[ralfy]

I have to reluctantly disagree with ROCKMAN on this one. The terms cheap and expensive re relative to the income of the people doing the buying and how much they value whatever it is they are buying.

Therefore if the world consumer on the whole was willing to pay $90/bbl in 2010-2014 and now only has to pay $45/bbl oil is cheap. The fact that they are still paying more inflation adjusted than they were in 2006, or 1996 or 1986 is of academic interest, but it does not effect their day to day lives in a way anyone outside of the economics world view sees. Yes they have proportionally less cash to spend on other things than they did 1, 2, 3 decades ago, but the long term trend has been going that direction since the 1950's. The rate of change outside of the shocks and bubbles along the way has been slow enough to escape individual notice.

I think most consumers earn less than $10 a day and barely have access to one or more basic needs. Public services, infrastructure, etc., are also weak overall.

[Tanada]

I have to reluctantly disagree with ROCKMAN on this one. The terms cheap and expensive re relative to the income of the people doing the buying and how much they value whatever it is they are buying.

Therefore if the world consumer on the whole was willing to pay $90/bbl in 2010-2014 and now only has to pay $45/bbl oil is cheap. The fact that they are still paying more inflation adjusted than they were in 2006, or 1996 or 1986 is of academic interest, but it does not effect their day to day lives in a way anyone outside of the economics world view sees. Yes they have proportionally less cash to spend on other things than they did 1, 2, 3 decades ago, but the long term trend has been going that direction since the 1950's. The rate of change outside of the shocks and bubbles along the way has been slow enough to escape individual notice.

I think most consumers earn less than $10 a day and barely have access to one or more basic needs. Public services, infrastructure, etc., are also weak overall.

None of which changes the fact that they were buying 85 to 90 million bl/d of petroleum. That is my basic point, prices of $85-$105/bbl did not significantly reduce world crude oil production or consumption. Prices under those levels have encouraged increased consumption. But even at $105/bbl year over year consumption on a world wide basis was still increasing.

[Outcast_Searcher]

I think most consumers earn less than $10 a day and barely have access to one or more basic needs. Public services, infrastructure, etc., are also weak overall.

So you're talking third world, at least mostly?

Not the people driving around in big SUV's and buying 20+ gallons a week of gasoline then. Or most likely, not directly buying oil products at all (perhaps riding a bus now and then).

So how does this bear meaningfully on the overall affordability of oil at $45 a barrel vs. $90ish recently?

I don't think the people saying that if oil was affordable in recent years at around $90 a barrel, then it is certainly affordable now at half that are claiming that third world incomes are soaring.

[Outcast_Searcher]

"First Rock, why cherry pick 1998?" The Rockman didn't cherry pick anything. Read the post again: T picked 1998 for comparison and STATED that the difference between prices then and now would have little impact on the public.

Do you think $125 BILLION in HIGHER fuel cost has an insignificant effect on the economy especially given a large portion of those monies were transferred to foreign companies?

So do you claim that 1998 and $17 was typical for US oil prices for the past 70 years? Or do you admit the chart I posted the link to has the inflation adjusted price of oil about right at over $40 or over $53 on average, for multiple recent decades, depending on the timeframe? (I think 36 years or 70 years of average inflation adjusted prices is a lot more meaningful than the lowest unadjusted price blip you can find).

Do you acknowledge that the energy intensity of first world economies is declining year by year, and by a lot decade by decade? (For example, the US fleet is getting better mileage, especially among newer cars, due to stricter CAFE standards -- so a gallon of gasoline provides the driver of a small fuel efficient car (i.e. someone watching their wallet) more mileage on average.)

...

If not, then your argument may appeal to doomers, but ignores economic reality.

[ralfy]

None of which changes the fact that they were buying 85 to 90 million bl/d of petroleum. That is my basic point, prices of $85-$105/bbl did not significantly reduce world crude oil production or consumption. Prices under those levels have encouraged increased consumption. But even at $105/bbl year over year consumption on a world wide basis was still increasing.

I don't think consumption went up because oil prices went up. Rather, consumption went up because of increasing population and numbers requiring more health care, etc.

The problem is that with limited disposable income either debt levels have to rise or sacrifices will have to be made when it comes to middle class conveniences. The former leads to financial instability and the latter to lower sales for various businesses, which in turn affects employment.

