[ohanian]

Look at this

The record close on the New York Mercantile Exchange was set last October at $55.17 a barrel, although prices would have to surpass $90 a barrel to meet the inflation-adjusted peak set in 1980.

First I was told that current price have to surpass $70 / barrel to match the peak set in 1980. Next I was told it is $80 per barrel. And NOW I'm told it is $90 per barrel. My question is this "What the ukfc???"

[Colorado-Valley]

I've read that oil at or over $60 a barrel for any sustained time will send the world into recession.

Oil at $90 is probably "turn out the lights, the party's over."

[Liamj]

Gotta move those goal posts Ohanian, else the PTB would have to 'do something' when price bowls thru their threshold. Since they don't WANT to do anything, and its debatable what they could do anyway, its much easier to keep deferring the 'point of impact', regardless of what was said last week, never mind last year.

You see any of our 'free and independent media' calling the bullshitters on their bullshit? i don't think so, cos then they'd lose access, the chance to ask ANY questions, invites onto the pres's plane etc.

If you're new to the memory hole phenomena of modern media you may be shocked, but rest assured its business as usual. E.g. Cast yr mind back to why the US invaded Iraq (WMD? Free the Iraqi's? Save the Kurds? Advance democracy in M.East? Excuses change with the seasons, prob via focus groups relaying data on the crumbling of the various cover stories.

[lowem]

I guess it all depends on how they define inflation over the years.

*shrug* Anywhere between $70-80 might be a good point for the starting of TSHTF.

[OilsNotWell]

Relax. You are merely witnessing the now (as in post 1913) shrinking of the value of the dollar due to inflation...That figure has gone up dramatically because the dollar's value has declined 40% in the last three years, as you might have noticed. Also notice how Buffet made $1.6BILLION on his bet against the dollar for the last four months of 2004??

Of course, the Federal Reserve cartel and other banksters, the complicit governing structure (and ultimately WE THE PEOPLE by our lack of holding people and institutions accountible) are responsible by this fiat currency, but most either don't notice it or don't seem to care...

I don't think $90 oil (which is what the price of oil in today's dollars would have to be in inflation-adjusted terms to compare with high in 1979) would be catatrophic. Oil HAS to be priced however to induce change and it's the preferred means to ration consumption...

Lots of reading can be done on this subject, have at it.

And, I agree with you Liam, all that price quote does is get people to not get too alarmed, be complacent...an old trick really...like how OPEC just prepared the market and the world for the possibility of $80 oil soon...

I am sure I am saying too much, because I need time to prepare, and time's running out...

[eastbay]

Ok, I'll stick my neck out here...lol, I say $60.00 by the end of this week.

EastBay

[chargrove]

Why do inflation-adjusted dollars keep getting brought up in relation to the oil price threshold? I thought that whole thing was just a reporting trick to put most peoples' minds at ease, i.e. those people who don't really understand economics all that well.

It was my understanding that price adjustment for inflation depends on how far along the production-consumption chain the given product is, i.e. that things closer to the beginning of the chain do not get adjusted while things at the very end of the chain (retail consumer goods) get full adjustment, since the latter have had to endure the inflation impact along the way to market (in transport costs, or labor costs when changing hands or repackaging, etc). Think about how most goods get from their source and into your home, and you can see how all the inflation-related pennies add up.

From this point of view, raw energy prices are something that should not suffer hardly any inflation adjustment. So why does this keep getting brought up? It seems like trying to alleviate fears related to oil prices by talking about them in inflated-adjusted terms could be a very dangerous thing since it could justify further price increases, supporting a feedback loop that really should not exist if we want any hope of coming out of this smoothly.

[OilsNotWell]

From this point of view, raw energy prices are something that should not suffer hardly any inflation adjustment. So why does this keep getting brought up?

You have an interesting point. Although I am certainly not an economist, I would venture to state that the "value of a dollar" is really about its purchasing power...and it doesn't matter what one is purchasing...widgets or the raw energy used to produce them..

So, the purchasing power of our mythical dollar today, in buying say, raw energy, crude oil, or what have you, is still greater than the amount of crude oil it would have bought in Jan 1980.... No difference made between raw energy or what we bought farther on down the manufacturing chain...

Said another way, even though the dollar is worth less today (buys less stuff), we still are getting a better deal on crude oil than in '79...which of course, were the highest of all time..

What these quotes seem to be saying is: "Don't worry. You're still paying less for oil than you did at its highest, and oil is still a good value in that sense." Yessir.

