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Discussion: (34 comments)

  1. Jon Murphy

    That is one factor.

    Another is getting the oil to refineries. Oil in and of itself is useless. It needs to be refined. However, we lack the pipeline and rail capacity to get the amount of oil from Bakken, Eagle Ford, and others to refineries (a problem which will likely get worse in the near term.

    Another is the refineries themselves. The refineries are maxing out; they can’t handle the amount of oil coming their way. Some are expanding, and we have a few breaking ground, but their completions are a ways away, and are a long-term solution, but won’t help much in the near term.

    Of course, on the demand side, we do have China. China is becoming richer, and with it the demand for cars, which run on gasoline.

    1. hitssquad

      > China is becoming richer

      Evidence points to the contrary.

      1. Evidence points to the contrary.

        That particular evidence points to the glaring failure of central planning, and what can happen in the absence of market signals, but says nothing about whether China is becoming richer.

        There’s no disputing the fact of increased Chinese demand for oil, which relates to the topic of the post.

        Amazing that no one in that long video asked or attempted to answer the question of why such a huge disconnect between supply and demand exists.

        By the way, those who think government can create jobs can see what that really means. Tens of thousands of construction jobs, in these cases, but Where’s that magical “multiplier effect”?

        1. Jon Murphy

          That, Ron, and the number of people living in poverty in China has fallen dramatically.

      2. Jon Murphy

        I should say, Hit, that yes China is in a bubble and a correction is due, and in that correction some wealth will be lost (that is what happens in a recession, after all). But the standard of living in China is improving. Just as some wealth was lost in the Great Recession, but standard of living (aka Americans are richer) is higher than the 80′s, it’s the same in China.

    2. Environmentalists are keeping new refineries from opening and also demanding “boutique” blends of gasoline for different parts of the country. They need to admit there are costs to their beliefs.

  2. Actually it is falling to the surprise of everyone. Normally if you have major oil powers become unstable the price skyrockets. Russia might get in a with Ukraine and ISIS in Iraq is causing that supply to be in question. The price is actually falling – even though Europe is trying to rapidly fill reserves just in case the Russian supply should fail.

    This is credited to the stabity renewed USA production brings to the world market.
    http://www.telegraph.co.uk/finance/oilprices/11029810/Russia-vulnerable-as-oil-prices-hit-nine-month-low-on-IEA-glut-warnings.html
    Credit the

  3. Again the ‘real’ GDP error!

    Since oil price increases are measured in nominal terms, it should be indexed to NOMINAL GDP.

    The same goes for corporate earnings. No company reports two sets of earnings, one with inflation and one without.

    Financial media like CNBC are rife with statements like “How can earnings grow 8% if GDP grew 2%”, which in fact 2% was real GDP and nominal GDP was 4% (the measure that actually correlates to earnings).

    Plus, Prof. Perry’s point would be made more strongly with the more accurate metric : world nominal GDP.

    1. His point would be even stronger if oil prices weren’t rapidly falling, even amid all the current unrest. There is talk of $80 per barrel. Russia needs $110 oil to balance their budget and oil is currently at $104 – I wonder if this current drop is being engineered.

      1. Just like the price rise has been “engineered” for decades.
        We need to be sinking more money into the next generation of fuels not stuck in the fucking past….

    2. Jon Murphy

      None of that makes sense.

      1. Because you have no grasp of the fact that the oil data provided is nominal (i.e. not inflation-adjusted), but the GDP data provided is inflation-adjusted.

        Hence, it is not apples-to-apples.

        You are too fixated on the word ‘real’, when in fact nominal GDP would be more appropriate to use here (and would make his point stronger anyway).

        1. Jon Murphy

          Actually, I’m fixated on the fact the oil data provided is in output, not prices.

          That, and “nominal” does not measure activity.

          Your objection is invalid.

          1. Nominal GDP is a purer measure of activity in relation to oil, since the oil price rise is not inflation-adjusted, which means GDP should not be.

            You don’t understand the difference between nominal and ‘real’ GDP, do you?

            It is ok to request an education, if you ask nicely.

          2. Jon Murphy

            Nominal GDP is a purer measure of activity in relation to oil

            Nope. Not even close.

            Nominal is never a purer measure of activity. It is, simply by its calculation, a weaker measure, even compared with other nominal series.

            Besides, stop this weird obsession with the oil price. That is NOT what is measured here. What is measured here is output in barrels per day. Actual, physical output.

            Look, since you clearly aren’t getting this allow me to explain:

            In this case, GDP is being used as a proxy for oil demand. and oil output in barrels per day (bpd) is being used as a proxy for oil supply. You want, nay need, GDP to be in real terms in order to accurately capture the change in production level. Nominal does not accurately give you that.

            Nominal is not used in economic analyses because it is, for all intents and purposes, useless. Too much noise as to ascertain what is real movement and what is simply inflation-driven.

            Look, this is simple Econ 101 stuff. If you need a refresher, I’d be glad to point you to some easy-to-read (and free) sources.

          3. So, Jon,

            What (nominal) percentage of your estimated (real) life span did you waste by writing those last 2 comments?

            :)

          4. Oops! Sorry, I see I spoke too soon. You’re not finished.

          5. Jon Murphy

            I’m never finished.

            Good economists never die. We just turn into ghosts and haunt the crap out of you for the rest of eternity.