[ralfy]

I think most consumers earn less than $10 a day and barely have access to one or more basic needs. Public services, infrastructure, etc., are also weak overall.

So you're talking third world, at least mostly?

Not the people driving around in big SUV's and buying 20+ gallons a week of gasoline then. Or most likely, not directly buying oil products at all (perhaps riding a bus now and then).

So how does this bear meaningfully on the overall affordability of oil at $45 a barrel vs. $90ish recently?

I don't think the people saying that if oil was affordable in recent years at around $90 a barrel, then it is certainly affordable now at half that are claiming that third world incomes are soaring.

I don't think income levels worldwide have been soaring for most people. From what I gathered, the increase went up from a dollar to around three or four a day, but that took several decades. In order to support a growing global middle class, a lot of credit probably had to be created, and even more to pay for more expensive oil.

At the same time, producers had to take on significant levels of debt to produce that oil, i.e., around half-a-trillion dollars in debt repayments that have to be made during the next five years. That doesn't include more debts needed to increase oil production further, and one that has involved diminishing returns.

Thus, what are we seeing is expensive oil, and not only in terms of price but in terms of production, and lots of credit needed to produce and buy it. A growing global middle class requires the opposite, but lower oil prices can't be sustained given high production costs. Meanwhile, debt levels have gone up, and even more debts have to be made to find less new oil each time.

[Outcast_Searcher]

there is a a very large, very dangerous world outside the United States. It has an impact on you, outcaste/ennui. That world of hurt has the stuff you/we need to survive. You both better start recognizing your connections and dealing with the consequences of peak oil. Or you will die.

I'm trembling all over pstarr. Does having a relatively tiny energy footprint compared to typical Americans count? Does having a miniscule energy footprint compared to Americans in my income cohort count? Does having a (globally and sector-wise) diversified investment portfolio, including significant amounts of energy resources, as a big hedge against rising prices count?

There are more ways to be prepared for the future than having a doomstead and preparing to shoot at zombies. There are far more reasoned arguments than pretending like everyone who doesn't believe in the always wrong fast crash doomer scenario will die any time now.

And last I checked, no one is claiming the US is the only country in the world. The global demand and consumption of oil is increasing year by year. The global GDP is increasing year by year.

Your arguments are becoming less coherent.

[ralfy]

I'm trembling all over pstarr. Does having a relatively tiny energy footprint compared to typical Americans count? Does having a miniscule energy footprint compared to Americans in my income cohort count? Does having a (globally and sector-wise) diversified investment portfolio, including significant amounts of energy resources, as a big hedge against rising prices count?

There are more ways to be prepared for the future than having a doomstead and preparing to shoot at zombies. There are far more reasoned arguments than pretending like everyone who doesn't believe in the always wrong fast crash doomer scenario will die any time now.

And last I checked, no one is claiming the US is the only country in the world. The global demand and consumption of oil is increasing year by year. The global GDP is increasing year by year.

Your arguments are becoming less coherent.

I think global GDP increase started slowing down after 2009.

[Outcast_Searcher]

I think most consumers earn less than $10 a day and barely have access to one or more basic needs. Public services, infrastructure, etc., are also weak overall.

So you're talking third world, at least mostly?

Not the people driving around in big SUV's and buying 20+ gallons a week of gasoline then. Or most likely, not directly buying oil products at all (perhaps riding a bus now and then).

So how does this bear meaningfully on the overall affordability of oil at $45 a barrel vs. $90ish recently?

I don't think the people saying that if oil was affordable in recent years at around $90 a barrel, then it is certainly affordable now at half that are claiming that third world incomes are soaring.

I don't think income levels worldwide have been soaring for most people. From what I gathered, the increase went up from a dollar to around three or four a day, but that took several decades. In order to support a growing global middle class, a lot of credit probably had to be created, and even more to pay for more expensive oil.

At the same time, producers had to take on significant levels of debt to produce that oil, i.e., around half-a-trillion dollars in debt repayments that have to be made during the next five years. That doesn't include more debts needed to increase oil production further, and one that has involved diminishing returns.