What's even funnier, I think, is that if the value of a dollar in comparison to other currencies (that competitive devaluation thing...) continues to decline...AND it buys us less stuff...the rate of dollar decline may actually outpace the rise in raw energy prices..So the goalposts of inflation-adjusted '79-'80 crude prices get continually higher...like $100, $110, etc....keepin' folks complacent....

A lot has been written that the rise in energy prices lately may be just a reflection of the drop in the dollar...For instance, the price of oil in Euros has risen far less than what it is in dollar terms...

[Colorado-Valley]

I think the real problem is that if working-class people barely making their mortgage payments have to start paying $3 a gallon to commute long distances to work, there's going to be pain.

And there's a lot of people working at minimun-wage jobs in this country.

[Outcast_Searcher]

I still predict that prices are going to run away and crash the economy before too long.

And roughly how high do you believe those prices are?

Clearly near $100 didn't do it 2010 - 2014.

Clearly near $150 didn't do it in 2008, though it did begin to apply some stress. Though, given all the problems caused by the real estate crash, it's hard to evaluate that. Also, 2008 was the culmination of a big spike -- not sustained prices near $150 (which inflation adjusted would be roughly 18% higher, or about $177 today).

....

Since a strong global economy drives higher oil demand, wouldn't such a "crash" be self-correcting? Or do you see this crash as "the big one" that essentially destroys the global economy?

Clearly you continue to conveniently ignore the $trillions in funny money pumped into economies after 2008.

So I ask simple questions about your prediction. Not tricky questions. Not sarcastic questions. All I do is throw a bit of pricing context in.

And you can't even try to answer them, just throw out FUD about "funny money". OK. So why should anyone even consider taking your prediction seriously?

[Outcast_Searcher]

If it wasn't steady before any arrests were made why in the world would it be steady afterwards?

At the time I saw this, I assumed it was meant in the context that it wouldn't cause a large immediate price move, in and of itself.

Of course, I saw other predictions of big price changes from it, and my assumption could certainly be wrong.

[tita]

I was looking at data (bp statistics and world bank) about what represent the oil expenses (consumption x oil price) against the nominal global GDP between 1965 and today all in US$. It's a bit the same as looking the inflation-adapted crude oil price, but doesn't tell the same story. It is more direct.

Between 1965 and 1970 (and probably prior to that, but no data), the price was stable... And oil costs represented a steady 1% of the GDP... But then, things became different. The US bailed the Bretton-Woods system while US$ stayed the trading currency for oil, although a floating currency. IMHO, this is the main cause of the two oil shocks of the seventies.

On average, between 1970 and 2016, the oil costs represented 3.24% of the GDP.

Between 1974 and 1985, they represented 5.29% of the GDP on average. This was a fast change (1.46% to 4.38% between 1973 and 1974), which resulted in a slower growth for two years. The economy just adapted to these costs and growth returned in 1976. But in 1979-1980, this was even 7.5%. This led to another slower growth... And another adaptation in 1983. These two oil shocks economic consequences were mixed, some countries entering recession while others took advantage. This triggered also debates about energy efficiency and new sources of energy.

Between 1986 and 2004, oil prices returned to low level, and oil costs represented 1.83% of GDP on average. The consequences were again mixed... Growth didn't returned to its pre-70 level, and a few crisis happened (fall of USSR, asian crisis, internet bubble). In 1998, oil costs represented 1.1% of GDP, which is the lowest seen since 1970.

Between 2005 and 2014, oil costs represented 4.24% on average (max 5% in 2011). This is less than what happened in the 70's, but more than the 1986-2004 era.

Oil costs returned to 2% of GDP in 2015-2016, similar to the 1986-2004 period.

There is a correlation between oil consumption and growth, but not with the costs. Low oil prices didn't make growth increase, and high prices didn't cut growth in the last decade. A fast change in oil prices can affect growth and consumption for a few years, but a slow increase don't. We were also far from the costs spike of 1979-1980. We would need something like 170$ on two years average for oil costs to be at 7-8% of GDP.

So, in conclusion, the risk of oil on economic growth is supply disruptions (which of course end up with price increase). A slow increase of the price, even at 100-120$ won't affect growth if supply follows. This feels a bit obvious, but... not so much for everybody.

