Recession Era Supplies

[gothwalk]

I've just posted a long-ish article to politicaledu about Recession Era Supplies. This is something I'd appreciate more thinking on, so even if you don't normally read my political/economic stuff (such as it is), please scoot on over, read, and leave comments if you think of something.

Comments

[giftederic.livejournal.com]

I'm more than a little dubious of the armageddon pronouncements of 'peak oil' believers. Its not there won't be a 'peak oil', its just that I believe the market will temper demand as prices rise. We are likely to see some effects of it, sure, but it is unlikely to be as overblown as many say. As prices rise for oil, so does investment in more sources of oil and alternatives for it. I actually like the fact that oil has gotten more expensive and I am not happy with the collapse in the oil price recently. (And I am guessing neither is Hugo Chavez, but that's a debate for another day).

Additionally, this quote from the notes on May 5ths offering: "I picture a post-petroleum future calling on the skills and wisdom of herbalists, botanists, homeopaths, midwives, as well as hands-only healers using reiki, acupuncture, chiropractics, etc." leaves me more than a little cold to her arguments. Its primarily the homeopathy and reiki that raise my eyebrow and make me think she's just your typical hippie...

[gothwalk.livejournal.com]

Some months ago, I'd have agreed, but I'm becoming more cautious of relying on the market to make sense of things. A pure market with supply and demand is one thing, but we haven't got that - we have stock markets, currency speculators, and other weirdness in there as well. I'm now starting to think that it's possible that oil prices will do really weird things in the next few years.

[giftederic.livejournal.com]

Stock markets are just indicators. In theory, the value of stocks is based on future profits, be they dividends or expectations that the value of the capital invested will rise. We see negative moves in the stock markets as evidence of poor sentiment amongst those who make a living day to day in that world. This has consequences in itself or course, but should not be read into too much. The markets have been allowed to get into a precarious position because there was widespread belief that the good times were going to continue rolling. Happily that bubble has been burst, and the markets are in the process of rolling back their general excessive leverage. This will of course have effects in the short to medium term on availablility of credit etc. But by and large, not the end of the world, just a correction as they like to say.

As regards oil and currency. Because oil is priced solely in dollars, the effects of currency movements has a major effect on the oil price as quoted by the media, but acually the price of oil is not moving by as much as one is led to believe, its recent plummet notwithstanding. The dollar was weak for sometime and this exaggerated the rise in the oil price. Now, in crisis, the dollar is in favor again, and the rise in the value of the dollar is now exaggerating the downward movements in the price of oil.

Because oil is bought on futures contracts there is always going to be an element of speculation to the price. And this has been exaggerated by sentiment too. All the talk of $200 oil etc has affected the markets expectations.

One thing is clear however, peak oil is still a ways off. Already OPEC members are turning off the taps hoping to get the price back to around $100. Currently supply outstrips demand.

This is partially because demand for oil from western countries has been plummeting in recent years. Down something like 10% over the last decade. The recent surge in oil prices will likely only have accelerated (like it it did in the 70's) the continuing drops in demand into the future. This is exactly how you would expect the market to react. So it seems to me that the market for oil is working reasonably well, at the moment.