          6. Jon

            Good economists never die. We just turn into ghosts and haunt the crap out of you for the rest of eternity.

            Yikes! If that’s true, the ghosts of Say and Bastiat, among others appear to have their work cut out for them.

            Please keep up the good work here, even if some of it is wasted.

          7. You don’t understand the difference between nominal and ‘real’ GDP, do you?

            WRT oil output, apparently I don’t either.

            It is ok to request an education, if you ask nicely.

            OK, Mr. Toads: Please explain the difference between nominal barrels of oil and real barrels of oil.

            Oh, and please don’t use the term “dollars” in your explanation.

        2. The oil is in % increase. So we are comparing % increase in output against nominal rise in GDP. Oil and GDP don’t necessary go together however. The USA for instance has grown GDP for a long time now without increasing oil inputs.

          But this is all moot because the oil production increases are now going up enough where the price of oil at least is dropping and may go to as low as $80 per bbl in the near future.

          1. So we are comparing % increase in output against nominal rise in GDP.

            We SHOULD be. But the chart lists ‘real’ GDP, not nominal.

            % rise in output has to be nominal, not ‘real’, because oil is also charted in nominal terms.

          2. Jon Murphy

            because oil is also charted in nominal terms.

            Uh…no…no it’s not. Output, physical output, is in “real” terms.

    3. I’ve added the increase in nominal GDP to the chart and discussion. As Jon Murphy has pointed out, the original comparison was between: a) real economic output as a proxy for energy demand and b) the real supply of world oil production measured in barrels per day. In that case, I’m not sure nominal GDP would be appropriate, but I’ve added it anyway….

    4. morganovich

      “Since oil price increases are measured in nominal terms, it should be indexed to NOMINAL GDP.”

      actually, no, you are the one making an error.

      let’s say that a 10 pounds of plastic uses 1 gallon of oil to make.

      thus, an economy that makes 100 pounds of plastic uses 10 gallons.

      THAT is what is relevant: oil as related to what is actually produced.

      if the price of plastic doubled and thus, nominal gdp doubled, it would still be 100 pounds of plastic and need 10 gallons of oil.

      oil is an input for the production of real goods. thus, the price level for those goods is not relevant to it’s consumption.

      thus, using nominal gdp is precisely wrong here and would make the comparison useless.

      we are interested in the change of output in units, not in dollars.

      you have your units wrong here toads.

      the maroon line is world oil output.

      it is measured in barrels, not dollars.

      thus, it should be compared to GDP also measured in units of output (real gdp) not dollars.

      1. morganovich

        ah, sorry, did not read it all before commenting and seeing others address the issue.

        bottom line:

        toads, you have it wrong.

        you are the one who does not understand the difference between real and nominal.

        change in oil output in barrels is real, not nominal.

        thus, it should be compared to a real number.

        jon is being very patient and trying to teach you econ 101 stuff.

        rather than blustering and making a fool of yourself, i would recommend listening to him.

        i would also recommend that you read the chart and text again more carefully.

        the rise in oil is NOT the rise in oil price.

        it’s the rise in the production of oil, measured in barrels.

  4. hitssquad

    > World demand for oil and energy is up significantly

    …Because of the China Bubble. Which bubble is about to pop.

  5. While world ‘real’ GDP has risen 24.2%, world nominal GDP has risen about 60%.

    Since the oil data is nominal all the way through, the 4.6% rise in oil production has to be matched against the 60% rise in world nominal GDP.

    1. Oil production is “real” measured in physical units (barrels per day). For physical units of measurement, there is no “nominal vs. real” issue or distinction.

      Unadjusted oil prices would be a nominal measure, which could be adjusted for inflation in real, or constant dollars. You can only have a “nominal vs. real” issue when the variable is measured in dollars.

      1. Toads

        Since the oil data is nominal all the way through, the 4.6% rise in oil production has to be matched against the 60% rise in world nominal GDP.

        If oil is measured in nominal terms, are you saying it’s necessary to adjust for changes in the size of a barrel over time to get the “real” numbers for oil production?

        I understand adjusting for the changing value of *dollars* over time, but I wasn’t aware that the relative size of *barrels* had ever changed. If they haven’t, why is there any need to use a term like “nominal” to describe a number of barrels? Aren’t the numbers “real”?

  6. Remember, there is also biofuel production and production of oil from natural gas condensates. There are even some gas to liquid and coal to liquid refineries out there. At $100+ a barrel we may have hit a Peak Demand but not Peak Supply for liquid fuels.
    There has been an incredible run of bad luck for production—Venezuela, Mexico, Iraq, Iran, Nigeria, Russia—thug states.
    I wonder how long shale will boom. The charts are amazing.

  7. I remember years ago that these new sources of energy, shale, fracking, oil sands in Canada etc. were deemed too expensive to go after because the price of oil wasn’t high enough to make it worthwhile. Therefore, the oil price has to stay high to make it worthwhile. It’s artificial. Let’s not kid anybody, the energy companies are all up into the speculators that drive the market.

    1. If your first 2 sentences are correct your 3rd can’t be or vice versa.

  8. Tom

    It’s artificial. Let’s not kid anybody, the energy companies are all up into the speculators that drive the market.

    Why would you assume that? Do you believe shale sources are no longer too expensive to produce at the oil prices of years ago?

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