[ROCKMAN]

tita - "Between 1965 and 1970 (and probably prior to that, but no data), the price was stable...". Actually the price was stable throughout the 50's. This was due to the Texas Rail Road Commission controlling our oil output with its proration regulations to force price stability. And as THE global exporter during that period the TRRC was the only truly effective oil production "cartel" that has ever consisted. And ignoring a couple of peaks relatively stable since the late 1800's. US 155 year oil price trends adjusted for inflation:

http://www.businessinsider.com/timeline ... es-2016-12

[Outcast_Searcher]

I was looking at data (bp statistics and world bank) about what represent the oil expenses (consumption x oil price) against the nominal global GDP between 1965 and today all in US$. It's a bit the same as looking the inflation-adapted crude oil price, but doesn't tell the same story. It is more direct.

...

So, in conclusion, the risk of oil on economic growth is supply disruptions (which of course end up with price increase). A slow increase of the price, even at 100-120$ won't affect growth if supply follows. This feels a bit obvious, but... not so much for everybody.

Nicely done. Objective, data based, and as you say, more direct than merely looking at the oil price, as far as overall economic impact.

Given the experience of 2010-2014, your conclusion seems a bit obvious, but as you imply, for some folks (who ignore real world economics) -- the obvious is ignored.

The point about the 2015-2016 percentage being on the low end of the range for the past several decades SHOULD be an OBVIOUS flag to those who claim "people can't afford oil based products at current oil prices". But again, the intersection of economic reality (real world data) and impacting such folks' beliefs is pretty much an empty set.

[Subjectivist]

If it wasn't steady before any arrests were made why in the world would it be steady afterwards?

At the time I saw this, I assumed it was meant in the context that it wouldn't cause a large immediate price move, in and of itself.

Of course, I saw other predictions of big price changes from it, and my assumption could certainly be wrong.

You are correct sir, that is exactly what I was trying to say.

[Tanada]

The price of US crude oil futures are selling at $57.17 per barrel. The contract was higher by $.36 or 0.63%.
The high price extended to the $57.53 while the low reached $56.69.

Saudi political shakeup is being cited as the reason for the rise.

Of note was that the DOE reported yesterday that US production surpassed 2015 high production levels. That ran counter to the rig count last week that saw a dip in rigs.

Higher supply should mean lower prices, but remember it is only one producer and the talk out of the Saudi's is they want to keep a lid on the production going forward.

For today, the buyers won and keep control.

Article

[GoghGoner]

Oil at $70/barrel already a reality for some as Asian premium bites

Demand for short-haul grades has increased after the Brent oil market structure (LCOc1-LCOc2) flipped into backwardation, when prompt prices are more than later prices. That means the value of the crude drops over the course of the voyage.

The refiners are willing to pay up for the Australian and Malaysian crudes rather than incur the additional time and cost of shipping Brent supplies from the North Sea, the traders said.

[Tanada]

Oil at $70/barrel already a reality for some as Asian premium bites

Demand for short-haul grades has increased after the Brent oil market structure (LCOc1-LCOc2) flipped into backwardation, when prompt prices are more than later prices. That means the value of the crude drops over the course of the voyage.

The refiners are willing to pay up for the Australian and Malaysian crudes rather than incur the additional time and cost of shipping Brent supplies from the North Sea, the traders said.

There is an additional factor in that calculation. While the futures market says those Brent prices will still be lower after shipping the buyers may believe that with current trends those Brent prices will have risen during the time span of the journey. Shipping oil from Europe to Asia is not a trivial distance, you are talking at least a couple weeks and more likely three or four with five or six not being an unheard of outcome. In the mean time they can buy more locally produced crude at a premium and get the oil quickly before the price shifts. Over time this will put pressure on shippers to either greatly discount long haul contracts to ensure a price advantage, or shift as much as possible to local production so that shipping delays are not a factor.

In a relatively stable price regime like the 2010-2014 period shipping is just a cost added to the crude price, but in volatile situations it adds a serious financial risk.

[vtsnowedin]

You mean to tell me these guys load up two million barrels of oil in a super tanker and ship it half way around the world without having agreed to the price on delivery and having a firm contract that keeps the shipper whole if the price drops during transit and the buyer whole if the price rises?
Hell of a way to run a business.

[Tanada]

You mean to tell me these guys load up two million barrels of oil in a super tanker and ship it half way around the world without having agreed to the price on delivery and having a firm contract that keeps the shipper whole if the price drops during transit and the buyer whole if the price rises?
Hell of a way to run a business.

No, but the shipper and the refiner are not the same person in most cases. If the shipper gets a Brent Contract and the price rises substantially during transit they can then jack up the delivery price to the refiner as pure profit. From the POV of the refiner contracting for oil that is only in transit a short time at a known price means they probably pay what they expected to pay on delivery, but if they contract for oil far away but of the same API their refinery is tuned for they might get caught in the greed loop of the shipping agent.