[Pops]

If dramatically falling oil price itself makes inflation negative it isn't a predictor or indicator of inflation at all, it's just a measure of oil price.

It is a circular reference.

[Pops]

I think high oil prices have caused slow and negative growth. The fact that China and other developing countries put a huge burden on commodity supplies of all kinds since 2000 is no secret. That they overreached and now demand is down and high prices managed to rustle up a few extra bbls per day and have freaked out the pin-striped gamblers forcing prices are down shouldn't be any big mystery.

If high and rising oil prices signal the end of the world, and plateaued oil pricing signals the end of the world and now falling prices signal the end of the world, I think someone has their signals messed up.

[Pops]

because the economy doesn't run on sugar, I thought that was a given

[Pops]

(and the energy returned from its production has declined to such a degree)

I'm still waiting for some evidence for this hyperbole.

Really, at best a ICE vehicle is 10%, maybe 15% efficient well to wheels, but that is never talked about in the hyperbole over eroei.

We spend too much money on oil

But the title says falling oil price indicates deflation?
Shouldn't falling price signal increasing productivity?

[Pops]

You still don't understand eroei.

Ah, my ignorance is the reason you cannot make the argument.

Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.

So then the bottom line is that a drop in oil price indicates a deflationary spiral. Such as in the late 1990s or mid 1980s.
Correct?

[Observerbrb]

I don't think low oil prices are good when the average breakeven price of the oil industry is 50 USD. That means right now that 50% of oil producers are running on losses.

I really liked how you share your views here. I love to see my views challenged, but I still don't get why the situation mentioned above is good in the medium term for us. I would appreciate any comment on this issue.

Regards,

[dolanbaker]

The price of oil may have halved in USD terms, but the price of fuel to the end consumers in nany countries has not dropped nearly as much, for example in Ireland the price of petrol before the devaluation was €1.50 a litre now it is €1.25 not a huge drop.

Two main factors, one the exchange rate has seen the USD rise substantially relative to the EUR and taxes are extremely high, if petrol costs nothing we'd still have to pay €0.90 for it!

The deflation here is more to do with stagnant wages & economic activity than the collapse in oil prices which may take about a year to feed in through the system.

[dolanbaker]

But why are wages and economic activity stagnating? It's pretty difficult to blame the mortgage crises and housing collapse all these years later.

The EU never really recovered from the last crisis and many are still heavily in debt, unemployment is still at record levels in many countries.

Ireland has recovered a bit, but much of that is down to the favourable corporate tax rate that is allowing US companies to headquarter here while trading in the EU.

[Pops]

brb, low prices are not good or bad really, they are simply a fact of life in the oil business, boom/bust and all that. They are the result of 4 years of record high prices that have reduced consumption and increased production and currently have the markets spooked - even current spot markets take the future into account and right now they are not sure what happens tomorrow.

All the popular falderal about oil having too little net energy to be useful lately is just another grasping at straws - specifically the one that breaks the camel's back, LOL

The most obvious bit of evidence that the current price panic does not and will not signal the eroi deflation that crushes capitalism:
... the oil price is falling. If oil took too much energy to extract, the price of oil would reflect that higher energy input and the price would be higher rather than lower.

If eroi falls to some critical level, the inability of consumers to pay the higher price to extract and refine will make some oil unprofitable and that supply will fail. Consequently the price will continue at the higher level even with lower consumption. There will be no need to consult the tea leaves, oil prices will stay just as high as the economy allows and the supply will fall - even though resources may be available they just won't be profitable until consumers adjust their usage to receive more utility.

Continuing at that level will see conservation not yet practiced become common. I've been ranting lately that Americans drive 36 miles 7/365 and they do it mostly alone - I just won't be convinced that we cannot function without that amount of waste.

[Pops]

But why are wages and economic activity stagnating? It's pretty difficult to blame the mortgage crises and housing collapse all these years later.

LOL, high oil price.