Thus, what are we seeing is expensive oil, and not only in terms of price but in terms of production, and lots of credit needed to produce and buy it. A growing global middle class requires the opposite, but lower oil prices can't be sustained given high production costs. Meanwhile, debt levels have gone up, and even more debts have to be made to find less new oil each time.

Are we talking about the middle class, or people that earn $4 a day?

The global GDP rises year after year. The global demand and consumption of oil rises year after year, whether oil is $45 a barrel or almost $100 a barrel.

Again, people who earn $4 a day (or whatever the figure of the global poor is) aren't buying massive amounts of oil now, or did they ever.

The middle class is paying off their cars over time. And they are affording higher housing costs instead of moving into cheaper housing. And they aren't declaring bankruptcy en masse over $2 gasoline.

....

So I think your only valid point is that there is lots of debt in the oil patch. Yup. And if oil prices stay low and lots of oil companies go bankrupt, then stronger hands will hold the oil and will produce it when prices rise enough to justify the risk of producing it. In the mean time, there is a global glut, and people are doing just fine motoring with $2 gas (plus the taxes at various places, same as it ever was).

And again, year after year, the global energy intensity per unit of GDP is declining in the first world, which means the middle class and wealthy get more energy for their money.

....

As Jesus said, the poor are with us always. That doesn't equate to people being unable to afford oil products moreso than in recent decades. The evidence is that people are MORE able to afford oil products and are stupidly buying large gas guzzling vehicles, larger homes, etc.

[ralfy]

Are we talking about the middle class, or people that earn $4 a day?

Those who earn around $4 a day, which make up the majority of the world's population. If we see most earning at least $10 a day, then we can probably argue that income levels have "soared."

The global GDP rises year after year. The global demand and consumption of oil rises year after year, whether oil is $45 a barrel or almost $100 a barrel.

The difference is that it had weakened for Japan, the U.S., and EU but increased for developing countries. I posted the data in another thread.

Again, people who earn $4 a day (or whatever the figure of the global poor is) aren't buying massive amounts of oil now, or did they ever.

Actually, it's the countries where they live that are buying more oil, in fact so much that they've offset drops in developed countries.

The middle class is paying off their cars over time. And they are affording higher housing costs instead of moving into cheaper housing. And they aren't declaring bankruptcy en masse over $2 gasoline.

....

Because significant amounts of credit had been created to offset crashes. The problem is that how will new debt be paid? In the case of the oil industry, they had to borrow over $500 billion to increase oil production. Not only do they need oil prices higher to pay off the debt during the next five years, they will have to borrow even more to find less oil each time.

So I think your only valid point is that there is lots of debt in the oil patch. Yup. And if oil prices stay low and lots of oil companies go bankrupt, then stronger hands will hold the oil and will produce it when prices rise enough to justify the risk of producing it. In the mean time, there is a global glut, and people are doing just fine motoring with $2 gas (plus the taxes at various places, same as it ever was).

Actually, that's not how oil companies work. That is, they don't "hold the oil" and sell if prices go up, as they have to continue making debt repayments as well as pay for wages, rentals, etc. If they don't sell, then they will have to take on more debt to pay for these expenses.

And again, year after year, the global energy intensity per unit of GDP is declining in the first world, which means the middle class and wealthy get more energy for their money.

It should given funny money creation. The catch is that oil consumption for the developing world is offsetting demand destruction in richer countries. And given diminishing returns, it is highly unlikely that "the middle class and the wealthy" will "get more energy for their money."

....

As Jesus said, the poor are with us always. That doesn't equate to people being unable to afford oil products moreso than in recent decades. The evidence is that people are MORE able to afford oil products and are stupidly buying large gas guzzling vehicles, larger homes, etc.

Exactly. And the ones who already have "large gas guzzling vehicles, larger homes, etc.", are relying on others to do the same because that's the only way they can continue generating income and returns on investment to pay for those vehicles, homes, etc.

Also, "large" and "larger" for more people worldwide means more energy and material resources, which is the opposite of diminishing returns.

Are you now starting to understand the problem?

[onlooker]

Some are refusing to see limits to growth though staring them in the face. Debt is masking the disequilibrium between the affordability of a middle class lifestyle and the capability of many to actually attain it without accessing ever more credit necessitating the generation of more energy and resource throughput even as the ability to do so becomes more expensive and difficult. Limits to growth as Ralfy expertly details