing value?
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DantesPeak

yesplease · Fission Joined: Oct 03, 2006 Posts: 2100

idiom