THE Energy Recession Thread (merged)

Lehyina · **Joined:** Wed Jan 12, 2005 1:00 am **Posts:** 104

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.

MD · **Posted:** Sun Aug 21, 2005 5:51 am

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.

aahala · **Joined:** Thu Feb 03, 2005 1:00 am **Posts:** 954

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. :-D

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.

skyemoor · **Posted:** Sun Aug 21, 2005 10:00 am

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.

markam · **Posted:** Sun Aug 21, 2005 10:39 am

Quote:

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,

But it uses more energy total

1973 75.71 Quadrillion Btu 358 million btu/person
2004 99.74 Quadrillion Btu 340 million btu/person

32% increase in total energy usage and only a 5% decrease in energy usage per person. The increase in GNP efficiency is total BS, since it doesn't account for the fact that much of manufacturing (and associated energy usage) is now overseas. The product is counted as part of the GDP, but the energy associated with has not.

All we did was switch energy sources over the last 30 years. We are using as much energy as ever. In order to keep up our energy usage, we are going to have to replace our oil and gas energy with renewables. There is no way in hell we will be able to use even half of what we are using now.

In 20 years, we will be at the energy usage per person of the early 20th century. Do you think that will cause some inconveniences?

jaws · **Joined:** Sun Apr 24, 2005 12:00 am **Posts:** 1253

seldom_seen wrote:

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.

If people are standing on the street corner unemployed then that means there is plenty of energy available for employment, human energy.

shady28 wrote:

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.

Things actually are different now. This is what the whole peak oil thing is about, remember? Things changing? The oil industry is at the highest level of strain it ever experienced. That will prevent a glut of oil in case of a worldwide recession.

falser · **Posted:** Sun Aug 21, 2005 1:35 pm

They will buy whatever oil the US doesn't. I don't see oil dropping much, if at all, due to a US recession. That will make the recession particularly tough on a lot of people and the US as a whole. But that's just my uneducated guess, I don't think anyone really knows.

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

i think it is safe to assume 3-10yrs out, oil will remain high.
I am thinking about a 1-2 yr drop in oil prices as the US
slides into recession.
Any other ideas ??

CARVER · **Posted:** Sun Aug 21, 2005 3:52 pm

First I have to say that I'm no economist or financial expert, but this is how I see it:

I'm not sure what the price of oil will do in the near future, it could go way up, or way down, but I think in all cases it will become very 'expensive' for most people (unless we would not have any use for it, which is very unlikely and it would probably be a very bad situation for a lot of people).

What is $300 a barrel when you make $30.000 a year? Very expensive?
What is $30 a barrel when you lose your job and thus have no income (and maybe no savings)? Very expensive? (I think this will be the result of a recession for a lot of people).

But if you want to invest in oil (futures and options) you also need to know what we'll be getting: (hyper) inflation or deflation. Maybe deflation and the higher value of oil will cancel eachother out so that the price of oil stays the same.

gary_malcolm · **Posted:** Sun Aug 21, 2005 3:56 pm

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.

This is incorrect. Somewhere, someone burned more fuel. Just because the cheap plastic crap wasn't manufactured in the U.S. doesn't mean that U.S. corporations did not profit from the manufacturing, or selling, or distribution. Overall the use of fossil fules has increased world wide. And so has the Global Gross Domestic Product.

Also we must be very careful when considering U.S. economic numbers and separate 'real' economy from the typical corporate swapping and laundering used to keep the NYMEX happy.

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

CARVER wrote:

First I have to say that I'm no economist or financial expert, but this is how I see it:

I'm not sure what the price of oil will do in the near future, it could go way up, or way down, but I think in all cases it will become very 'expensive' for most people (unless we would not have any use for it, which is very unlikely and it would probably be a very bad situation for a lot of people).

What is $300 a barrel when you make $30.000 a year? Very expensive?
What is $30 a barrel when you lose your job and thus have no income (and maybe no savings)? Very expensive? (I think this will be the result of a recession for a lot of people).

But if you want to invest in oil (futures and options) you also need to know what we'll be getting: (hyper) inflation or deflation. Maybe deflation and the higher value of oil will cancel eachother out so that the price of oil stays the same.

Yep, i guess if i knew the answer, I'd be rich.
In the 70's, as I 've read somewhere on this board,,,,
it was a supply crunch and oil price did not drop at all
during the 73 - recession stagflation.
This time, short term atleast, supply will be same,
but demand may drop in a recession.
So, what happens to oil , say 1 yr out ??

I'd imagine, as inflation kicks in(I mean a rapid devaluation
of the USD), all hard asset classes, esp oil will go up,
say 2-3 yrs into recession .
But during the start of the recession, say caused by housing crash,
demand will drop short term. So what happens when
supply does temporarily(if it even does) exceed demand
short term ???

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

gary_malcolm wrote:

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.

This is incorrect. Somewhere, someone burned more fuel. Just because the cheap plastic crap wasn't manufactured in the U.S. doesn't mean that U.S. corporations did not profit from the manufacturing, or selling, or distribution. Overall the use of fossil fules has increased world wide. And so has the Global Gross Domestic Product.

Also we must be very careful when considering U.S. economic numbers and separate 'real' economy from the typical corporate swapping and laundering used to keep the NYMEX happy.

You are absolutely correct Gary !!

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

drattom wrote:

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.

That's an excellent analysis. Don't be so humble

I particularly like the thought that as the dollar weakens, oil will appear to be getting more expensive, when in fact, the dollar is just losing it's purchasing power.

Many people fail to understand that inflation in price is a bare minimum requirement when natural resources become more and more scarce. People are not meant to continue shopping at Wal Mart, and the markets will not react to desire in the same way they do to demand backed by real money.

They'll continue to cater to the wealthy, and that is all. Corporations will continue to merge until gradually there is only one corporation left in any given sector. They will not need vast economies of scale that require a robust middle class. They will be utterly reliant on the upper class--and the govt will not interfere, at least not in the US.

Poverty WILL NOT curb inflation, nor will hiking interest rates. It's counterintuitive, as it hasn't happened in our own societies within living memory.

What is happening is not just a change in the economy but a change in actual status from first to third world.

I honestly think people can't get their minds around this.

oilluber · **Joined:** Sun Jul 03, 2005 12:00 am **Posts:** 489

hi threadbear, I do agree, eventually
oil will go up regardles, due to depreciation of
the USD. There is no doubt.
The only dilemma I have here is will oil drop initially
as futures traders realize that there is a recession
on the way and subsequent decline in demand ??
This is assuming the future traders do not factor in
inflation, also assuming that the USD is stable at
the early stages of the recession.
Oil futures can move quite violently in a few months,
we have yet to see that in the USD yet(contradicting
normal logic...... as the USD is supported by the
JApan and China)

threadbear · **Joined:** Sat Jan 22, 2005 1:00 am **Posts:** 7917

Wow, Good question Oilluber. I can't answer it very well, but maybe members can over at http://indexcalls.com/forums/index.php

Brian 4 and the other members labour at this stuff day in and day out and are extremely generous in imparting their combined centuries of wisdom with any who ask questions.

I think that there is a lot of speculative hype about peak oil at the present time,and that's mixed with genuine diminishing supply issues, so there will be some volatility, with the price perhaps taking fairly steep drops and then rocketing back up, relative to the dropping value of the dollar.

It ain't going to be purdy.

THE Energy Recession Thread (merged)

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